Converting Your South Carolina Sole Proprietorship to an LLC in 2024

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Convert South Carolina Sole Proprietorship to LLC

As a small business owner in South Carolina, you may have started your business as a sole proprietorship due to its simplicity and low initial costs. However, as your business grows, you may want to start an LLC in South Carolina, which is more suitable for your needs. Converting your South Carolina sole proprietorship to an LLC can protect your assets and optimize your business’s growth potential.

In this comprehensive guide, Webinarcare Editorial Team will walk you through the step-by-step process of Converting your South Carolina Sole Proprietorship to an LLC, enabling you to make an informed decision for your business.

How to Convert your South Carolina Sole Proprietorship to an LLC

What is a Sole Proprietorship and Limited Liability Company?

A sole proprietorship is the simplest and most common form of business ownership, where a single individual owns and operates the entire business. A sole proprietorship has no legal distinction between the owner and the business, meaning the owner is responsible for all the business’s debts, liabilities, and obligations. 

On the other hand, a Limited Liability Company (LLC) is a legal business structure that combines the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership. This means the owners, known as members, are not personally responsible for the company’s debts and liabilities. The company’s profits and losses are reported on the members’ tax returns. We reviewed some of the Best LLC Services and provided features as an add-on with their packages for you to check out.

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Having a sole properietorship had given you freedom and comfortability, but, starting an LLC in South Carolina has a lot to offer, which is why it is a highly recommended business structure. It is suggested that you speak with a legal professional first before you begin coverting your sole proprietorship to an LLC. They will understand what’s best for you and your company.

– WEBINARCARE EDITORIAL TEAM

Steps on Converting South Carolina Sole Proprietorship to an LLC

To convert South Carolina sole proprietorship to an LLC, you must follow the guidelines that include choosing a name for your LLC, appointing a Registered Agent, preparing for the Articles of Organization, creating an Operating Agreement, obtaining an EIN, opening a business bank account, registering for state tax and licenses, and lastly, informing clients and vendors of conversation.

Step 1: Choose A Name For Your LLC

The first step in converting your sole proprietorship to an LLC is selecting a unique and distinguishable name for your new entity. In South Carolina, there are specific naming requirements and restrictions that you must adhere to when choosing your LLC’s name:

  • The name must include “Limited Liability Company,” “LLC,” or “LLC.“
  • The name cannot include words or phrases that imply the company is engaged in activities it is not authorized to conduct.
  • The name must be distinct from other registered businesses in South Carolina.

In South Carolina, if you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for 120 days. You must file a name reservation application in the South Carolina Secretary of State to keep the name. 

You can register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire for your business. A DBA allows a company to operate under the name of the person or entity who owns it. If you have decided to file for South Carolina DBA, you can file it in two methods, by mail and in person. However, before filing a DBA, you should know that you need to renew your DBA from up to five years, which costs around $10.

You can check the availability of your desired business name by searching the South Carolina Secretary of State Business Filings Search‘s website.

Step 2: Appoint a Registered Agent

In South Carolina, all LLCs are required to appoint a Registered Agent. Registered Agent is a person or entity responsible for receiving and forwarding legal and tax documents on behalf of your South Carolina LLC, such as service of process, South Carolina Annual Report, and state tax notifications. Your Registered Agent must have a physical address in South Carolina and be available during regular business hours. In South Carolina, the cost of Registered Agent usually ranges from $50 – $150.

When selecting a Registered Agent, consider their reliability, knowledge of state requirements, and ability to manage sensitive legal documents. You can serve as your own Registered Agent, appoint another individual, or hire the Best Registered Agent Service.

Step 3: Prepare and File the South Carolina Articles of Organization

To officially form your South Carolina LLC, you must prepare and file South Carolina Articles of Organization with the South Carolina Secretary of State. The Articles of Organization is a legal document that outlines essential information about your  South Carolina LLC, including:

  • The LLC’s name
  • The Registered Agent’s name and address
  • The LLC’s purpose
  • The LLC’s duration (perpetual or for a specific term)
  • The names and addresses of the initial members or managers

In South Carolina, the filing fee for the Articles of Organization is $110. You can submit the document online through the South Carolina Secretary of State’s website or by mail. Processing times may vary, so check the website for current information.

Step 4: Create an Operating Agreement

Although not legally required, South Carolina Operating Agreement is a crucial document that outlines the structure, management, and financial arrangements of your South Carolina LLC. The operating agreement should include the following:

  • The roles and responsibilities of members and managers.
  • The process for admitting or removing members.
  • The allocation of profits and losses among members.
  • The procedure for making major decisions.
  • The process for dissolving the LLC.

