As exhilarating as it is to take your business from a dream to reality, there are challenges that naturally arise as you launch a new company. Those working alone know how difficult it can sometimes be to shoulder everything — from the victories to the stresses — alone. And when working with multiple owners (called “members” in an LLC) and managers, it can be tough to coordinate everyone’s interests and ideas.
By adopting an Operating Agreement in advance for your South Carolina Limited Liability Company, you can relieve yourself of some of these headaches and easily tackle issues as they emerge. This valuable document dictates how your company will be run. It provides oversight for several areas — including ownership structure, management structure, and how changes are made to the business.
It’s also an excellent resource to diffuse conflicts between owners. With everything you need to know about your company in writing, all you must do is turn to your Operating Agreement for answers.
This document also fortifies your company’s limited liability status, which is important to protect the members’ personal assets should your business be sued. Read on to learn how to write a South Carolina LLC Operating Agreement and which terms you should include.
What is a South Carolina LLC Operating Agreement?
Before anything else, you need to decide which type of business you want to run. There are four basic structures that most business owners choose from: sole proprietorship, partnership, corporation, and LLC.
One of the more popular structures for small businesses is the LLC. An LLC comes with the tax structure and flexibility of operating a partnership while also providing the limited liability protection that comes with a larger corporation.
Your LLC may have a single owner or be owned by multiple entities. And owners can be an individual person, or they might be another business, including corporations, partnerships, or other LLCs. Whether an owner is a business or a person, all LLC owners are called members.
When you register your LLC, you create a new entity, one that is separate from your company’s members. This new entity shoulders most of the weight if your company is sued or files for bankruptcy. This protects your members’ personal assets.
Most states, including South Carolina, don’t legally require you to create an Operating Agreement when registering your LLC. Still, it’s recommended that you adopt an agreement around the time you file your Articles of Organization with the South Carolina Secretary of State.
This Operating Agreement will likely be one of your go-to resources regarding affairs of the company. It determines how your LLC is run and sets the tone for its operations and structure. In South Carolina, your Operating Agreement is an internal document for your business’s use only. It should be filed at your LLC’s primary place of business.
Since an Operating Agreement is not legally required, there are no state or other government fees associated with adopting it. It costs $110 to file your Articles of Organization, though. Most LLCs will approve their Operating Agreement at their organizational meeting, which usually takes place around the time they file their articles.
Why do I need an LLC Operating Agreement in South Carolina?
Just because the law says you don’t need an Operating Agreement for your LLC in South Carolina, that doesn’t make this document less important.
This Operating Agreement is the foundation of your company. It establishes who is in charge and how it’s run. It covers everything, from the day-to-day operations to long-term planning.
Putting how you want your company into writing is good practice. If you don’t specify how you want certain aspects of your LLC to be run in your Operating Agreement, they’ll default to the South Carolina statutes regarding LLCs.
In addition to creating guidelines for your company, the U.S. Small Business Administration (SBA) says there are other benefits to this document. It further establishes your LLC’s limited liability status, which provides protection for your members’ personal assets should your company find itself in court. It’s also an excellent guide for diffusing member disputes. Most of the answers will be found in your Operating Agreement.
Additionally, it plays a part in your LLC’s finances. Before you can open a business bank account, many financial institutions will want to review a copy of your Operating Agreement. The same goes for lenders considering offering you financing.
What do I include in my South Carolina LLC Operating Agreement?
All businesses are different, which means their Operating Agreements should reflect their unique needs and interests. No two documents will ever look alike.
That’s a lot to consider as you write your South Carolina LLC’s Operating Agreement from scratch.
Your members should determine which terms and issues will be addressed in your agreement. This includes everything, including the day-to-day operations, management structure, how members are paid, and how decisions are made.
First, consider the norms of your industry. Which terms do similar companies tend to include? Also, consider state and federal laws when writing your document. Your agreement should be in keeping with the law.
There are also some excellent resources, such as ZenBusiness, which offers a template to get you started when you draft your document.
However, there are certain basic terms most South Carolina LLCs will want to include in their Operating Agreements, according to the SBA. Their terms include:
- LLC Name
- Management Structure
- Powers and Duties of Members and Managers
- Voting Rights and Responsibilities
- Distribution of Profits
- Guidelines for Scheduling and Holding Meetings
- Buyout and Buy-Sell Rules
- Dissolution of the LLC
- Modifying Your Operating Agreement
1. LLC Name
This first section of your Operating Agreement should have the name of the company. It should match the name written in your Articles of Organization when filing with the state.
Your official business name with the state must include the words “Limited Liability Company” or “Limited Company” or any of the following abbreviations of these words: “LLC,” “L.L.C.,” “LC,” or “L.C.” “Limited” may also be abbreviated as “Ltd.” and “Company” as “Co.”
List the names of all owners (members) of your LLC in this section of your Operating Agreement. You’ll want to note their specific membership interest.
Your business may be a single-member LLC, where you’re the only owner, or have multiple members, which can be a mix of individuals and/or other businesses.
In addition to their names, you need to include their ownership percentages in this portion of the Operating Agreement. It’s up to you and the other members to determine how the LLC ownership is divided.
3. Management Structure
Your Operating Agreement will also establish your LLC’s management structure: member-managed or manager-managed.
In a member-managed business, your members elect to be more hands-on with day-to-day matters. If they choose to be passive owners and hire a management team, this is a manager-managed company.
Also, remember that if you choose a manager-managed structure, you can select one or more members to take on management positions.
4. Powers and Duties of Members and Managers
This section establishes the powers and duties of your LLC’s members and managers. It establishes the authority of your members to make decisions for the company and determines the responsibilities of those in a management role.
