LLC vs S-Corp | What Entrepreneurs Need to Know in South Carolina

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LLC vs S-Corp in South Carolina

When starting a small business in the South Carolina, one of the most important decisions you’ll make is choosing the right legal structure. Two popular options for small businesses are electing for S Corporation (S-Corp) or forming an LLC in South Carolina. Both offer certain advantages and drawbacks, making it crucial to understand their differences and determine the best fit for your business. 

If you want to know more about LLC vs. S-Corporation, which is better and suitable for the business you will form, you should consider a few things. Before we get through this article, you should understand LLC vs. S-Corporation in South Carolina. 

Webinarcare Editorial Team will help you define and understand the difference, and you must be guided by all the factors gathered in this article.

LLC Vs. S-Corporation in South Carolina

LLC vs. S-Corporation: Definition

A limited liability company is a type of business structure that guards against the impact of business liabilities on your personal assets. However, while not a typical business structure, the S Corp is a tax status you can register with the IRS. Unlike an LLC, an S-Corp does not offer personal asset protection. The two are explained in detail here:

What is an LLC in South Carolina?

A legal corporate organization that protects personal assets is a limited liability company (LLC). With this setup, the LLC member or owner can protect their personal assets if their company faces financial difficulties or becomes the subject of legal action. In some unique circumstances, the opposing party may pursue your personal assets if your firm is sued in court. When you are held personally accountable for the company’s debt, this is called “piercing the corporate veil.”

By creating an LLC in your state, you can take advantage of the pass-through tax benefit, which means that your personal income will be used to determine your income tax obligations rather than the revenue generated by your firm. 

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What is an S-Corp in South Carolina?

Unlike a limited liability company (LLC) or other business structures, South Carolina S-Corporation is not a type of corporate entity. It’s a tax classification that, though in various ways for corporations and LLCs, might lead to considerable financial savings. S-Corporations are similar to LLCs, except that the Internal Revenue Service recognizes them as corporations for taxation purposes. 

A well-known alternative to the LLC is the S-corp. In contrast to a traditional C-corp, an S-corp is better suited for small and medium-sized firms, such as those with 100 total stockholders. 

LLC Vs. S-Corporation in South Carolina

Creating a business in South Carolina requires careful consideration, especially when deciding whether a state LLC or an S-Corporation is more advantageous. An LLC is a legal corporate structure, but an S-Corporation is a tax categorization which some small firms are eligible for. Forming South Carolina Corporations and LLCs can elect S-Corporation taxation by filing paperwork with the Internal Revenue Service (IRS). Making an S-Corporation may be less formal than establishing an LLC, and it typically offers less security. Additionally, S-Corporation in South Carolina does not offer the same safeguards that business owners seek in an LLC. When starting a business, thinking about your alternatives from a legal and tax perspective is important.

It is suggested that you speak with a legal professional before you begin setting up an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in South Carolina.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in South Carolina

There is a distinction between an LLC and an S-Corporation regarding taxation. Based on the differences in Federal and State taxes, you can determine whether S-Corporation or LLC in South Carolina is best for your business.

Federal Taxes 

There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in South Carolina. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

  • Pass-Through Taxes: LLC and S-Corporation in South Carolina are the same regarding pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners must pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in South Carolina are mandated to have double taxation. It means that they must pay federal taxes at the entity level.
  • Self-Employment Taxes: Most LLC owners choose S-corporation taxation in South Carolina to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes. 

Consider the following scenario: you are the sole owner of an LLC in South Carolina with a $200,000 annual profit. And $150,000 is a fair wage in your area for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $200,000 profit. However, if your business is taxed as a state S-corp, you must only pay payroll taxes on the standard wage of $150,000. The remaining $50,000 will still be subject to income tax.

