South Carolina LLC Operating Agreement | A Comprehensive Guide

Steve Bennett
Business Formation Expert  |   Fact Checked by Editorial Team
Last updated: 
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South Carolina Operating Agreement

When forming a Limited Liability Company (LLC) in South Carolina, one of the most critical steps is creating and executing an LLC Operating Agreement. This legally binding document outlines your LLC’s ownership, management, and operational procedures, ensuring that your business runs smoothly and is protected from potential disputes and legal issues. Although only sometimes required by state law, having a well-drafted operating agreement is essential for an LLC. This article will explore the content and importance of an Operating Agreement in South Carolina and discuss its key components.

Webinarcare Editorial Team will help you understand the process of having an operating agreement for your South Carolina business. You must be guided by all the factors gathered in this article.

What is an Operating Agreement?

An operating agreement is a legally binding document that outlines a limited liability company‘s ownership structure, management, and operational procedures (LLC). It governs the internal workings of the LLC and establishes the rights, responsibilities, and obligations of its members (owners) and managers.

This includes details such as rules, regulations, and provisions related to the operation of the LLC. The Operating Agreement serves as a guide for dealing with disagreements, bringing in new members, and managing various situations that may arise while doing business. It delivers clarity and ensures smooth functioning while providing legal protection to businesses.

Although not always required by state law, having a well-drafted operating agreement is essential for an LLC. It helps prevent potential disputes among members, ensures smoother business operations, and provides a clear framework for making decisions and resolving issues. It also helps to establish limited liability protection for the members by demonstrating that the LLC is a separate legal entity with its own rules and procedures.

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South Carolina LLC Operating Agreement Content

An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. It includes forming the LLC, members and ownership, distribution of profit and losses, management structure, meetings and voting procedure, limitation of liability and indemnification, dissolving South Carolina business, dispute resolution, and amendments and modification.

Article I: Formation of the LLC

The first step in creating an LLC Operating Agreement is to outline the basic information about your LLC, such as:

  • Name of the LLC: Your LLC’s name must include the words “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.” and comply with the South Carolina LLC naming requirements.
  • Principal Office Address: This is where your LLC’s primary business activities will be conducted.
  • Purpose of the LLC: This section should describe the primary purpose of your LLC and the types of business activities it will engage in.
  • Registered Agent Information: Your Registered Agent is a person or entity designated to receive legal documents on behalf of your LLC. The Registered Agent must have a physical street address in South Carolina. It’s essential to choose a reliable and responsible South Carolina Registered Agent, as failure to receive and respond to legal documents can have serious consequences for you to start a business in South Carolina

You can serve as your Registered Agent, appoint a friend or family member, or hire the Best South Carolina Registered Agent Services. We reviewed some of the services for you to check out if you still don’t have one.

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Article II: Members and Ownership

This section deals with identifying all the members of the LLC and their ownership percentages. It includes details like names, addresses, and contributions of each member. Details about how increases and decreases in membership are also covered in this section.

  • Initial Members: The names and addresses of each initial member should be listed, along with their respective ownership interests.
  • Ownership Interests: This section should detail each member’s ownership interest percentage.
  • Capital Contributions: Each member’s initial capital contribution to the LLC should be documented, along with any additional contributions that may be required.
  • Additional Members: The agreement should outline the process for admitting new members to the LLC and the rights and responsibilities of these new members.
  • Transfer of Membership Interests: The operating agreement should contain provisions governing the transfer of membership interests, including transfer restrictions and the right of first refusal for existing members.
  • Withdrawal of Members: The process and consequences for members who wish to withdraw from the LLC should be clearly defined. In South Carolina, there is a definite guideline on How to Remove a Member from your South Carolina LLC. 

Article III: Distribution of Profits and Losses

This article explains how the LLC profits and losses will be distributed among the members. It can be based on the ownership percentages or a different agreement stipulated by the members. It lays out the process for distribution and any restrictions on those distributions.

  • Allocation of Profits and Losses: The agreement should detail how profits and losses will be allocated among the members, typically based on their own interests.
  • Distributions to Members: The process for distributing profits to members should be outlined, including the timing and manner of distributions.

