How to Start an S-Corporation in South Carolina (2024 Guide)

If you want to start an LLC in South Carolina, there are things that you should consider. South Carolina is the home to a thriving business community, making it an attractive location for entrepreneurs. One popular business structure is the S-Corporation, which offers several tax and operational advantages. This comprehensive guide will explore the process of starting an S-Corporation in South Carolina, including the costs, steps, advantages, and disadvantages associated with this business structure.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your S-corp, all the steps in this article must guide you.

How to Form an S-Corporation in South Carolina

On this page, you’ll learn about the following:

What is an S-Corporation?
- Limitations and Requirements of S-Corp
How to Form an S-Corporation in South Carolina?
Costs of Forming an S-Corporation
Advantages of Forming an S-Corporation
Disadvantages of Forming an S-Corporation
FAQs

What is an S-Corporation?

An S-Corporation is a type of corporation that elects to be taxed under Subchapter S of the Internal Revenue Code. This tax treatment allows S-Corporations to enjoy pass-through taxation, meaning the corporation’s income, deductions, and credits flow through to the shareholders, who report this information on their individual tax returns. This structure helps to avoid the double taxation experienced by C-Corporations.

An S corporation (S corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other companies. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

Limitations and Requirements of S-Corp

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

Be a domestic corporation.
Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
Have just one type of stock.
Have a maximum of 100 shareholders or members.
Have only permitted individuals, certain trusts, and estates as stockholders or members.

You can apply for an S-Corp in South Carolina if qualified for the limitations and requirements.

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How to Form an S-Corporation in South Carolina?

To create S-Corp in South Carolina, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement, requesting an EIN, and filing a form 2553.

Step 1: Register a Business Name in South Carolina

After you have decided on the idea to start an S-Corp in South Carolina, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an S-Corp, there is a complete guide on South Carolina Business Name Search for a proper business name. Here are some guidelines you must follow while naming your S-corp.

Avoid profanities
The name should be available, and no other entity should have the same name in South Carolina.
Limit of restricted words that need a license in South Carolina
Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hire a Registered Agent

The next step in starting an S-corp in South Carolina is hiring a Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence. Forming an LLC with an S-corp will be easier if you have Registered Agent in South Carolina.

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Step 3: File For Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). South Carolina Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. For the Articles of Organization to be filed in SD Secretary of State, you need to pay a filing fee of $110. In South Carolina, the filing fee of forming an LLC is $110.

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Step 4: Creating an Operating Agreement

After you have filed your Articles of Organization, the next step is to create an operating agreement in South Carolina. The operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following:

Article I: Organization
Article II: Management and Voting
Article III: Capital Contributions
Article IV: Distributions
Article V: Membership Changes
Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure.

Step 5: Request for an EIN

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

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.

If you would like to be assisted in getting an EIN in the Internal Revenue Service, LegalZoom can get your EIN for you. Their EIN service is quick and hassle-free. For more details about EIN for your business, check on how to apply for an EIN in South Carolina.

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Step 6: File Form 2553 for your S-Corp Business

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or at most 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS.

In South Carolina, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

Costs of Forming an S-Corporation

There are several costs associated with forming an S-Corporation in South Carolina, including:

Filing Fees: When forming a corporation in South Carolina, you must file Articles of Incorporation with the South Carolina Secretary of State and pay a filing fee of $110 for online and by mail filing.
Statement of Information: After forming the corporation, you must file a Statement of Information (Form SI-550) within 90 days and pay a filing fee (currently $25). This statement must be filed annually after that.
Franchise Tax: S-Corporations in South Carolina are subject to the annual franchise tax, which is the greater of a minimum tax (currently $800) or a calculated tax based on the corporation’s net income.
Other Costs: Depending on the nature of your business, additional costs may include obtaining licenses and permits, registered agent services, and professional fees for legal and accounting services.

Advantages of Forming an S-Corporation

There are numerous advantages to incorporating an S-Corp, but you should be aware of certain problems. Consider the following benefits of an S corporation:

Pass-through Taxation

S-Corporations enjoy pass-through taxation, which helps to avoid the double taxation faced by C-Corporations. This can result in potential tax savings for shareholders. Pass-through taxation is a tax system where the income, deductions, and credits generated by a business entity, such as South Carolina General Partnership, limited liability company (LLC), or S-Corporation, are passed through to individual owners or shareholders instead of being taxed at the corporate level.

