The fact that corporations can be treated as independent legal entities, limiting the liabilities of the owners and managers and allowing the corporation to enter into contracts and maintain stability over time, makes them a popular business type.
Corporations fall into the following three categories:
- C corporations. C corporations are owned by shareholders who elect a board of directors to oversee operations. They are taxed as a separate legal entity from anyone else involved and provide the greatest protection between the business and personal assets.
- S corporations. S corporation earnings are split among shareholders and are taxed at that level only, not also separately as a business entity.
- Nonprofit corporations. Nonprofits can apply to be tax-exempt (employees still must pay taxes on their wages), but they require significantly more paperwork and must adhere to strict regulations.
This article will guide you through how to start a corporation in the state of South Carolina.
How do I form a Corporation in South Carolina?
Steps to form your South Carolina Corporation
- Name Your Corporation
- Appoint Directors
- Choose an South Carolina Registered Agent
- File the South Carolina Articles of Incorporation
- Create Corporate Bylaws
- Draft a Shareholder Agreement
- Issue Shares of Stock
- Apply for Necessary Business Permits or Licenses
- File for an EIN and Review Tax Requirements
- Submit your Corporation’s first report
To start a corporation in South Carolina, you must file the Articles of Incorporation with the Secretary of State. However, before you get to that point, and afterward, there are several other steps to consider. To simplify the process of forming a corporation in South Carolina, we’ve put together 10 easy steps to form your business:
Step 1: Name Your Corporation
When it comes to naming your corporation, you need to comply with South Carolina’s business naming laws. There are many factors to consider during the process. These include making sure your business name is unique, suits your business well, aligns with all regulations, and includes a corporation designator.
You also don’t want to overlook the importance of choosing a name for which you can reserve a matching website domain name that has not been taken. Additionally, you can consider any “doing business as” (DBA) names or trademarks you may want.
Here are some guidelines to help you through the naming process:
- Start by brainstorming a list of potential names. Names on this list should match your business’s purpose, and the more names you have, the better. The next several steps will begin to narrow down your options.
- The final version of any name you choose must contain the word “Corporation,” “Incorporated,” “Company,” “Limited,” or one of these abbreviations: “Corp.,” “Inc.,” “Co.,” or “Ltd.”
- Search your prospective business names on the Secretary of State’s website to eliminate any names that are too similar to existing businesses.
- Corporation names also cannot contain language implying they are organized for a purpose other than stated in the Articles of Incorporation.
- The name cannot suggest it is associated with any government agency or include anything indicating it will be engaged in illegal business.
- Once you’ve narrowed down your list based on the above, the next task is to search for available domain names to ensure you can secure a website domain that matches your business name.
- Search federal and state trademark databases to make sure your desired corporation name isn’t trademarked. You can also consider filing for a trademark of your own. A South Carolina trademark’s effectiveness is limited to the state, but is easier to get than a federal trademark. You can find details on applying at the US Patent and Trademark Office’s website.
- If you would like to do business under a name different from your official corporation name (often called a “doing business as” or DBA name), you are not legally required to file anything at the state level in South Carolina. However, you should check with your county clerk’s office to see if any filings are required at the local level.
Once you have settled on a business name, you can reserve the name if you are not ready to register it. You can do this by submitting an Application to Reserve Corporate Name to the Secretary of State and paying a $10 filing fee. This will hold your name for a renewable 120 days.
Step 2: Appoint Directors
The board of directors for a corporation oversees the operations of the business. For your business to get off the ground, a board of directors will need to be appointed.
The board of directors is often appointed by the initial incorporators — those involved in filing the initial paperwork for starting the business and who may or may not become shareholders. Note that only one incorporator is required, and only one member on the board is needed, although more is recommended.
Incorporators may be directors and also shareholders. But the three titles are distinct roles within the company. The incorporators are responsible for starting the business and filing the paperwork; the board of directors oversees the business; and the shareholders finance the business by owning shares in the company.
It’s a good idea for all incorporators to meet and elect an initial board of directors before filing the Articles of Incorporation. This board can then begin creating the corporate bylaws (described in a later section).
Step 3: Choose a South Carolina Registered Agent
A registered agent is a person or entity that agrees to receive legal documents, court summons, and important state correspondence on behalf of the corporation.
When filing your Articles of Incorporation, you must list a registered agent who is an individual residing in the state or a corporation with an office in the state that is authorized to do business in South Carolina. You must include a South Carolina street address for the registered office and not a P.O. box.