Article IV: Management Structure

Your LLC Operating Agreement should outline the management structure of your business. This includes

Member-Managed vs. Manager-Managed: You must decide whether your LLC will be managed by its members or appointed managers. This decision will impact the roles and responsibilities of each party.

A Member-Managed LLC is a type of limited liability company (LLC) where the management and day-to-day operations of the business are handled by its members (owners) directly. In a Member-Managed LLC, each member has the authority to make decisions and take actions on behalf of the company, such as entering into contracts, hiring employees, and managing the finances.

This management structure contrasts with a Manager-Managed LLC, where the members appoint one or more managers to oversee the business operations. In a Manager-Managed LLC, the appointed managers have the authority to make decisions and act on behalf of the company. In contrast, the members typically have a more passive role, focusing on high-level decision-making and strategic planning.

Roles and Responsibilities of Members/Managers: The agreement should define the roles and responsibilities of each member or manager, including their duties, decision-making authority, and any limitations on their powers.

Article V: Meetings and Voting Procedures

This article outlines the rules for conducting meetings and voting procedures. It specifies the quorum required for decision-making, how votes are counted, and how members are notified about meetings. It also includes information about special meetings and emergency decisions.

  • Voting Rights and Decision-Making Process: The agreement should outline each member or manager’s voting rights and decision-making for various business matters.
  • Meetings and Notice Requirements: The operating agreement should specify the frequency of meetings, the process for calling special meetings, and the notice requirements for each type of meeting.

Article VI: Limitation of Liability and Indemnification

To protect the personal assets of your LLC’s members and managers, your operating agreement in South Carolina should address the following:

  • Liability of Members/Managers: The agreement should limit the liability of members and managers for the debts and obligations of the LLC, following South Carolina law.
  • Indemnification Provisions: The operating agreement should include provisions for indemnifying members and managers for actions taken on behalf of the LLC, as long as those actions are within the scope of their duties and do not involve gross negligence or willful misconduct.
  • Insurance Requirements: The agreement should specify any insurance requirements for your LLC, such as liability or property insurance. Small business insurance helps safeguard your business from financial losses, legal claims, and other unforeseen events. This protection allows entrepreneurs to focus on growing and sustaining their businesses within the South Carolina economy.

You may check out the Best Small Business Insurance in South Carolina to learn more about business insurance.

Article VII: Record Keeping and Financial Reporting

This article provides details about the record-keeping and financial auditing procedures. It outlines the importance of keeping accurate and comprehensive records of an LLC’s financial transactions. It also specifies the frequency of financial reporting and distribution to the members.

  • Accounting and Recordkeeping: The operating agreement should outline your South Carolina LLC’s accounting methods and recordkeeping requirements. Effective financial management is important for the success of your South Carolina LLC. Establish a reliable accounting system to track income, expenses, and tax obligations. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in South Carolina.
  • Fiscal Year: The agreement should specify the fiscal year for your LLC, which may be either a calendar year or any 12-month period.
  • Tax Treatment and Filing Requirements: The agreement should specify your LLC’s tax treatment and any required filings with the South Carolina tax authorities. You should include the filing of the South Carolina Articles of Organization, annual fees, and other associated fees that need to be filed.

For the initial and final cost for forming your South Carolina LLC, look up the LLC Cost in South Carolina for additional information. 

Article VIII: Dissolution and Winding Up

This section outlines the circumstances under which the LLC may be dissolved, such as a unanimous decision by members, legal issues, bankruptcy, or achieving its purpose. It also includes information about how the LLC’s assets will be liquidated and debts paid upon dissolution.

Events Triggering Dissolution: The agreement should list the events that will trigger the dissolution of your LLC, such as the death or withdrawal of a member, a unanimous vote of the members, or a court order. 

Some common events include:

  • A unanimous vote of the members to dissolve the business.
  • The death, resignation, or withdrawal of a member unless the remaining members agree to continue the business.
  • The expiration of a specified period or the completion of a specific purpose, as outlined in the operating agreement.
  • A court order mandating the dissolution of the LLC.

