Starting an LLC may involve filing articles of organization with the state and establishing internal ground rules for how your business should operate. Establishing your credibility as a legal entity is a part of the plan.
Every LLC in SC is encouraged, but not required, to have an operating agreement to safeguard the company’s operations, from organization to dissolution. It ensures that all LLC members understand their roles and responsibilities. This page guides you in making a South Carolina operating agreement.
On this page, you’ll learn about the following:
South Carolina LLC Operating Agreement Content
An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. Topics not restricted to a single member or multi-member LLC will be covered. While these provisions might not influence day-to-day operations, they must be included for legal reasons.
- Ownership: The operating agreement details who the members are and how ownership is divided, be it a sole proprietorship or LLC. Sole proprietorship refers to a single person with total control over a business, also known as a single-member LLC. Multi-member LLC members can have either equal or varying ownership interests.
- Management: Your LLC could be member-managed or manager-managed. The former means members can decide regarding contracts with third parties; the latter means only designated managers can do so. Using “manager-managed” instead of “hands-on” can reduce administrative work. Management’s authority is also limited in the Operating Agreement.
- Voting: Define each owner’s voting rights and voting thresholds, such as a majority vote, supermajority vote, and unanimous consent. A variety of approvals are needed for each type of decision.
- Changes in Membership Structure: If someone leaves the company, how will roles and ownership be transferred? A member buyout and/or replacement procedure must be outlined in the LLC’s governing document.
- Contributions: All types of contributions are accepted. In order to fund their ownership interests, members will have to invest in the collective funds.
- Equity Splits: Determine equity for each member, taking into consideration things like their contributions, responsibilities, and fairness. Maintaining fairness in your equity split will help prevent future disagreements.
- Transfers: You may want to consider outlawing transfers of ownership interests without the consent of all owners. It’s always a good idea to include permitted transfers, such as first refusal, drag-along rights, tag-along rights, and estate planning transfers.
- Business Restrictions: To protect the privacy of the company, including confidentiality obligations. You may also ban the owners from owning competing businesses.
- Intellectual Property: Detail; the ownership of intellectual property created by members. Make sure all company-created intellectual property is owned by the company. You can find alternative ownership/license structures if necessary.
- Taxation: Determine how you will be taxed and plan accordingly. Remember, however, that you must file an LLC annual report and might be required a sales tax.
- Guaranteed Payments: Determine if any of the members should receive Guaranteed Payments, which are like a salary, particularly if your LLC is taxed as a partnership.
- Distribution & Dividends: Explain to all members how the funds will be allocated. A pass-through entity will impose tax distributions regardless of profit distributions.
- Dissolution: The LLC should be dissolved if all members elect to cease operations. It is important to identify how you will end your business in your operating agreement.
Note that the operating agreement, though not a legal requirement in most states, is vital in the operation of your LLC. Should your members have issues with the business, you can deal with it with guidance from the operating agreement.
Get Help from a Registered Agent
Developing an operating agreement could be tedious at times. Besides, since it deals with how your business operates, then it would be best to have professionals help you with it to make sure you get everything right. Getting help from registered agents would be your best bet. Here are three of our best LLC services that can provide you with registered agents to free you of worries:
Importance of a South Carolina LLC Operating Agreement
South Carolina’s law does not require the creation of an operating agreement for LLCs. In order to be able to evaluate the business structure, most states require that business entities incorporate an operating arrangement. This step is not required in South Carolina when you create the LLC. The LLC will not be subject to any fines.
It is important to not skip this step if your goal is to protect the business’s members from misinterpretations and negotiations. Here are a few reasons why to write an LLC agreement.
- To protect the company: Basically, the operating agreement defines the rules of LLC. The rules of the government apply in the event that members are not capable of adhering to the rules. This agreement will save the LLC and provide some additional benefits.
- It helps the LLC appear credible: When investors look into companies, they check to determine how professional the company is. Operating agreements are a great method to make the LLC appear professional. It shows that members care about the company and want it to be able to comply with all laws. This is a way to draw in more investors and to increase the growth of the business.
- To protect the status of LLC: LLCs can be defined in operating agreements to make sure that the government doesn’t misunderstand. LLCs are generally recognized since they have limited liability status. It’s very simple for sole proprietorships to confuse an LLC comprised of a single member, however, an operating contract can help prove that they are distinct.
- To resolve any conflicts: In the future, there could be conflicts arising from the decisions and distributions. The operating agreement contains the procedures, rules and guidelines for members of the business. This way, if it is necessary to complete an obligation, they will simply go through the information in the agreement and get on with it.
- LLC flexibility: Limited liability companies are meant to be flexible. It is the operating agreement that allows the LLCs to be flexible of nature. The operating agreement is an official document that gives the LLC the freedom to operate.
- For opening bank accounts for business: Often, the owner will need a copy of the operating agreement. It is difficult for the business to open a bank account if it does not have an operating agreement.
How to Edit Operating Agreement of LLC in South Carolina
Operating Agreement of LLC in South Carolina can be edited when all the members agree to the amendment(s). You do not need to file it with the state.
If you want to amend the operating agreement of an LLC in South Carolina, you must follow the guidelines and file the revised documents. The operating agreement is the actual document that sets out the rules of your business. If you do not amend the operating agreement of your LLC, it will not be up-to-date, and any changes must be approved by all members. You should keep a copy of the previous operating agreement as reference.
While there are no specific rules for drafting the operating agreement, the law in South Carolina stipulates specific guidelines that should be included in the document. According to the South Carolina Code of Laws, Section 33-44-103, an operating agreement must set out how the members and managers relate to one another. The operating agreement is a key document for a limited liability company, as it governs the majority of the company’s activities.
An operating agreement can help your LLC look more professional to potential investors. This is because investors check the professionalism of a company before investing in it, and an operating agreement shows that the members are serious about the company and want to comply with the laws. In turn, this can help attract more investors, and thus boost the growth of your business.
A South Carolina LLC must have a registered agent. This person serves as its public face. He or she receives mail and service of process. The registered agent is responsible for receiving all correspondence and serving legal documents for the LLC. If the owner is not around, the registered agent will be the one to contact the public.
While the operating agreement in South Carolina is not legally mandatory, it is a crucial document for the stability and security of the LLC. It provides an outline for the business and defines the rights and responsibilities of members and managers. An LLC operating agreement also helps preserve the limited liability status and show that the LLC is separate from the owner. Without an operating agreement, the LLC will be subject to the laws of the state in which it is incorporated. If a member dies, buyout provisions are set up to ensure that the remaining members will continue to run the business.
The operating agreement should detail how profits are distributed among the members of an LLC. The most common option is to distribute the profits equally. There are also guidelines to clarify the procedure for changing ownership of the LLC. You should review the guide on Contributions and Distributions and the Changes in Membership Structure.
Depending on the size of your LLC, you may want to consider a Multi-Member Operating Agreement if you have multiple members. In such a case, you can designate a manager. The Operating Agreement Tool makes it easy to create customized operating agreements. In addition to the free templates, you can also consult the Business Center for helpful guides and resources.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in South Carolina.
You and other members of the LLC will be unable to reach any agreements if you do not have an operating agreement. Even worse, your LLC must follow the state’s default operating conditions.
It is required by law in California, New York, Maine, and Missouri, but it is not in South Carolina. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.
The operating agreement is an important document for your South Carolina LLC. However, it is not mandatory to file in many states. It is strongly recommended to file the operating agreement even if it is not required in your state. Get a professional LLC service to file your operating agreement properly.