South Carolina State Taxes

At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in South Carolina, it costs $0, which can be paid to the SD Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $110 to the South Carolina Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in South Carolina have different ownership requirements that can impact your choice of business structure. Here’s a comparison of the key ownership requirements for each structure:

1. Number of Owners

South Carolina LLC: An LLC can have any number of owners, called members, from starting South Carolina Single Member LLC to multiple members LLC. There is no upper limit on the number of members an LLC can have.

South Carolina S-Corporation: An S-Corporation is limited to a maximum of 100 shareholders (owners). This restriction can be a limiting factor for businesses that plan to have many owners or seek outside investment.

2. Type of Owners

South Carolina LLC: An LLC can have various owner types, including individuals, corporations, other LLCs, trusts, and estates. Non-resident aliens can also be members of an LLC, like forming a Foreign LLC in South Carolina.

South Carolina S-Corporation: S-Corporations have more restrictive ownership requirements. Only U.S. citizens and resident aliens can be shareholders of an S-Corporation. Additionally, other corporations, LLCs, and certain types of trusts and estates are not eligible to be S-Corporation shareholders.

3. Classes of Ownership

South Carolina LLC: An LLC offers flexibility regarding ownership classes. Members can have varying levels of management rights, profit distribution rights, and voting rights, creating different classes of membership interests.

South Carolina S-Corporation: S-Corporations are limited to only one class of stock. While shareholders’ voting rights may differ, all shareholders must have equal rights to profit distribution and liquidation proceeds.

4. Profit Distribution

South Carolina LLC: Profit distribution in an LLC is flexible, allowing members to allocate profits and losses in any proportion they choose. This can be outlined in the South Carolina Operating Agreement.

South Carolina S-Corporation: Profits and losses in an S-Corporation must be distributed to shareholders based on the percentage of shares each owns. This can be less flexible than the profit distribution options available to an LLC.

South Carolina LLC offers more flexibility in ownership requirements, allowing for a greater variety of owner types, multiple classes of membership interests, and flexible profit distribution. In contrast, an S-Corporation has more restrictive ownership requirements, limiting the number and type of shareholders, allowing only one class of stock, and requiring proportional profit distribution based on share ownership. Consider these differences when deciding which business structure best fits your needs and goals.

Which is easier to incorporate in South Carolina: LLC or S-Corp?

Filing an LLC or S-Corporation in South Carolina requires planning and time. Even though it is not as simple as it appears, something manageable keeps it from being too difficult. LLC and S-Corporations can be formed using Registered Agent. To establish an LLC in South Carolina, you must submit the Articles of Organization to the South Carolina Secretary of State. Your Articles of Organization must include information about your South Carolina LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the South Carolina S-Corporation election. Fill out Form 8832 to notify the Internal Revenue Service that you prefer to tax your LLC as a corporation rather than a partnership. Then you’ll submit Form 2553 to select S-Corporation status.

Remember that you must file annual tax returns and reports after forming your LLC to remain legally compliant.

Who Pays More Taxes in South Carolina: LLC or S-Corp?

Taxes for LLCs and S-Corporations in South Carolina depend on the tax purposes and the profit generated. LLCs are typically taxed at personal rates, and LLC owners can be treated as separate companies with their own federal tax identification numbers. You can check the South Carolina LLC Cost for detailed information.

South Carolina S-Corporation owners, on the other hand, must be paid a salary that includes Social Security and Medicare taxes. On the other hand, the owner can receive dividend income or some of the leftover profits without being classified as an employee and thus will not be subject to Social Security and Medicare taxes on that money.

Should I Incorporate South Carolina LLC as an S-Corporation?

Forming an LLC may be advantageous because your business assets are separate from your personal assets if you are a sole proprietor. You are not restricted from converting your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and follow more regulations, it is ideal for larger companies with more shareholders.

How do you convert LLC to S-Corporation in South Carolina?