In this system, business profits and losses are reported on the owners’ or shareholders’ individual tax returns, and taxes are paid at their individual income tax rates. This avoids the issue of double taxation, which occurs in C-Corporations where income is taxed at both the corporate level and again when distributed to shareholders as dividends. Pass-through taxation is generally advantageous for small businesses and their owners, as it simplifies tax filings and often results in lower overall taxes.

Limited Liability Protection

Shareholders of an S-Corporation have limited liability protection, meaning their personal assets are protected from the corporation’s debts and obligations. Limited liability protection in an S-Corporation refers to the legal separation between the personal assets of the shareholders (owners) and the business assets, which protects shareholders from being personally responsible for the company’s debts and legal obligations.

In an S-Corporation, shareholders’ personal assets, such as their homes, cars, and personal savings, are not at risk if the business faces financial difficulties or lawsuits. The shareholders’ liability is limited to the amount they have invested in the company. This limited liability is a significant advantage of incorporating a business as an S-Corporation, as it provides a safeguard for the personal financial well-being of the business owners.

It is important to note that limited liability protection can only be supported if the shareholders maintain proper corporate formalities, such as keeping separate business and personal finances, holding regular shareholder meetings, and maintaining accurate business records. In such cases, courts may “pierce the corporate veil” and hold shareholders personally liable for the company’s debts and obligations.

Transferability of Shares

Shares in an S-Corporation are more easily transferable than those in an LLC, allowing for greater flexibility in ownership changes. Transferability of shares in an S-Corporation refers to the ability of shareholders to sell, gift, or otherwise transfer their ownership interest in the company to another person or entity. This is an important aspect of an S-Corporation’s structure, as it allows for flexibility in ownership and the potential for raising capital through the sale of shares.

However, there are certain restrictions on the transferability of shares in an S-Corporation, which are imposed by the Internal Revenue Service (IRS) to maintain the company’s eligibility for S-Corp status:

Shareholders: The number of shareholders in an S-Corporation is limited to a maximum of 100. Only individuals, certain trusts, and estates can be shareholders; other corporations and partnerships are generally not allowed.
Eligible Shareholders: Only U.S. citizens and resident aliens can be shareholders in an S-Corporation. Non-resident aliens are not allowed to hold shares.
One Class of Stock: S-Corporations can only have one class of stock. All shares must have the same rights and privileges, such as voting rights and distribution preferences. However, differences in voting rights are allowed if they are not tied to economic rights (e.g., distribution preferences).
Perpetual Existence: Perpetual existence refers to the concept that a business entity, such as an S-Corporation, can continue to exist indefinitely, regardless of changes in ownership or management. This means the corporation can outlive its original founders and shareholders and continue to operate even if individual shareholders pass away or decide to sell their shares.

This characteristic of an S-Corporation provides stability and continuity for the business, as it ensures that the corporation’s operations, contracts, and legal obligations remain unaffected by changes in ownership. It also makes it easier for the company to attract investors and raise capital. Potential investors can be confident that the business will continue to exist even if the original owners are no longer involved.

Disadvantages of Forming an S-Corporation

Despite these advantages, moving to an S corporation only sometimes makes sense – or at the very least, necessitates a thorough review of certain situations. The following issues may arise in particular:

Restrictions on Shareholders

S-Corporations are subject to specific restrictions, such as a maximum of 100 shareholders and limitations on the types of eligible shareholders (e.g., only individuals, certain trusts, and estates).

Single Class of Stock

S-Corporations are limited to issuing only one class of stock, which can limit flexibility in raising capital or creating different ownership structures. A single class of stock in an S-Corporation refers to the requirement that the corporation only issues one type of stock with equal rights and characteristics for all shareholders. This means that all shares of stock must have the same economic rights, such as dividend distribution preferences and liquidation rights, as well as voting rights. The single class of stock requirement is one of the key criteria the Internal Revenue Service (IRS) sets for a corporation to qualify for S-Corp status.