While someone in the corporation can serve as the corporation’s registered agent, this is generally not advisable. Having a separate registered agent helps give space between your business and business activities and any legal issues.
Step 4: File the South Carolina Articles of Incorporation
Filing the Articles of Incorporation registers and establishes your business with the state. In this document, you will need to include:
- The name of your business
- The name and street address of your registered agent, along with a statement of consent and signature
- The number of authorized shares of stock in total or broken down by class if authorizing different classes of stock (the number of shares is often determined by the board of directors or the incorporators)
- A description of each stock class if applicable
- Any provisions that the corporation would like to include
- The name, address, and signature of each incorporator
- A signed statement from a licensed attorney attesting to the fact that your filing complies with the law
In South Carolina, corporations are additionally required to file a form CL-1 Initial Annual Report of Corporations with their Articles of Incorporation. Forms may be filed online or by mail and must be accompanied by a filing fee of $135 (which includes $25 for the form CL-1). If filing by mail, you’ll need to provide both the original form and a copy.
Step 5: Create Corporate Bylaws
The next step is to have the incorporators or the board of directors create the corporate bylaws. The bylaws establish all of the rules and day-to-day activities of your business. The creation of corporate bylaws is required for all corporations in South Carolina.
Your corporate bylaws may include:
- A clear statement of your business purpose
- A list of initial shareholders and the rights, responsibilities, and qualifications of each
- A list of the board of directors and the rights, responsibilities, and qualifications of each
- Details of your management structure and the duties of each officer
- The annual meeting scheduling and goals for directors and shareholders
- How ownership and shares are distributed and how the stock is sold or transferred
- How changes are made or voted on
- Procedures for replacing directors
- Details of any committees and their responsibilities
- How conflicts of interest are to be handled
While you are not required to file your bylaws anywhere, you are required to keep them in a safe place with any other corporate records. It’s good to set up a corporate records book where you can keep all of your corporation’s important papers, including bylaws, minutes from meetings, and stock certificates.
Step 6: Draft a Shareholder Agreement
Next on the list of things to tackle is the shareholder agreement. This is a document that outlines the rights and responsibilities of all shareholders and may include:
- The names of all shareholders and their contact information (address, phone number, etc.)
- Shareholder responsibilities, including rules about how officers are appointed and any actions that shareholders are allowed to take on behalf of the business
- Shareholder voting rights, including whether a simple majority or higher percentage may be required for certain decisions
- How changes to the original shareholder agreement may be made
- How stock can be sold or transferred
- The financial obligation and time commitment for each shareholder
- A clear outline of how dividends are distributed
- A plan for the distribution of assets should the business close
Again, this agreement can be drafted from a template, but you may want to utilize professional assistance. Your shareholder agreement should be kept with your other important corporate records.
Step 7: Issue Shares of Stock
Once your business is registered, and rules are in place, it’s time to issue stock. When you filed the Articles of Incorporation, you stated the number of stock shares authorized. The number of shares you issue should always be less than or equal to this number.
You’ll need to estimate how much capital you require before issuing shares of stock to determine a reasonable value for each share. Shares of stock may also be issued in exchange for services or other noncash value and capital contributions.
Each share is only issued once. However, after being issued, it can be traded and sold. All issued shares must be documented in the company’s annual report. Although it is not typically required, most corporations issue certificates to shareholders, indicating their shares.
Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders, managers, employees, or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.
Each share is only issued once, but after issuance, shares can be traded and sold. All issued shares must be documented in the company’s annual report. Companies issuing public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. You should check with the South Carolina Securities Division to see what might be required at the state level.
Step 8: Apply for Necessary Business Permits or Licenses
South Carolina’s Business One Stop website has a great tool for determining what business licenses you may need. Take a look at their Licensing Quick Chart to see if your county requires a business license and how you can go about filing for one.
In addition, your business may need a variety of other licenses or permits depending on your industry. Licensing happens at the federal, state, and local level, so you’ll need to do some research to determine what your corporation needs.
You may also need to register with the Department of Revenue for a retail sales tax license if you will sell any tangible goods at retail. Also, check with the city you plan on doing business with to determine if anything is required at the city level.
Step 9: File for an EIN and Review Tax Requirements
Since corporations are treated as distinct entities separate from the people involved, they require an Employer Identification Number (EIN). This number acts like the corporation’s Social Security number for tax purposes.
To apply for an EIN, you need to visit the IRS website. The application is simple and can be completed online in just a few minutes for free, after which you will receive your EIN. You should keep this number safe, as you will need it for future documentation and filing your business’s tax returns.