You must submit Form 2553, Election by a Small Business Corporation, to the IRS to elect S-corp taxes if you want to form an LLC as an S-Corporation in South Carolina. A Form 2553 must be submitted by 75 days following the creation of your S-Corp or by 75 days following the start of the tax year in which the election is to be effective. 

You must also submit Form 8832, Entity Classification Election if your LLS-Corp has passed the deadline of 75 days and you wish to elect to be taxed as a corporation. You would collectively transmit Forms 2553 and 8832 via certified mail from the USPS. You can send your Form 2553 to the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734​ in South Carolina.

FAQs

What is the difference between an LLC and an S-Corp in South Carolina?
An LLC is a flexible type of business entity that combines aspects of a partnership and a corporation, while an S-Corp is a type of corporation that avoids double taxation and has limited liability protection.
Can a business in South Carolina switch from an LLC to an S-Corp or vice versa?
Yes, it is possible to switch from an LLC to an S-Corp or vice versa in South Carolina, but it is important to consider the tax and legal implications of such a change.
Is it better to form an LLC or an S-Corp in South Carolina?
The answer depends on your specific business needs and goals, and it is important to consult with a lawyer and/or accountant before making a decision.
Do LLCs and S-Corps have the same level of liability protection in South Carolina?
Yes, both LLCs and S-Corps provide limited liability protection to their owners in South Carolina.
Does forming an LLC or an S-Corp in South Carolina require a lot of paperwork?
Starting a business requires some administrative work, but the paperwork for forming an LLC or an S-Corp in South Carolina is generally straightforward.
Can a single person run an LLC or S-Corp in South Carolina?
Yes, both LLCs and S-Corps can be run by a single individual in South Carolina.
Does South Carolina require LLCs and S-Corps to file annual reports?
Yes, LLCs and S-Corps in South Carolina are required to file annual reports with the Secretary of State.
Are the fees for forming and maintaining an LLC or S-Corp different in South Carolina?
Yes, the fees for forming and maintaining an LLC or S-Corp in South Carolina may be different, depending on various factors such as the number of owners and the type of entity.
Are there any tax benefits to forming an S-Corp in South Carolina?
Yes, one of the main benefits of an S-Corp is that it avoids double taxation, which may be advantageous in certain situations in South Carolina.
Can an individual be taxed as both an owner and an employee of an S-Corp in South Carolina?
Yes, an S-Corp allows the owners to be taxed as both owners and employees in South Carolina.
Does South Carolina have any special regulations or requirements for forming an LLC or S-Corp?
Some industries in South Carolina may have specific regulations or requirements for forming an LLC or S-Corp, so it is important to research these factors before starting a business.
Can LLCs and S-Corps in South Carolina offer employee benefits such as healthcare and retirement plans?
Yes, LLCs and S-Corps in South Carolina can offer employee benefits to their workers, subject to compliance with state and federal laws.
How is the profit of an LLC or S-Corp taxed in South Carolina?
The profit from an LLC or S-Corp is taxed at the individual level in South Carolina, meaning that the owners are responsible for paying taxes on their share of the profit.
Are LLCs or S-Corps more popular in South Carolina?
It is difficult to say which type of business entity is more popular in South Carolina, as it depends on various factors such as the industry and the goals of the business.
Are foreign businesses allowed to form LLCs or S-Corps in South Carolina?
Yes, foreign businesses can form LLCs or S-Corps in South Carolina, but they may have to comply with additional rules and regulations.
How do LLCs and S-Corps in South Carolina pay taxes?
LLCs and S-Corps in South Carolina can choose to file taxes as a pass-through entity or as a corporation, depending on the needs of the business.
Can LLCs and S-Corps in South Carolina be owned by non-US citizens?
Yes, non-US citizens can own LLCs and S-Corps in South Carolina, but they must comply with certain requirements under state and federal law.
What are the differences between a single-member LLC and a multi-member LLC in South Carolina?