Winding Up Process: The operating agreement should outline the process for winding up the affairs of the LLC, which typically involves:

  • Settling the company’s outstanding debts and obligations.
  • Liquidating the company’s assets.
  • Resolving any pending legal disputes.
  • Preparing and filing final tax returns.

Distribution of Assets: The operating agreement should specify how the LLC’s remaining assets will be distributed among the members upon dissolution, typically in proportion to their ownership interests.

Certificate of Cancellation: After the winding-up process is completed, the LLC may be required to file a certificate of cancellation or articles of dissolution with the South Carolina Secretary of State to dissolve the company and remove it from its records formally. 

Article IX: Dispute Resolution

This article provides the protocol for handling any disputes arising between LLC members. It can include stipulations for mediation or arbitration in case of any conflicts. The agreement should include a process for resolving member disputes, such as mediation or arbitration.

Article X: Amendments and Modifications

Your LLC Operating Agreement in South Carolina should include a process for making amendments and modifications, such as:

  • Process for Amending the Operating Agreement: The agreement should outline the process for proposing, considering, and approving amendments to the operating agreement.
  • Required Approval for Amendments: The agreement should specify the percentage of member approval required to amend the operating agreement.

Once your LLC Operating Agreement has been drafted, it should be executed by the initial members or managers and adopted by any additional members who join the LLC.

Role of Registered Agent in LLC Operating Agreement

A Registered Agent is a person or entity designated to receive legal documents and official correspondence on behalf of an LLC. While the primary role of a Registered Agent is to maintain a reliable point of contact for legal matters, some registered agent service providers also offer additional services, such as creating an operating agreement for your LLC. Below are some advantages of having a Registered Agent create an operating agreement for your business:

  • Expertise: A Registered Agent specializing in LLC Formation Services often has extensive knowledge and experience drafting operating agreements. They are familiar with the requirements and best practices for creating a comprehensive and legally compliant operating agreement, which can help protect your business interests and minimize potential disputes among members.
  • State-Specific Requirements: A Registered Agent offering operating agreement services is well-versed in state-specific laws and regulations governing LLCs. They can ensure that your operating agreement complies with the specific requirements of the state in which your LLC is formed, including mandatory provisions and filing requirements.
  • Time-Saving: Drafting an operating agreement in South Carolina can be complex and time-consuming, especially for business owners unfamiliar with legal terminology and procedures. By delegating this task to a Registered Agent, you can save time and focus on other crucial aspects of your business.
  • Customization: A Registered Agent with experience creating operating agreements can tailor the document to meet your business’s unique needs and circumstances. They can help you address specific management structures, financial arrangements, and other critical aspects of your LLC that may not be covered in a generic operating agreement template.
  • Ongoing Support: The Registered Agent services provide ongoing support and guidance in maintaining and updating your operating agreement as your business grows and evolves. This can help ensure that your operating agreement remains relevant and compliant with changing laws and regulations.

While there are advantages to having a Registered Agent create an operating agreement for your LLC, it is essential to carefully review and understand the terms of the agreement before signing. Additionally, it is a good idea to consult with legal and tax professionals to ensure that the operating agreement aligns with your business goals and complies with all applicable laws and regulations.