Having a written South Carolina operating agreement can help prevent disputes and ensure a smooth operation of your LLC. It is advisable to work with South Carolina Business Attorney to draft an operating agreement that meets the specific needs of your business and complies with South Carolina laws.

Step 5: Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) in South Carolina, or Federal Tax Identification Number, is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify your business for tax purposes. With an EIN, you can open a business bank account, file tax returns, and hire employees.

To obtain an EIN for your South Carolina LLC, you can apply online on the IRS website, by mail, or by fax. The online application process is the fastest and most convenient method, as you will receive your EIN immediately upon completing the application. There is no fee to obtain an EIN.

The application of an EIN in South Carolina can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Recommended: Professional services have the EIN included in their LLC formation package. We recommend using –

LegalZoom – ($0 + State Fee for LLC formation)

Step 6: Opening of South Carolina Business Bank Account

When converting your sole proprietorship to an LLC, separating your personal and business finances is essential by opening a dedicated business bank account. South Carolina business bank account helps maintain limited liability protection and makes managing your business’s finances and taxes easier.

To open a business bank account in South Carolina, you will need the following documentation:

  • Your LLC’s Certificate of Formation
  • Your LLC’s EIN
  • Your LLC’s operating agreement (if applicable)
  • A resolution authorizing the opening of the account (if required by the bank)

You can check out the Best Banks in South Carolina, which offers the best fees, services, and convenience for your business needs.

Step 7: Register for South Carolina Taxes and Licenses

As an LLC in South Carolina, your business may be subject to various state taxes and licenses, depending on the nature of your operations. Common taxes and licenses include:

  • Sales Tax: If your LLC sells taxable goods or services, you must register for South Carolina sales tax permit and collect sales tax from your customers.
  • Employer Taxes: If your LLC has employees, you may be required to register for South Carolina unemployment insurance and workers’ compensation coverage.
  • Business License: South Carolina Business License is a legal document granted by a state government body that permits you to conduct business within the area under its jurisdiction. The price of business licenses and permits in South Carolina ranges from $50 – $300.

To ensure you comply with all applicable South Carolina tax and licensing requirements, you can check out the South Carolina Department of Revenue for more information.

Step 8: Inform Clients and Vendors of the Conversion

After converting your South Carolina sole proprietorship to an LLC, you must inform your clients, vendors, and other business contacts of the change. Update your contracts, invoices, and marketing materials with your new LLC name, and communicate the transition to ensure a smooth and professional process.

Ongoing Compliance For South Carolina LLCs

As an LLC in South Carolina, you are subject to ongoing compliance and reporting requirements, including:

  • Filing Annual Report with the South Carolina Secretary of State and pay the associated fee and which you can pay every 1 year.
  • Maintaining accurate and up-to-date records of your South Carolina LLC’s finances, meetings, and decisions. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in South Carolina.
  • Adhering to any industry-specific licensing and regulatory requirements.

Benefits of Converting South Carolina Sole Proprietorship to an LLC

In converting South Carolina Sole Proprietorship, there are benefits that you should consider. Here are the benefits you must know before converting your sole proprietorship:

Limited Liability Protection

Converting a sole proprietorship to an LLC provides limited liability protection for the business owner. This means that the owner’s assets (such as their home or car) are separate from the business assets and are protected from being seized to pay off business debts or in case of a lawsuit.

Credibility and Professionalism

South Carolina LLC can help improve the credibility and professionalism of the business. Many customers and suppliers prefer dealing with an LLC, which shows commitment and stability.

Tax Flexibility

With South Carolina LLC, you can choose how your business will be taxed. It can be taxed as a sole proprietorship, a partnership, or a corporation. This allows you to choose the tax structure that best fits your business and may result in potential tax savings.

Easier Access to Funding

South Carolina LLC may have an easier time obtaining funding from banks and investors than a sole proprietorship. Many lenders and investors prefer to work with an LLC, as it demonstrates a commitment to the business and provides legal protection.

Ownership and Management Flexibility

South Carolina LLC allows you to have multiple owners (called members) and to divide ownership and management responsibilities among them. This can make growing your business easier or bring in new partners.

Enhanced Privacy

In some states, such as South Carolina, an LLC can offer more privacy than a sole proprietorship. This is because the business owner’s personal information may not be as public as it would be with a sole proprietorship.

Easier Transfer of Ownership

With South Carolina LLC, transferring business ownership to another person or entity is generally easier. This can be beneficial if you decide to sell your business, bring on new partners, or plan for succession.