5. Voting Rights and Responsibilities
You’ll need to determine how much voting power each member has on matters affecting the company. Your Operating Agreement should determine this voting process. When and how does voting take place? How many votes are required to approve a decision? What is the value of each member’s vote?
6. Distribution of Profits
Your LLC’s annual profits will be distributed to your members. Your Operating Agreement determines the process for this distribution, well as what percentage of the profits go to each member.
As with other aspects of your LLC, you and the other members get to determine how the profits are split. You can use any metric you all agree on, (e.g., members’ ownership percentages or their level of involvement).
7. Guidelines for Scheduling and Holding Meetings
There aren’t any set requirements for how frequently your LLC membership should meet. Still, it’s a good idea to create internal guidelines for meetings. How often do you want to meet? How and where should they be conducted?
8. Buyout and Buy-Sell Rules
There are many reasons your LLC’s membership could change over time: retirement, interest in other projects, death, etc.
A transition can be tough on any business. To make this period less stressful, it helps to establish buyout and buy-sell rules in your Operating Agreement.
Use this section to determine how members are paid out when they leave your company. Also, set rules for who receives the first opportunity to purchase available interest in the LLC. Do current members get first consideration, or will you seek new entities?
9. Dissolution of the LLC
There’s a lot of stress that comes with shutting down a business. So, it helps to establish a process for closing your LLC in advance.
How many membership votes will you require to approve your company’s dissolution? You also need to consider what happens with your company’s remaining assets. How will they be distributed among members?
Also, when you dissolve your LLC, you need to file the Articles of Termination in South Carolina. There is a $10 filing fee.
It’s important to remember to file your Articles of Termination. Otherwise, the state might continue to consider you in business, even if you aren’t operating. This could result in business taxes and other fees owed.
10. Modifying Your Operating Agreement
The Operating Agreement you start your company with will likely look different as your LLC evolves. You’re going to have different business needs as you grow.
It’s easy to modify your Operating Agreement to acknowledge these changes. Your members just need to vote on any proposed revisions.
This section of your Operating Agreement determines how the changes are made and establishes voting guidelines for these changes.
Partner With ZenBusiness for Professional Assistance
Any member of your LLC can draft your company’s Operating Agreement. Even if you aren’t a legal expert, there are plenty of resources available to you as you write it. ZenBusiness’s easy-to-use template is a handy tool to reference while crafting your company’s Operating Agreement.
And if you find yourself overwhelmed while working on this document, consider consulting a legal or business professional to review your work.
Updating and Revising Your South Carolina LLC Operating Agreement
Over time, your LLC will likely grow and evolve. When this happens, you’ll want to update your Operating Agreement to reflect these changes to structure and operations. Your document should be an accurate depiction of how your company is run.
If a member retires or leaves your LLC for any reason, you’ll need to update the ownership terms. Maybe you bring in new management. You’ll need to update your agreement then, too. Sometimes, you need to update your document as laws change to ensure your business is legally compliant.
Thankfully, it doesn’t have to be a difficult process to make these changes. All it takes is a member vote.
First, your members should schedule a meeting to discuss proposed changes and vote on them. After this vote has taken place, if the change has been approved, update your Operating Agreement and put these changes in writing. Then, your members should review the updated document and approve and sign it. It should be filed internally at your LLC’s primary place of business.
If any changes to your agreement conflict with your Articles of Organization, you need to update that document, as well.
If you’re wondering when you should review your Operating Agreement, you should get into the habit of reviewing it when you’re looking at other key items, like whether or not your registered agent and/or registered office has changed and when you’re filing your annual report.
South Carolina Operating Agreement FAQs
- Is an LLC Operating Agreement required in South Carolina?
An Operating Agreement is not required for South Carolina LLCs. Despite not being legally required, though, it’s advisable for all LLCs to adopt an Operating Agreement. This is a valuable document that will help you create guidelines for your company and lead it to success.
- Where do I get an LLC Operating Agreement in South Carolina?
There is no Operating Agreement form that all businesses fill out in South Carolina. Instead, each LLC writes its own document. This allows them to tailor the agreement to their own needs.
As you draft your Operating Agreement, ZenBusiness offers a template that you can use. This will help you cover the most important aspects of your Operating Agreement.
- Does a single-member LLC need an Operating Agreement in South Carolina?
Whether you’re forming a single-member or multi-member LLC, neither are required to have an Operating Agreement in South Carolina. An Operating Agreement is an excellent resource for your company, though, even if you have only one member. Single-member LLCs benefit from the same added personal liability protection as a multi-member LLC.
Also, you never know what your plans might be down the road. You might consider bringing in additional members. With an Operating Agreement, this transition will be easier.
- Do I file an LLC Operating Agreement with South Carolina?
No, you are not required to file an Operating Agreement with South Carolina. It’s not required by the state and will serve as an internal document for your LLC. If your membership chooses to adopt an Operating Agreement, it should be filed at your primary place of business.
- Can I write my own LLC Operating Agreement in South Carolina?
Yes, you can write your own Operating Agreement in South Carolina. There are no requirements that a business attorney or another professional write this document for your LLC.
However, it’s always advisable — especially if you have any questions along the way — that you consult with a professional to review your work.
- Do I need a lawyer for an LLC Operating Agreement in South Carolina?
You do not need a lawyer to create an Operating Agreement for your South Carolina LLC. You can use a template from ZenBusiness and other resources to write this document.
Once completed, you should consider consulting an attorney, though. Having a legal professional review your work before your membership approves it will ensure your document is legally sound and doesn’t violate any state or federal laws.