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FAQs

What is an LLC operating agreement in South Carolina?
An LLC operating agreement in South Carolina is a legal document outlining the ownership and operation of an LLC in the state.
Is an LLC operating agreement required in South Carolina?
No, an LLC operating agreement is not required by law in South Carolina but it is highly recommended.
Who needs an LLC operating agreement in South Carolina?
Anyone who owns or is forming an LLC in South Carolina should have an LLC operating agreement.
Can an LLC operating agreement be changed in South Carolina?
Yes, an LLC operating agreement can be changed in South Carolina by agreement of its members.
How do I create an LLC operating agreement in South Carolina?
An LLC operating agreement can be created in South Carolina by using online legal services or by seeking the help of an attorney.
What should be included in an LLC operating agreement in South Carolina?
An LLC operating agreement in South Carolina should include details about ownership, management, and decision-making processes for the LLC.
Should an LLC operating agreement be filed with the state of South Carolina?
No, an LLC operating agreement does not need to be filed with the state of South Carolina.
Are there any fees to create an LLC operating agreement in South Carolina?
There may be fees associated with creating an LLC operating agreement in South Carolina if using an online legal service or attorney.
Can an LLC operate without an operating agreement in South Carolina?
Yes, an LLC can technically operate without an operating agreement in South Carolina but it is not recommended.
Does South Carolina have any specific laws regarding LLC operating agreements?
Yes, South Carolina has specific laws that affect LLC operating agreements such as the South Carolina Uniform Limited Liability Company Act.
Can an LLC operating agreement in South Carolina have more than one owner?
Yes, an LLC operating agreement in South Carolina can have multiple owners.
What happens if there is no operating agreement for an LLC in South Carolina?
Without an operating agreement, the LLC will be subject to South Carolina state laws regarding LLCs.
Can an LLC operating agreement in South Carolina outline the duties of managers and members?
Yes, an LLC operating agreement in South Carolina can outline the duties of both managers and members.
Can the ownership percentage of an LLC be changed in a South Carolina operating agreement?
Yes, the ownership percentage of an LLC can be changed in a South Carolina operating agreement.
Is there a template for an LLC operating agreement in South Carolina?
Yes, there are templates available online for LLC operating agreements in South Carolina.
Can a South Carolina LLC operating agreement be handwritten?
Yes, a South Carolina LLC operating agreement can be handwritten but it is not recommended.
Can a South Carolina LLC operating agreement limit liability for its members?
Yes, a South Carolina LLC operating agreement can limit liability for its members.
Can a South Carolina LLC operating agreement protect the LLC’s assets?
Yes, a South Carolina LLC operating agreement can protect the LLC’s assets.
Can a South Carolina LLC operating agreement include rules for dissolving the LLC?
Yes, a South Carolina LLC operating agreement can include rules for dissolving the LLC.
Can a person be the only member of an LLC in South Carolina?
Yes, a person can be the only member of an LLC in South Carolina.
Can an LLC operating agreement include non-compete agreements?
Yes, an LLC operating agreement in South Carolina can include non-compete agreements.
Can an LLC operating agreement in South Carolina include dispute resolution provisions?
Yes, an LLC operating agreement in South Carolina can include dispute resolution provisions.
Can an LLC operating agreement require unanimous decisions for certain matters in South Carolina?
Yes, an LLC operating agreement in South Carolina can require unanimous decisions for certain matters.
Can an LLC operating agreement in South Carolina require members to make capital contributions?
Yes, an LLC operating agreement in South Carolina can require members to make capital contributions.
Can an LLC operating agreement in South Carolina assign profits and losses disproportionately?
Yes, an LLC operating agreement in South Carolina can assign profits and losses to members in a disproportionate manner.
Can an LLC operating agreement in South Carolina be amended without agreement of all members?
No, typically a South Carolina LLC operating agreement requires agreement of all members to be amended.
Can someone be added to an LLC operating agreement in South Carolina after it is formed?
Yes, someone can be added to an LLC operating agreement in South Carolina after it is formed by following the requirements outlined by South Carolina law.
Can a South Carolina LLC operating agreement remove a member from the LLC?
Yes, a South Carolina LLC operating agreement can include provisions for removing a member from the LLC.
Do I need an LLC operating agreement in South Carolina?
While it is not required by South Carolina law, an LLC operating agreement is highly recommended to protect your business and clearly define roles and responsibilities.
Can I draft an LLC operating agreement in South Carolina myself?
While it is technically possible, it is not recommended. It is important to get advice from a South Carolina business lawyer who can ensure that your LLC operating agreement follows state law and protects your business interests.
Can the LLC operating agreement be amended in South Carolina?
yes, Although not required if multiple people are owners of an LLC it’s important to make sure that all owners agree to any changes to the operating agreement.
What happens if there is no LLC operating agreement in South Carolina?