Increased Complexity

Forming and maintaining an S-Corporation requires more paperwork, record-keeping, and compliance with state and federal regulations than simpler structures like LLCs.

Franchise Tax

S-Corporations in South Carolina are subject to the annual franchise tax, which can financially burden some businesses.

In an South Carolina S-Corporation context, the franchise tax is usually based on the company’s income, net worth, or a combination of both. Since S-Corporations are pass-through entities for federal income tax purposes, meaning that their income is not taxed at the corporate level but rather passed through to individual shareholders, they may be exempt from or subject to lower franchise tax rates in some states than traditional C-Corporations.

However, S-Corporations must still comply with South Carolina franchise tax requirements, which may include annual filings and tax payments. It is crucial for S-Corporation owners to understand the specific rules and regulations in their state of operation and to consult with a tax professional to ensure compliance and minimize their tax.

FAQs

What documents are needed to form an S-Corporation in South Carolina?

Articles of Incorporation, Biennial report, Operating agreement, and All regulation documents.

What is an S-Corporation in South Carolina?

Unlike regular corporations, S-Corporation in South Carolina are pass-through legal entities, meaning the business’s income, loss, and deductions pass through the corporation to the shareholders, who report it on their individual tax returns.

Is there a cap on the number of shareholders for an S-Corporation in South Carolina?

Yes, an S-Corporation in South Carolina is only allowed to have up to 100 shareholders.

How much does it cost to form an S-Corporation in South Carolina?

Filing a South Carolina S-Corporation Articles of Incorporation is a $125 flat fee.

Who is liable for the debts and obligations of the S-corporation in South Carolina?

The shareholders of an S-Corporation in South Carolina are not personally liable for the debts and obligations incurred by the corporation.

How long does it take to form an S-Corporation in South Carolina?

It usually takes seven business days to process South Carolina S-Corporation formation paperwork once received.

Do S-Corporations in South Carolina have to pay state income tax?

S-Corporations in South Carolina are required to pay a flat rate state income tax of 5%.

Can non-residents be shareholders of an S-Corporation in South Virginia?

Yes, non-residents may be shareholders of an S-Corporation in South Carolina, If permitted by the corporate bylaws.

What kind of business activities are suitable for an S-Corporation in South Carolina?

S-Corporations

What are bylaws, and does every corporation need them in South Carolina?

Bylaws are a corporate document that details how a corporation will operate. All corporations in South Carolina should have a set of bylaws.

What are the requirements for shareholders of an S-corporation in South Carolina?

All shareholders must satisfy the citizenship test and the Subchapter S rules for companies. They should be over 18 years, have agreed to acquire payment for debts, invested assets, goods or services, and own/or have obtained their shares legally.

What is the role of a registered agent in South Carolina, and does he need to be an attorney or resident?

A registered agent must be appointed to act as a corporation’s contact for legal mail in South Carolina. It can be any individual who is at least 18 and a legal entity resident in the state.

Must a South Carolina S-Corporation maintain records and publish franchise tax reports?

Yes, S-Corporation in South Carolina must uphold compliant maintenance of records and publications for their business operations.

What is the South Carolina Corporate biennial schedule compliance requirement, and what needs to be submitted?

Corporate biennial schedule compliance is an immense rule in South Carolina. All active corporations must file a report detailing current internal structure, directors, licenses, tax filings, etc. by biennial reports on schedules, mailed to the state’s regulatory organization.

How do investors benefit from being part of an S-Corporation in South Carolina?

Investors benefit from South Carolina S-Corporation financially due to potential tax minimization and lower scrutiny of expenditures accompanied by capital creation.

What tax documentation should be submitted to form a South Carolina S-Corporation?

Both IRS and South Carolina Revenue information returns with proper deduction forms attached.

Is there company tax involvement in South Carolina, along with business shareholders?

S-Corporations in South Carolina don’t have to pay federal income tax, only income taxes locally.

How does an S-Corporation differ from a C Corporation in South Carolina?

Both are forming with state authorization and report more simply to study online, but tax wise, the SC Secretary of State state’ll tax privately-held C Corporations over composite and income rturn variables.

How do I obtain an EIN for my S-Corporation in South Carolina?

An EIN can be acquired on the Internal Revenue Service website via online application form, mail, fax, or deliberate service.