The main difference is the number of owners, with a single-member LLC having only one owner and a multi-member LLC having multiple owners.
Are LLCs and S-Corps required to have a physical presence in South Carolina?
LLCs and S-Corps in South Carolina may not be required to have a physical presence in the state, but they may need to register with the Secretary of State and comply with other regulations.
Can an LLC be taxed as an S-Corp in South Carolina?
Yes, an LLC can choose to be taxed as an S-Corp if it meets certain requirements under state and federal law.
How long does it take to form an LLC or S-Corp in South Carolina?
The time it takes to form an LLC or S-Corp in South Carolina varies depending on a variety of factors, but the process can typically be completed in a few weeks.
Do LLCs and S-Corps have to file separate tax returns in South Carolina?
Yes, LLCs and S-Corps in South Carolina must file separate tax returns with the IRS and the state.
Are there any restrictions on the types of businesses that can form an LLC or S-Corp in South Carolina?
Generally, any business can form an LLC or S-Corp in South Carolina, but there may be specific rules or regulations depending on the industry.
Does South Carolina offer any incentives for businesses to form as an LLC or S-Corp?
Depending on the industry and other factors, South Carolina may offer incentives for businesses to form as an LLC or S-Corp, such as tax credits or grant programs.
Can LLCs and S-Corps in South Carolina have more than one class of stock?
Generally, S-Corps are not allowed to have more than one class of stock, while LLCs can have different classes of ownership interests.
Does the liability protection of an LLC or S-Corp in South Carolina cover the business itself as well as the owners?
The liability protection of an LLC or S-Corp in South Carolina generally covers both the business and the owners, depending on the specifics of the situation.
Is it possible to convert a sole proprietorship to an LLC or S-Corp in South Carolina?
Yes, it is possible to convert a sole proprietorship to an LLC or S-Corp in South Carolina, but it is important to consult with a lawyer and/or accountant to ensure compliance with state and federal laws.
Can LLCs and S-Corps in South Carolina be dissolved voluntarily by the owners?
Yes, LLCs and S-Corps in South Carolina can be dissolved voluntarily by the owners if they follow the proper procedures.
What is the difference between an LLC and S-Corp in South Carolina?
An LLC is a type of business structure while an S-Corp is a tax designation that an LLC or corporation can elect in South Carolina.
How do I form an LLC in South Carolina?
To form an LLC in South Carolina, you must file Articles of Organization with the South Carolina Secretary of State.
How do I form an S-Corp in South Carolina?
To form an S-Corp in South Carolina, you must first form a corporation by filing Articles of Incorporation with the South Carolina Secretary of State, then complete and file Form 2553 with the IRS to elect S-Corp status.
Is it more expensive to form an LLC or an S-Corp in South Carolina?
It typically costs more to form an S-Corp in South Carolina due to the additional formalities and ongoing maintenance required compared to an LLC.
Which entity type provides better personal liability protection in South Carolina, an LLC or an S-Corp?
Both entities in South Carolina provide limited liability for owners, but an LLC may offer more flexibility in terms of personal liability protection.
How many owners can an S-Corp have in South Carolina?
An S-Corp in South Carolina can have up to 100 shareholders.
How many owners can an LLC have in South Carolina?
An LLC in South Carolina can have an unlimited number of members.
Which entity type provides better tax treatment for business profits in South Carolina, an LLC or an S-Corp?
Generally, an S-Corp in South Carolina may offer better tax treatment for business profits and can avoid double taxation of income.
What is the South Carolina franchise tax and does it apply to LLCs and S-Corps?
The South Carolina franchise tax is an annual fee that corporations and LLCs are required to pay. Both LLCs and S-Corps are subject to the franchise tax in South Carolina.
Can an LLC in South Carolina elect to be taxed as an S-Corp?
Yes, an LLC in South Carolina can elect to be taxed as an S-Corp by filing Form 2553 with the IRS.
Are LLCs and S-Corps required to hold annual meetings in South Carolina?
Corporation entities, including S-Corps, are typically required to hold annual shareholder meetings in South Carolina, while LLCs are not required to hold annual meetings.
