So You Want to Be a Single-Member LLC in South Carolina?
If you are currently operating your business as a sole proprietor, you may have heard that you should "become an LLC."
What Is an LLC?
LLC stands for Limited Liability Company. Unlike a sole proprietorship, an LLC is a legal entity created under state law.
One of the primary benefits is limited liability protection. An LLC can help separate your personal assets from the liabilities of your business. However, an LLC is not a magic shield. Personal guarantees, negligence, fraud, and failure to properly maintain the separation between you and your business can still create personal liability.
How Do You Become an LLC in South Carolina?
1. Choose a business name. - $0
Your name must meet South Carolina's requirements and generally must be distinguishable from other registered businesses.
2. Choose a registered agent. - $0
Your LLC must have a registered agent and registered office in South Carolina. The registered agent can be you and the registered office can be your home or your business office.
3. File Articles of Organization (required) and get Certificate of Existence (optional) - $110 + $10
This is the filing that officially creates your LLC. You can file through the South Carolina Secretary of State.
4. Get an EIN.
An Employer Identification Number from the IRS is useful for banking, tax purposes, and other business activities.
5. Open a business bank account.
Keep your business finances separate from your personal finances. This is an important part of maintaining the distinction between you and your LLC.
6. Update your business records.
Update contracts, licenses, insurance, W-9s, invoices, payment accounts, and other documents to reflect the new LLC.
An LLC Does Not Automatically Change Your Taxes
This is one of the biggest misconceptions about LLCs.
If you form a single-member LLC, you can continue to be taxed as a sole proprietor. In that situation, the business income and expenses are still generally reported on Schedule C of your personal tax return.
In other words:
Sole Proprietor:You → Schedule C
Single-Member LLC:You → LLC → Schedule C
The legal structure changed, but the basic federal income-tax treatment may not have changed.
An LLC can, however, provide tax flexibility. Depending on the circumstances, an LLC may be eligible to elect taxation as an S corporation or another corporate structure.
That's where tax planning becomes important.
What an LLC Does NOT Do
An LLC does not automatically:
Save you income taxes.
Eliminate self-employment tax.
Protect you from every type of personal liability.
Eliminate the need for insurance.
Eliminate the need for good bookkeeping and recordkeeping.
The Bottom Line
Becoming an LLC in South Carolina is relatively simple, but forming an LLC and choosing how the business should be taxed are two different decisions.
Questions? Call, text or email me for more information.
Aaron Engleman, Enrolled Agent
Two Teachers’ Tax Service
269-449-8277
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