South Carolina LLC Act
A South Carolina limited liability company is a separate legal entity that is governed by the South Carolina LLC Act. Title 33, Chapter 44 of the Uniform Limited Liability Company Act of 1996 governs those LLC’s that are formed in South Carolina. This statute sets out basic procedures and elements that are required to establish the LLC.
Mandatory vs Default Statutory LLC Provisions
While an LLC is very flexible in nature and has broad contractual freedom in its structure, operation, management, as well as other areas, South Carolina has certain mandatory provisions and default provisions. Mandatory provisions are those statutory rules that must be complied with by the LLC and its members. Default statutory provisions are rules that take effect if the LLC’s articles of organization or the South Carolina LLC operating agreement do not address a specific issue.
Nearly all of the statutory provisions governing the interrelationships among its members (and between members and the LLC as an entity) may be modified by the limited liability company agreement (aka operating agreement). The operating agreement is the essential contract that governs the affairs of a limited liability company and should be carefully addressed during the LLC formation process.
Section 33-44-103 of the SC limited liability company statute lists a number code sections which specifically cannot be changed by the operating agreement. The statute is reproduced below:
SECTION 33-44-103. Effect of operating agreement; nonwaivable provisions.
(a) Except as otherwise provided in subsection (b), all members of a limited liability company may enter into an operating agreement, which need not be in writing, to regulate the affairs of the company and the conduct of its business, and to govern relations among the members, managers, and company. To the extent the operating agreement does not otherwise provide, this chapter governs relations among the members, managers, and company.
(b) The operating agreement may not:
(1) unreasonably restrict a right to information or access to records under Section 33-44-408;
(2) eliminate the duty of loyalty under Section 33-44-409(b) or 33-44-603(b)(3), but the agreement may:
(i) identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable; and
(ii) specify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty;
(3) unreasonably reduce the duty of care under Section 33-44-409(c) or 33-44-603(b)(3);
(4) eliminate the obligation of good faith and fair dealing under Section 33-44-409(d), but the operating agreement may determine the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
(5) vary the right to expel a member in an event specified in Section 33-44-601(6);
(6) vary the requirement to wind up the limited liability company’s business in a case specified in Section 33-44-801(3) or (4); or
(7) restrict rights of a person, other than a manager, member, and transferee of a member’s distributional interest, under this chapter.
This section makes clear that the operating agreement may not: (1) limit a member’s right to inspect records, (2) eliminate certain fiduciary duties of the members, (3) vary the right to expel members, or (4) vary the duty to wind up the LLC in certain situations. Accordingly, an operating agreement may modify or alter most every other default rule except for those listed above.
Note, the South Carolina LLC statute does not cover every conceivable circumstance in which an LLC may face during its existence. Thus, our Charleston LLC formation attorneys take care in forming the LLC so adverse applications of the LLC Act default rules do not occur.
Contact Our Charleston LLC Formation Lawyers
Our Charleston business lawyers provide counsel and advice to those entrepreneurs, professionals and businesses who seeking to start a new company in South Carolina. We assist clients in everything from business entity selection during the formation process to the purchase of a business or sale of a business. For LLC formations in South Carolina, our law firm not only offer reasonable hourly fee arrangements, but also provide flat-fee or fixed-fee services for the majority of all newly formed LLCs.