What are the ongoing formalities for maintaining an LLC in South Carolina?
In South Carolina, LLCs are required to file an annual report with the Secretary of State and to maintain accurate records of financial transactions and updates to the operating agreement.
What are the ongoing formalities for maintaining an S-Corp in South Carolina?
In addition to annual reporting requirements, S-Corps in South Carolina must also maintain certain corporate formalities such as keeping accurate records of meetings, taking actions by written consent, and issuing stock.
Can an S-Corp in South Carolina have different classes of stock?
No, an S-Corp in South Carolina can only have one class of stock.
Do owners of an LLC have to pay self-employment taxes in South Carolina?
The owners of an LLC are generally required to pay self-employment taxes on their portion of the LLC’s profits in South Carolina.
Do owners of an S-Corp have to pay self-employment taxes in South Carolina?
S-Corp owners in South Carolina are only required to pay self-employment taxes on their salary, not on their share of the business’s profits.
What are the major differences between LLC and S-Corp tax treatment in South Carolina?
LLCs in South Carolina are typically taxed as pass-through entities, with profits passing through to the owners who pay income tax on those profits, while S-Corps are taxed at the corporate level, avoiding double taxation of income.
How is LLC income taxed in South Carolina?
For South Carolina LLCs, the profits and losses of the business are reported on the owners’ personal tax returns, and owners are only taxed on the share of income they receive.
How is S-Corp income taxed in South Carolina?
S-Corps in South Carolina pay no federal income tax; earnings are passed through to shareholders who are personally responsible for paying taxes on the earnings.
Are there any restrictions on the types of South Carolina businesses that can elect S-Corp status?
In general, S-Corp status in South Carolina is available to any business that meets the requirements (such as no more than 100 shareholders).
Can foreign owners participate in South Carolina LLCs and S-Corps?
Yes, foreign owners can participate in both LLCs and S-Corps in South Carolina.
Can an S-Corp convert to an LLC in South Carolina?
Yes, an S-Corp can convert to an LLC in South Carolina by dissolving the S-Corp and reforming as an LLC.
Can an LLC convert to an S-Corp in South Carolina?
Yes, an LLC in South Carolina can elect to be taxed as an S-Corp with the IRS.
How are LLCs and S-Corps in South Carolina governed?
LLCs in South Carolina are typically governed by operating agreements with guidelines for management structures, decision-making, and voting. S-Corps are governed by corporate bylaws that outline the structure of the business, the powers of the officers and directors, and required corporate actions.
Are there any ownership restrictions for S-Corps and LLCs in South Carolina?
Ownership of both S-Corps and LLCs in South Carolina is open to both individuals and entities (such as corporations or trusts).
What is the process for dissolving an LLC or S-Corp in South Carolina?
To dissolve an LLC or S-Corp in South Carolina, the appropriate filings must be made with the South Carolina Secretary of State and any remaining debts or responsibilities must be settled.
How does South Carolina franchise tax apply to LLCs and S-Corps that operate in multiple states?
LLCs and S-Corps which operate in multiple states are typically subject to additional annual fees and franchise taxes depending on where the business is operating.
Can an S-Corp be converted to a C-Corp in South Carolina?
Yes, an S-Corp in South Carolina can revert back to C-Corp status by revoking its S-Corp election and meeting the additional requirements for a C-Corp.
How long does it typically take to form an LLC or S-Corp in South Carolina?
Depending on the type of entity, processing times can range from a few days to several weeks to register for businesses in South Carolina.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in South Carolina will depend on your business goals, management preferences, and tax considerations. It’s essential to consult with a legal or financial advisor to determine which structure is best for your business in South Carolina and help you navigate the formation process. Making an informed decision will set your business up for success and ensure you’re well-positioned for growth and profitability.

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