Does South Carolina collect capital gain or loss residuals upon termination?

There is no termination or dissolution tax, which lets S-Corporations in South Carolina save important money.

Should an S-Corporation in South Carolina have meetings to conduct annual elections and referendums?

S-Corporations in South Carolina is not compelled to call elections yearly anyway are urged to maintain follow-through on particular designated policy layout requirements.

Can an S-Corporation sell/partner shares of its stock contemporaneously with actual incorporation/Certificate of Organization Docs?

An S-Corporation can’t start selling their shares to the marketplace immediately after conception/construction.

Do non-qualified individuals get the loss from S-Corporations in South Carolina?

Non-qualified folks can receive as profit collective of assumed credits and benefits if the stock settlement of this corporation project must apply hereby to All South Carolina Ventures Inc regulation filing rules.

What is the South Carolina business franchise code requirement needed?

South Carolinian business franchise documents serve as proof of license acquired by investors before report returns.

What should the filing procedure executed by anyone who abandons an S-Corporation be?

General filings only make sure the returns, exams, and other shows deposited amidst the South Carolina Division Treasury identify secure handling during the abandoned S-Corporations by all respective official business regulators.

In brief, why are there tax consequences for the sale of an SC S-Corporation via franchise ratios above LLC enterprises?

South Carolina S-Corporations can possibly tax federally and mid-year developments less utilizing ‘outwards revenues’ such as individual deduction calculation which usually create tax fixes outweighing the usual ratio of LLC enterprises.

Can an S-Corporation be reinstated in South Carolina if it was dissolved because it didn’t file the necessary filings?

An S-Corporation cannot reinitiate in South Carolina after considerable timing if it forgets about aspects like publishing compliance discipline fines, Annual written reports, and keeping in reserve tax filings.

As a call-back to laws from Congress, is market risk affecting South Carolina S-Corporation growth?

Market grants compliment sector market shares via corresponding scenarios or special formations, providing for growth records pertaining only to derivatives net worth increases or decreasing regulatory fees/ taxes, mostly affiliated with Congressional records.

What qualifies a business to become an S-corporation in South Carolina?

Businesses that have 100 or fewer shareholders, and meet certain eligibility criteria outlined by the IRS, can elect to be taxed as an S-corporation in South Carolina.

Are there any filing fees for S-corporations in South Carolina?

Yes, there is a one-time $135 filing fee when incorporating as an S-corporation in South Carolina.

Do S-corporations in South Carolina have the same liability protections as other corporations?

Yes, S-corporations in South Carolina are granted the same limited liability protections as other corporations.

Can non-residents of South Carolina form an S-corporation in the state?

Yes, non-residents can form an S-corporation in South Carolina, as long as they have a registered agent with a physical address in the state.

What is the annual S-corporation franchise tax in South Carolina?

The annual franchise tax for S-corporations in South Carolina is $50.

How are S-corporation profits taxed in South Carolina?

S-corporation profits are not subject to South Carolina’s corporate income tax, but are instead passed through to and taxed at the individual level.

Are S-corporations in South Carolina required to hold annual meetings?

No, S-corporations in South Carolina are not required to hold annual meetings.

Do S-corporations in South Carolina need to file state corporate income tax returns?

No, S-corporations in South Carolina are not subject to state corporate income tax.

Do S-corporations in South Carolina require a business license to operate?

Yes, S-corporations in South Carolina require a business license to operate, which can be obtained at the local level.

Can S-corporations in South Carolina issue stock?

No, S-corporations in South Carolina cannot issue stock.

Can existing corporations in South Carolina convert to S-corporation status?

Yes, existing corporations in South Carolina can elect to change their tax status to that of an S-corporation.

What type of income is exempt from South Carolina state income tax for S-corporations?

Passive income, such as interest, dividends, and capital gains, is exempt from South Carolina state income tax for S-corporations.

Does South Carolina have any minimum capital requirements for S-corporations?

No, South Carolina does not have any minimum capital requirements for S-corporations.

Do S-corporations in South Carolina need to file an annual report?

No, S-corporations in South Carolina are not required to file an annual report.

Does South Carolina require S-corporations to withhold state income tax?