Continuity of Existence

Unlike a sole proprietorship, which ceases to exist upon the death or incapacity of the owner, South Carolina LLC can continue to operate even if the owner passes away or becomes incapacitated. This provides stability and continuity for the business and its employees.

Compliance with South Carolina Requirements

Some states require certain types of businesses, such as those in the professional services industry, to operate as South Carolina LLC or another corporate entity. Converting your sole proprietorship to an LLC in South Carolina ensures that your business complies with these regulations and avoids potential legal issues.

Access to Additional Benefits

South Carolina LLC may be eligible for additional benefits, such as state-specific tax incentives or credits, not available to sole proprietorships. These benefits can help reduce your tax burden and support the growth of your business.

In summary, converting a sole proprietorship to an LLC in South Carolina can provide significant benefits, including limited liability protection, tax flexibility, increased credibility, and easier access to funding. It’s essential to carefully consider these advantages and consult with a legal or tax professional before deciding to convert your business structure.

FAQs

Why should I convert my South Carolina sole proprietorship to an LLC?
By forming an LLC, you limit your personal liability and the company becomes a separate legal entity that has its own rights and liabilities.
Is it mandatory to convert my South Carolina sole proprietorship into an LLC?
No, it is not mandatory, but it is advisable for many reasons.
What are the steps to follow for the conversion?
You need to file articles of organization with the South Carolina Secretary of State and obtain necessary permits and licenses based on the nature of your business.
What is the cost of registering a South Carolina LLC?
The filing fee is $110, and you may require professional assistance to prepare the paperwork.
Do I need to display my South Carolina LLC’s registration number somewhere?
Yes, you need to include it in your contracts, business cards, website and marketing materials.
Is it mandatory to have a registered agent for my South Carolina LLC?
Yes, you need to have a registered agent for your LLC that officials may use to reach you.
Can I be my South Carolina LLC’s registered agent?
Yes, but it’s better to hire a third party or legal professional as your registered agent.
How long does it take to complete the registration process in South Carolina?
Usually, it takes about six to eight weeks to complete the registration process.
What is EIN and do I have to obtain one for my South Carolina LLC?
The Employer Identification Number (EIN) is a unique identifier that makes your LLC eligible to open a business bank account, hire employees, etc. Yes, it’s mandatory to obtain one.
How do I apply for an EIN for my South Carolina LLC?
You can apply online, by phone, or by mail.
What are the tax obligations of a South Carolina LLC?
Members of an LLC will pay personal income taxes on their share of profits, salaries, and bonuses from their business.
How does personal liability protection work with a South Carolina LLC?
When you convert to an LLC, the entity is considered separate from you, making it less likely that personal assets will be used to pay business debts.
What happens to the debts of a South Carolina sole proprietorship during the conversion?
Your personal liabilities from the sole proprietorship will transfer to the LLC upon conversion.
Can I change the legal name of my South Carolina sole proprietorship when converting to an LLC?
Yes, you can change its name as part of the conversion process.
What documents do I have to submit in South Carolina to complete the registration process?
You need to file Articles of Organization, together with the applicable fees to the South Carolina Secretary of State.
How many members are required to form a South Carolina LLC?
There’s no minimum number of members outlined in South Carolina law, but the default requirement is one member.
Do I require operating agreements after converting to an LLC in South Carolina?
It is in your best interest to establish an operating agreement. An experienced business transactional lawyer can assist you in customizing an LLC agreement for your specific organization.
What are the main advantages of setting up a South Carolina LLC?
There are many advantages, such as,” Limited personal liability that extends to members of the LLC, low filing fees compared to other states creating a company-friendly environment, flexible management structure and tax advantages.
After forming an LLC, why must members create an operating agreement?
An operating agreement helps determine how your company is run, outlines the financial policies and procedures, and set the members’ roles and routines.
How long it takes to register a South Carolina LLC?
It usually takes about 6-8 weeks to establish an LLC from the date of application.
Is there a publication requirement for South Carolina LLCs?
No, publication requirements for LLC are necessary only in New York State.
Can Incorporate anywhere in the US and still operate in South Carolina?
Yes, you can form an LLC in any State and still do work in South Carolina.
How should office and annual reports for a South Carolina LLC be filed?
File your Annual Report with the Secretary of State’s Office online or complete a hard copy that you can mail in.
What makes the small business formation process different in South Carolina compared to other states?
LLC registration in South Carolina involves a simple filing process that does not include additional formation requirements such as publishing a newspaper notice.
Can foreign nationals or entities own South Carolina LLC?
Yes, South Carolina LLC can be owned by a foreign individual or organizations.
