A South Carolina LLC Operating Agreement is a legal document that is meant to guide the owners or members of any business (no matter the size) on creating an agreement that would help map out the way the business would be run and provide necessary protection under the state law if litigation issues arise.
The parameters and definitions of each variable factor are also defined in the Uniform Limited Liability Company Act 1996, under Section 33-44. This section goes into detail, explaining the value assigned to each term and how the law will cater to them.
Operating Agreement Laws: § 33-44-103
State Definition: § 33-44-101(13)
Types of Operating Agreement
Following are the main types of South Carolina LLC operating agreements:
Single member operating agreement
This is the most affordable, thereby making it the most common operating agreement. This is for LLCs with a single owner, and much like a sole proprietorship, the owner is responsible for taxes, business transactions, and possible debts that the business may incur. LLCs can be taxed as corporations; however, it is dubbed as a "disregarded entity" in cases where the LLC decides to be taxed as a sole proprietorship and not a corporation.
Download: Microsoft Word (.docx)
Multiple member operating agreement
This is an agreement that caters to the needs of LLCs with multiple members. In this agreement, all members are clearly stated as well as the percentage of power they have in the company
Download: Microsoft Word (.docx)
Member-managed multi-member operating agreements
Member-managed multi-member operating agreements are for LLCs formed by multiple members who wish to manage the company jointly. It is a type of operating agreement that shares management responsibilities amongst its members. The focus is both on the day-to-day activities of the company, as well as the long-term planning goals. And that is usually more tasking on the members.
Download: Microsoft Word (.docx)
Manager managed multi-member operating agreements
These operating agreements are for LLCs with multiple members who wish to appoint single or numerous managers responsible for handling the company's daily affairs. That gives the members more room to focus on long-term planning and managerial tasks for the business. In addition, this agreement is usually for LLCs with a more significant number of staff with multiple departments that require closer monitoring which the members/owners may not be capable of doing.
Download: Microsoft Word (.docx)
Importance of Operating Agreement
It is a great way for your organization to clearly define who’s in charge and to what level. In South Carolina, an LLC operating agreement is by no means a vitally binding document to the company. However, being able to define how your company should function is highly recommended.
Without an operating agreement, the LLC will fall under state laws which will not be specifically tailored to the company’s needs. Nevertheless, it can cover the activities of daily operations as well future endeavors of the organization.
Creating an operating agreement will help establish your Limited Liability Status, which can protect the assets of all your members if the company should be sued. In the US, the Small Business Administration (SBA) also endorses this document.
Banks usually require seeing a copy of your LLCs operating agreement before opening a business account. The same also goes for companies that offer loans and other financial institutions.
It is also good to clearly and comprehensively specify how your company should run so that it does not default to South Carolina’s statutes regarding LLCs.
Why an LLC in South Carolina?
While not all states require an operating agreement, it is seen as best practice to have them. An operating agreement is an excellent document to have as it helps outline the business’s financial and functional decisions. It also outlines rules, regulations, and provisions to help members and managers govern the company optimally.
An LLC is not needed in the state of South Carolina. However, due to the effectiveness of an operating agreement when regulating a company’s internal activities, the state of South Carolina has advised that all LLCs should go into an operating agreement under the South Carolina Code of Laws, in Section 33-44-103.
This is meant to encourage more LLCs to create an operating agreement as it will be recognized under the state laws.
LLC status protection
The credibility of single-member LLCs is often in question. However, since an operating agreement is a legal document recognized and upheld by the court, it will also help preserve its Limited Liability status.
In a multiple-member LLC, an operating agreement will define each member’s roles, responsibilities clearly, and level of authority to avoid misunderstandings between members. It also helps members have a clear understanding of what is expected of them, and this will make them focus their efforts and resources in the right direction.
Information to be Added
Generally, the following information should be incorporated in LLC operating agreement:
This is meant to show the history of your LLC which involves when it was formed and how leadership is shared amongst your members (in cases of multi-membered LLCs). It is also to clearly state each member’s level of authority and how it comes to play when decisions are being made.
The operating agreement should have the names of all the members in cases where they have multiple members/owners. The members could either be individuals, companies, or a mixture of both. You also need to include each member’s level of ownership after there has been a consensus on how the LLC’s ownership should be divided.
Your LLC agreement is also used to determine what management style you wish to enact. This could either be member-managed or manager-managed styles. Member-managed LLCs are those where the members choose to manage day-to-day activities or manager-managed systems. The members can then focus on long-term goals.
Duties of members
This section clearly outlines the powers and responsibilities of each member and manager as the company requires. It is meant to establish the level of each member’s authority and how each member can make decisions for the company. It also determines the responsibilities of those who are in management roles.