No, South Carolina does not require S-corporations to withhold state income tax.

Can S-corporations in South Carolina have foreign shareholders?

Yes, S-corporations in South Carolina can have foreign shareholders.

Does South Carolina allow single-member S-corporations?

Yes, South Carolina permits single-member S-corporations.

Can S-corporation shareholders be paid a salary in South Carolina?

Yes, S-corporation shareholders can be paid a salary in South Carolina, but it is subject to employment taxes.

Is a registered agent required for S-corporations in South Carolina?

Yes, S-corporations in South Carolina are required to have a registered agent with a physical address in the state.

Are S-corporation income distributions in South Carolina subject to self-employment tax?

No, S-corporation income distributions in South Carolina are not subject to self-employment tax.

Does South Carolina have any restrictions on what types of businesses can elect S-corporation status?

No, South Carolina does not have any restrictions on which businesses can elect S-corporation status.

Do S-corporations in South Carolina need to file federal income tax returns?

Yes, S-corporations in South Carolina are required to file a federal income tax return using Form 1120S.

Can S-corporations in South Carolina carry net operating losses forward?

Yes, S-corporations in South Carolina can carry net operating losses forward to future tax years.

Can an S-corporation in South Carolina lose its status?

Yes, an S-corporation in South Carolina can lose its S-corporation status if it fails to meet the eligibility criteria or violates any of the IRS rules.

Does South Carolina offer any tax incentives for S-corporations?

Yes, South Carolina offers various tax incentives and credits for businesses, including S-corporations.

How often do S-corporations in South Carolina need to renew their business license?

S-corporations in South Carolina generally need to renew their business license on an annual basis.

Can S-corporations in South Carolina own and lease property?

Yes, S-corporations in South Carolina can own and lease property.

What tax forms do S-corporations in South Carolina need to file with the state?

S-corporations in South Carolina are required to file an annual state tax withholding return using Form WH-1605.

Why You Should Start South Carolina S Corp

One of the key benefits of forming an S Corporation is the potential tax savings. S Corporations are pass-through entities, meaning that the income and losses of the business are passed through to the shareholders and reported on their individual tax returns. This can result in significant tax savings for business owners, as they may be able to avoid the double taxation that can occur with C Corporations.

In addition to potential tax savings, S Corporations also offer liability protection for their shareholders. By forming an S Corporation, you shield yourself from personal liability for the debts and obligations of the business. This means that your personal assets are generally protected in the event of a lawsuit or other legal issues.

Another advantage of choosing an S Corporation structure is the flexibility it offers in terms of ownership. S Corporations can have up to 100 shareholders, and they can be individuals, trusts, estates, or certain types of tax-exempt organizations. This flexibility allows for a diverse ownership structure, which can be advantageous for businesses seeking outside investment or rapid growth.

Furthermore, S Corporations have the ability to issue different classes of stock, which can be useful for structuring ownership and control in a way that aligns with the goals and priorities of the shareholders. This can be particularly valuable for businesses that have multiple stakeholders with different levels of involvement or investment in the company.

Finally, forming an S Corporation can lend credibility to your business and help establish a professional image. Many customers, suppliers, and partners view S Corporations as more established and reliable than sole proprietorships or partnerships. By choosing this structure, you signal to others that you are serious about your business and committed to its long-term success.

In conclusion, setting up as an S Corporation in South Carolina can offer a range of benefits and advantages for aspiring entrepreneurs. From potential tax savings and liability protection to flexibility in ownership and enhanced credibility, there are many reasons why you should consider choosing an S Corporation structure for your business. So if you are thinking about starting your own business in South Carolina, be sure to explore the option of forming an S Corporation – it could be the best choice you make for the future success of your business.

Conclusion

Forming an S-Corporation in South Carolina can be a beneficial decision for small business owners seeking liability protection, pass-through taxation, and easier transfer of ownership. By meeting the requirements set by the IRS and following the necessary steps, business owners can take advantage of an S-Corp’s unique structure and benefits. However, it is essential to consider the potential drawbacks, such as increased paperwork and limitations on ownership, before making a final decision. Consulting with a legal or financial professional can help business owners determine if an S-Corporation is right for their needs and goals.