Without an LLC operating agreement, issues related to ownership, management, and succession are likely to arise and under South Carolina law, these issues are crucial decisions that could affect the day-to-day operations of your business.
Does a single-member LLC in South Carolina also need an operating agreement?
While it is not required by law, it is still recommended for single-member LLCs to prepare an operating agreement. This provides added protections in case of legal disputes, as well as clearly defines the management plans.
Are South Carolina LLC operating agreements important for tax purposes?
Yes, tax is a financial asset management in organizations especially for an LLC where taxing like partnerships and sole proprietorship flows.
Can a South Carolina LLC operating agreement be signed electronically?
South Carolina law generally recognizes electronic signatures as valid; as long as the processes are secured by a method of authentication.
Can an LLC operating agreement in South Carolina limit the owner’s liability?
Yes, an LLC operating agreement can limit the owner’s liability by clearly defining roles and responsibilities for members and managers.
Can I change the name of my LLC in South Carolina through the operating agreement?
No, the name of an LLC is usually formed abroad, therefore the method of the name change for a foreign LLC company varies by state.
Are foreign LLCs required to have an operating agreement in South Carolina?
Yes, all LLCs operating in South Carolina are required to have an official operating agreement, just like every other LLC.
Can I attach new provisions to my LLC operating agreement in South Carolina?
Yes, as long as they comply with South Carolina state law.
Do I need an attorney to review my LLC operating agreement in South Carolina?
No, there is no requirement to do so, but it is highly recommendable to ensure that an LLC operating agreement meets all crucial criteria defined during its preparation.
Does South Carolina law allow for a statutory operating agreement?
Yes, South Carolina law allows the option for developing a tribal operating agreement with the standard representation that forms each member’s relationship to one another.
What is the cost of hiring an attorney to draft an LLC operating agreement in South Carolina?
The cost of hiring a business lawyer to draft an LLC operating agreement will vary based on firm rates, experience, and fees unique to your case and LLC functioning structure.
How many members does an LLC in South Carolina need to have?
An LLC needs at least one member in South Carolina and legally can have more than 2.
Does the South Carolina LLC operating agreement need to be notarized?
Technically, it is not required, but is recommended when signing to increase the formality and legality of the agreement.
Should I get a multi-member or single-member operating agreement prepared to cover a married couple’s LLC in South Carolina?
Couples working together to create a startup can require a multi-member agreement, or obtain a single member ownership agreement if written in the requisite detail and agreements to reflect partnership proportions of each spouse if they have ownership interests.
Can we build more than one LLC operating agreement in South Carolina at the same time?
Yes, depending on structure. If an artist creates an LLC to separate their art operations from their sound technologies, two LLC agreements may be developed, where one addresses each business operation.
How is business capital recorded on an LLC operating agreement?
The capital contributions of the partners can determine the proportion of Member ownership interests depends on the preparation of the operating agreement.
Can LLC membership be transferred according to the operating agreement in South Carolina?
Operating agreement may indicate requirements or restrictions including transfer law in discharge procedures for partnership and processes of Member assignments.
Can South Carolina LLC Owners enact buyout clauses in their operating agreements?
Yes, buyout clauses can be outlined on execution contained in shareholder agreements listed in an operate agreement for greater control purposes and clarity of impending partnerships or money transfers.
Can the incomes and risks involved in investments be assigned in operating agreements of LLCs?
Yes, profits and losses will be allocated based on each members interest according to the provisions in the developed operating agreement.
Can licensed professionals form an LLC in South Carolina in operating agreements?
Yes, even law firms and medical practices have been known to adopt an LLC set up to establish partnerships with partners operating with practice licenses.
Are there annual reporting requirements of an LLC in South Carolina outlined in the operating agreement?
No, There isn’t, but it’s still important to note every detail during the formation of the operating procedures that must satisfy a member’s taxation requirements and other IRS filings with gainful transparency.
Where can I get an LLC operating agreement in South Carolina?
It is best to seek out legal assistance there are options available online for templates, however be cautious, an illegally fraudulent source could generate concerning legal issues and greater relevant concerns.

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Conclusion

Having a well-drafted LLC Operating Agreement in place is crucial for the success and protection of your South Carolina LLC. It provides a clear framework for the ownership, management, and operation of your business, helping to prevent disputes and ensure compliance with state law. It is highly recommended to consult with legal and tax professionals when drafting and executing your operating agreement to ensure it meets your specific needs and complies with all applicable laws and regulations.

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