Voting rights and responsibilities
The operating agreement doesn’t just show each member’s voting power on company matters. It also clearly outlines the voting process. For example, how and when voting should take place, the number of votes needed to decide, the value/power of each member’s votes, and so on.
Distribution of profits
The operating agreement also dictates how the annual profit will be shared amongst its members. It also ensures that the profits are shared while considering the contributions of each member, be it monetary or otherwise.
While there aren’t any set guidelines for how and when meetings should be held, it is best practice to agree on the internal structure. That should include how often meetings should be held, their location, and how they need to be held.
Buyouts and buy-sell rules
Due to the complex natures of transitions in business, it is best to establish buyout and buy-sell rules in the operating agreement to help make the processes less stressful. This section will also address how members will be paid out when they leave the company and who gets the first opportunity to buy public interests in the company, or if there will be a need to seek new entities.
Shutting down a business comes with a lot of stress for the members. Therefore, it pays to properly define the parameters for closing your business ahead of time. The agreement will explain the number of votes needed to proceed with the company’s dissolution. It also dictates what will happen to the remaining assets and how they will be distributed amongst members.
When dissolving your South Carolina LLC, there is a need to file your Articles of Termination in South Carolina so that the state will no longer recognize you as an operating business. As such, you will not be taxed unfairly. It costs $10 to file the Articles of Termination.
As the business evolves, so will the operating agreement. A transparent process needs to be established on how changes will be made to the LLC operating agreement. Voting guidelines should be clearly stated to make this process as fluid as possible.
Operating Agreement Templates
We understand the stress and complications which could be involved in trying to draw up an operating agreement. However, many LLC members may not also be aware of all the information that may be needed or the structure in which the agreement should take.
You can trust us to provide you with free templates that’ll reduce the burden on LLC members who would wish to draft an operating agreement for their company:
How to Start Operating Agreement?
When starting a South Carolina LLC operating agreement, there are specific steps you must consider to create a full-proof one:
Step 1: Pick a name
While this might be considered a preliminary step, it is still vital. According to the laws of South Carolina, the name for an LLC must contain the words “limited liability company” or “limited company” or the abbreviations “LLC,” or “LC,” in it. The word “limited” can be abbreviated as “Ltd,” and the company can be abbreviated as “Co.”
In addition, your LLCs name must be distinguishable from the names of other LLCs the state has on record. The Secretary of State will decline names that appear similar or identical to already existing names. It is also possible to reserve a name for 120 days by applying to reserve an LLC name with the South Carolina Secretary of state corporations’ division. This fee costs $25 and must be filed via mail.
Step 2: Appoint a registered agent
This is an individual or business entity that bears the responsibility of accepting legal papers in the stead of your LLC if it is ever sued. It is compulsory for every LLC in South Carolina to have one. The agent is also required to have a physical street address in South Carolina. The agent could either be a registered resident or a business authorized to do business in South Carolina.
Step 3: The type of LLC
Here are two main types of LLCs which could either be local or foreign.
- Domestic: this is for LLCs formed within the state of South Carolina’s jurisdiction.
- Foreign: this for LLCs that were formed outside the State of South Carolina’s jurisdiction
Step 4: Filing Articles of Organisation
To create a South Carolina LLC, you need to file the Articles of Organisation with the secretary of state. The information this article must include are:
- The LLC’s name and designation
- Name and address of the LLC’s registered agent
- The management style of the LLC (manager-managed or member-managed) as well as the manager’s name and address
- The address of the LLC’s office
- If the LLC is set to last for only a few years, then the term end date must be provided
- If the LLC has a delayed effective date. You are advised to leave this field blank if you want your LLC to be effective from the moment the Articles of Organization is filled
- You should also provide the name and address of at least one of the organizers of the LLC
- Finally, the signatures of ALL the organizers
Step 5: Preparation of an operating agreement
The importance of the LLC is evident. At this stage, you prepare the LLC’s operating agreement with all the information listed above to help account for all the likely scenarios to occur.
Ensure that the agreement will contain the following:
- The percentage of each member’s interest in the LLC
- Allocation of profit and loss
- Rights and responsibilities of members
- Voting powers
- Guidelines for holding meetings
Step 6: Obtaining an EIN
If an LLC has more than one member, it must get its own IRS Employer Identification Number, whether it has employees. Single-member LLCs must have an EIN if it plans to have employees or it has chosen to be taxed as a corporation instead of a sole proprietorship
Frequently Asked Questions
It is not required; however, it is strongly advised to get one to protect your company.
It costs as low as $49.
It is always best to create it just before the business is registered officially.