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Editorial 8 MIN READ

South Carolina in January 2019: the state that skips the annual report

A $110 filing fee, no yearly LLC report, and an income-tax schedule that keeps dropping

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. The mechanics
  2. No annual report, and what that actually means
  3. The tax schedule, and where it is headed
  4. The registered-agent requirement
  5. Who this state actually makes sense for
  6. Sources

South Carolina LLC costs $110 to form and, once formed, asks almost nothing of you on paper. There is no annual report for LLCs in this state. That single absence is the reason South Carolina deserves a second look from founders who have been sleepwalking toward Delaware or Wyoming on reputation alone.

This is a guide for someone forming in January 2019, written for the person who already knows what an LLC is and wants the state-specific mechanics without the scaffolding.

The mechanics

You file Articles of Organization with the South Carolina Secretary of State under the South Carolina Uniform Limited Liability Company Act, S.C. Code Ann. § 33-44-101 et seq. The filing fee is $110 whether you submit online through the SOS Business Filings portal or by mail on the paper form. Online is faster and, in practice, is what the Secretary of State's own site nudges you toward.

The Articles ask for the usual short list: the LLC's name (which must contain "Limited Liability Company," "LLC," or an acceptable variant per § 33-44-105), the street address of the initial designated office, the name and street address of the registered agent in South Carolina, whether the LLC is member-managed or manager-managed, whether any member is to be personally liable for debts of the LLC (the default is no), and the name and address of each organizer. A single organizer is fine. The organizer does not need to be a member.

Processing is not Delaware-fast. Online filings typically clear in a business day or two. Paper filings sit in the queue longer. There is no formal expedite menu comparable to Delaware's tiered pricing; if you need a filing tomorrow, file online today and call the Business Filings division if it stalls. A certified copy of the filed Articles, which banks sometimes ask for when you open an operating account, is a separate small fee through the SOS.

You will need an EIN from the IRS (Form SS-4, online, same day). You will need an operating agreement, which South Carolina does not require you to file and does not require to be in writing, but which § 33-44-103 treats as the governing document for most of the questions that matter once two or more people are involved. If you have partners, put it in writing regardless of what the statute lets you get away with.

For federal tax purposes, you decide whether the LLC is a disregarded entity (single-member default), a partnership (multi-member default), an S-corp (Form 2553), or a C-corp (Form 8832 then Form 2553 or just Form 8832). South Carolina piggybacks on the federal classification for state income tax, so the federal election cascades down.

No annual report, and what that actually means

South Carolina does not require LLCs to file an annual report. This is unusual. Most states extract a yearly tribute: California's $800 franchise tax, Delaware's $300 alternative-entity tax, Massachusetts' $500 annual report, Tennessee's $300 minimum. South Carolina, by contrast, imposes the annual reporting obligation on corporations only, not on LLCs taxed as partnerships or disregarded entities.

The mechanism is in Title 12 of the Code. Corporations file an annual report with the Department of Revenue as part of the SC1120 corporate tax return, and a corporation pays an Initial Annual License Fee of $25 at formation plus an annual license fee thereafter computed at $1 per $1,000 of capital stock and paid-in surplus, minimum $25. LLCs that have not elected corporate taxation are outside that regime. They owe their members' pass-through income tax and whatever sales, withholding, and unemployment obligations apply to the underlying business, and nothing else to the state qua entity.

The practical consequence is that a South Carolina LLC that elects the default pass-through treatment has no recurring entity-level state filing to miss. There is no $200 late penalty waiting for the founder who forgets. There is no reinstatement fee after administrative dissolution for non-filing, because the trigger for administrative dissolution under § 33-44-809 is a different set of failures (no registered agent, dissolution by court order, expiration of a term-limited LLC) and not a missed annual report that does not exist.

An LLC that has elected to be taxed as a C-corporation or S-corporation for federal purposes is, for South Carolina purposes, treated as a corporation. That LLC does owe the $25 Initial Annual License Fee and does owe the annual license fee computed on capital stock and paid-in surplus. If you are forming an LLC and then checking the box to be taxed as an S-corp for payroll reasons, this is the trade you are making on the state-tax side.