Can all LLC I set up be taxed as an S Corporation in South Carolina?
Yes, LLCs are eligible for S corporation taxation in South Carolina.
Will corporate documents needed in the formation of an LLC in South Carolina be reviewed by state officials?
Yes, do prompt service it forward your completed documentation with the Secretary of State.
How many company members are required for a South Carolina LLC to maintain compliance?
The default minimum for members in South Carolina is set at one.”
What is the process for converting my South Carolina sole proprietorship to an LLC?
The process typically involves filing articles of organization with the South Carolina Secretary of State and obtaining any necessary business licenses.
Do I need to create a new registered agent if I convert to an LLC?
No, you can use the same registered agent that you used for your sole proprietorship.
What are the benefits of converting to an LLC in South Carolina?
LLCs offer liability protection for owners and flexibility in management structure.
Will my tax obligations change if I convert to an LLC?
Possibly. You should consult with a tax professional to understand any changes to your tax obligations.
Do I need to get a new EIN if I convert to an LLC?
Yes, if you have been operating as a sole proprietorship using your social security number for tax purposes, you will need to obtain a new EIN for the LLC.
How long does it typically take to convert to an LLC in South Carolina?
The filing process can take anywhere from a few days to a few weeks, depending on the workload of the Secretary of State’s office.
Can I keep the same business name if I convert to an LLC?
It depends on whether the name is available for use under South Carolina law. You should search the state business name database to see if your current name is available.
What are the filing fees for converting to an LLC in South Carolina?
The articles of organization filing fee is $110.
Can I convert to an LLC if my business owes back taxes or fees to the state?
No, you will need to settle any outstanding tax or fee obligations before you can convert to an LLC.
Am I required to have an operating agreement if I convert to an LLC in South Carolina?
No, South Carolina does not require LLCs to have an operating agreement, but it is highly recommended.
Can I convert to an LLC if I have multiple business names?
Yes, as long as you follow South Carolina’s laws for using multiple names under an LLC.
Will my business license automatically transfer to my new LLC?
No, you will need to apply for a new license under the LLC’s name.
What happens to my business debts when I convert to an LLC?
Your personal liability for business debts can be limited once you convert your business to an LLC.
Can I convert to an LLC myself, or do I need an attorney?
You can convert your business to an LLC without an attorney, but legal advice is often valuable in this process.
Are there any restrictions on the types of businesses that can convert to LLCs in South Carolina?
Generally speaking, any legally-operating business can convert to an LLC in South Carolina.
Can I operate my newly formed LLC across state lines?
Yes, but you may need to register your business as a foreign LLC in any states where you plan to operate.
How will my business be taxed as an LLC?
LLCs generally have a choice between being taxed as a partnership or a corporation. You should consult with a tax professional to determine which option is best for you.
How do I dissolve my sole proprietorship once the LLC is established?
You will need to file a cancellation of your state registration for your sole proprietorship.
Can I exchange the income from my sole proprietorship for LLC ownership stakes?
Yes, as long as you follow South Carolina’s laws for transferring business property to an LLC.
Can I have multiple owners if I convert to an LLC?
Yes, LLCs can have both individual and corporate owners.
How do I become a registered agent for my LLC?
As a member of the LLC, you can serve as the registered agent or hire any other legal resident of South Carolina to act in this capacity.
How much paperwork is involved in converting to an LLC?
The process typically involves filing articles of organization and updating your business licenses and records.
What is a member-managed LLC?
A member-managed LLC is one in which the owners have direct control over the management of the business.
What is a manager-managed LLC?
A manager-managed LLC is one in which the members elect an outside manager to handle day-to-day operations.
Can I switch from a member-managed to manager-managed LLC after conversion?
Yes, as long as the change is approved by the members and documented in an amendment to the operating agreement.
Can I convert my LLC to a corporation in the future if necessary?
Yes, by filing articles of incorporation with the South Carolina Secretary of State’s office.
How do I communicate the changes to customers and vendors after conversion?
You should update your business records and notify customers and vendors about the conversion.
Can I keep my business phone and website after conversion?
Yes, as long as you update any necessary information to reflect the changes to your business structure.
Do I need to inform employees about the conversion?
Yes, you should inform your employees about any changes to the business structure and how the changes may impact them.

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Conclusion

Converting your South Carolina sole proprietorship to an LLC is a significant decision that can provide valuable benefits, such as limited liability protection, tax advantages, and enhanced credibility. Following the steps outlined in this guide and consulting with legal and financial professionals, you can successfully navigate the conversion process and position your business for future growth and success.

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