Remember that corporations must pay their own taxes separate from any taxes paid on shareholder earnings. This must be done at the federal and state levels by submitting the appropriate return each year. You may also be responsible for sales tax, employee withholdings, and other local taxes.
Step 10: Submit Your Corporation’s First Report
- Corporation name
- Registered agent name and street address
- Location of the principal office
- Nature of the business
- Number of authorized stock shares, broken down by class if applicable
- Number of issued and outstanding shares of stock
- Names and business addresses of each director
- Date of incorporation, business commencement, and date of the report
- An indication as to whether the business name changed during the year
- The name and address of who keeps the corporate books and records
- Amount of stated capital
You must also pay a license fee, which is 0.1% of the corporation’s capital stock and surplus plus $15 (minimum fee of $25). The corporate tax return includes both the annual report form and information for determining the license fee. You’ll find the forms for both the C corporation Income Tax Return (SC1120) and the S corporation Income Tax Return (SC1120S) here, along with instructions for completing the forms. You can also file online.
How much does it cost to start a corporation in South Carolina?
The cost of starting a South Carolina corporation can vary considerably, depending on the size and type of business and location. At a minimum, you will need to pay the $135 fee for filing the Articles of Incorporation and form CL-1. Additional fees may include:
- Registered agent service fees
- $10 for name reservation
- Fees to reserve a domain name and create a website
- Fees for assistance with paperwork
- Licensing and permit fees
- Annual report fee
- Fees assessed for amendments or other business filings
ZenBusiness can help alleviate any stress of getting your corporation off the ground by assisting with many of the required steps for a low annual fee.
What are the benefits of a corporation in South Carolina?
Many benefits come with starting a corporation in South Carolina. As a business type, the benefits of a corporation include:
- Protection of personal assets
- Legal recognition as a separate entity in and outside the U.S.
- The ability to issue stock (which can help with funding and capital)
- Does not dissolve if owners leave or pass away
There are disadvantages you should be aware of, however. Among these are the tax structure (profits are taxed at both the corporation and personal income tax levels), and there’s a lot more red tape and paperwork involved than with other structures, such as limited liability companies (LLCs).
How is a South Carolina corporation taxed?
How your corporation is taxed in South Carolina will depend on its designation as a C corporation, an S corporation, or a nonprofit.
- C corporations are treated as separate entities and must file their own tax returns. In addition, all owners and shareholders file tax returns for earnings and dividends (this results in double taxation). While that might seem less than ideal, there are some benefits to this tax structure, including more flexibility in what can be deducted.
- S corporations are pass-through entities, much like LLCs. All profits are passed through to the owners, who must pay taxes on their individual income tax returns. However, for state taxes, S corporations must still pay the annual license fee on Form SC1120S, as stated above. Also, S Corporations must withhold 5% of the South Carolina taxable income of shareholders who aren’t residents of South Carolina. You can find more info on how S corporations are taxed in South Carolina here.
- Nonprofit corporations can apply to be exempt from paying federal and state taxes, provided they stay within the rules for nonprofit activity. However, anyone drawing a salary from a nonprofit corporation will pay income tax on that salary.
Keep in mind that you may be responsible for additional taxes, depending on your corporation’s operations and whether you have employees. You can learn more about taxes on the South Carolina Department of Revenue webpage.
South Carolina Corporation FAQs
- Does running a corporation in South Carolina involve more paperwork than running other types of businesses?
Corporations are known for requiring a lot more paperwork and record-keeping. This is not surprising, considering they tend to have more laws to comply with and more people involved. Consider bylaws, shareholder agreements, keeping track of all stock issuances, meeting notes, etc., and the paperwork can add up pretty quickly.
- What is the difference between an LLC and a corporation in South Carolina?
LLC stands for limited liability company. This type of business structure is a pass-through entity for tax purposes, and it is useful in keeping the owners’ assets separate from business assets. However, LLCs do not have a board of directors and do not issue shares.
- How do I change my corporation’s name in South Carolina?
You can change the name of your corporation in South Carolina by filing the Articles of Amendment and paying a $110 filing fee.
- How many people are needed to form a corporation in South Carolina?
A single person can form a corporation in South Carolina.
- Can I form my South Carolina corporation online?
Yes. You can use the South Carolina Business One Stop website to form your South Carolina corporation online.
- How do I dissolve my South Carolina corporation?
To dissolve your corporation, you will need to file the Articles of Dissolution with the Secretary of State.
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