The tax schedule, and where it is headed

South Carolina has a top individual income tax bracket of 7%, which kicks in at modest income (the top bracket starts below $15,000 of taxable income, a feature of a schedule that has not been inflation- indexed to the degree most other state schedules have). The Department of Revenue publishes the bracket table annually; for tax year 2019 the top marginal rate remains 7%.

That 7% is scheduled to come down. Act 40 of 2017 and the conforming legislation that followed adjusted the individual schedule with an eye toward a 6% top rate, implemented gradually through bracket compression and rate cuts rather than a single reduction. A South Carolina LLC owner whose income flows through to the individual return is looking at a top rate in the high sixes in the near term and something closer to 6% on the longer horizon, depending on what the General Assembly does in the 2019 and 2020 sessions.

The corporate income tax rate is 5%, flat, which is lower than the individual top rate. That inverted rate structure is one of the arguments for the S-corp election for a profitable single-member LLC in this state: the reasonable-compensation portion is taxed at the individual schedule, but the distribution portion avoids self- employment tax at the federal level and is not re-taxed at a corporate layer the way a C-corp's would be. The math is the federal math; South Carolina is mostly a spectator to it.

Sales and use tax is 6% at the state level, with local option additions bringing the combined rate to 7% to 9% in most counties. If the LLC sells tangible personal property or taxable services in-state, you register for a retail license with the Department of Revenue; the retail license is $50 and does not expire.

The registered-agent requirement

Every South Carolina LLC needs a registered agent with a physical street address in South Carolina, per § 33-44-108. A P.O. box does not satisfy the requirement. The agent can be an individual resident or a business entity authorized to do business in the state. You can serve as your own agent if you have a South Carolina street address and are available during business hours to accept service of process.

The commercial market is crowded and priced roughly in line with other Southeastern states: $50 to $150 a year at the commodity end, $150 to $300 at the full-service end. The value differential is the same as everywhere else. At the low end, you are paying for a mailbox. At the higher end, you are paying for someone who will catch a summons the day it arrives and remind you about the South Carolina-specific filings you might otherwise miss, which in this state are mostly tax filings rather than entity filings.

Who this state actually makes sense for

South Carolina makes sense for three kinds of formation.

The first is the operating business with physical nexus in the state. Manufacturing, logistics, construction, hospitality, services with real employees in Charleston or Greenville or Columbia. Boeing's North Charleston 787 line and BMW's Spartanburg plant are the marquee examples, but the supplier network around both, and the broader advanced-manufacturing cluster the state has courted for two decades, means the in-state LLC is usually the right vehicle for anyone whose customers or workforce are here. Foreign-qualifying a Delaware LLC to do business in South Carolina costs more over time than forming in South Carolina would have, and it buys nothing for an operating company that is not heading for an institutional round.

The second is the low-maintenance holding vehicle. The absence of an LLC annual report, combined with a simple Articles of Organization form and moderate filing fee, makes South Carolina reasonable for a real estate holding LLC, a family investment LLC, or a single-purpose vehicle whose operator wants one fewer calendar entry per year. It is not the privacy play Wyoming is (South Carolina's Articles do require the organizer's name and the registered agent's address to be on the public record), and it is not the case-law play Delaware is. It is a quiet, cheap state for entities that do not need to do anything interesting.

The third is the founder who lives here. There is a tax you do not see on the fee schedule, which is the cost of mismatched domicile. If you live in Columbia and you form in Delaware because your accountant's cousin said to, you will owe foreign-qualification fees in South Carolina, you will have two states reading your mail, and you will have bought nothing your business actually uses. The home state wins by default for operational companies, and in South Carolina the home- state default is unusually gentle.

South Carolina is a poor fit for the venture-backed startup. If your cap table will ever include a fund, form in Delaware and save the conversion. It is also a poor fit for anyone betting on the privacy premium; the public filings here are not as bare as Wyoming's or New Mexico's.

If you are forming this quarter and the business is in South Carolina, file the Articles online this week, pay the $110, and spend the time you would have spent on a Delaware certificate on the operating agreement instead. The operating agreement is where most of the decisions that matter in a two-member LLC get made, and the statute here gives you wide latitude to write it the way you want.

Sources

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