Picture a South Carolina LLC Operating Agreement as your LLC's user manual, outlining the rules and structure for managing your business. Imagine it as a tailor-made guide that defines how your business will function, including key components like ownership stakes, decision-making processes, and succession planning.
Under South Carolina's LLC regulations, you'll establish vital elements such as member roles, decision-making procedures, and dispute resolution strategies within this agreement, essentially creating a comprehensive roadmap to prevent future misunderstandings.
No, it's not legally required in South Carolina under § 33-44-103. Single-member LLCs need an operating agreement to preserve their corporate veil and to prove ownership. And multi-member LLCs need one to help provide operating guidance, determine voting rights and contributions.
Read on to learn more about South Carolina operating agreements, including:
Here are some key components that are typically included in a South Carolina LLC operating agreement:
Let's explore some common provisions and provide some example language for each to assist you.
By now, you should know your LLC's name (you chose it when you filed your LLC formation document). However, you also want to ensure that you clearly state the purpose of your LLC. Keep your purpose statement general, allowing room for your business to take on new ventures without having to refile.
OPERATING AGREEMENT of [COMPANY NAME]
This operating agreement is adopted as of [Date] (the “Effective Date”), by [Member’s Name] , an individual and the sole member (the “Member”) of [Company Name] (the “Company”).
The Member hereby adopts this agreement as the operating agreement of the Company, which agreement sets forth the entire understanding of the Member regarding its subject matter and supersedes all prior understandings and agreements regarding its subject matter.
The purpose of the Company is [ Company Purpose] , and the conduct of other activities as may be necessary or appropriate to promote the stated purposes, and to engage in any other lawful business or activity for which a limited liability company may be organized under the Act.
This part of your agreement specifies if your LLC will be either member or manager-managed. It also outlines the rights and responsibilities of each member, including capital contributions, voting rights, and management structure. Even if you are the sole member, this section is essential for establishing your single-member LLC.
The business and affairs of the Company will be managed by the Member. The vote, action, decision, or consent of the Member will constitute a valid decision of the Member and the Company. The Member may appoint one or more officers (including the Member, if the Member is an individual) who will have such powers and authority to act on behalf of the Company granted to them by the Member.
The business and affairs of the Company will be managed by the manager of the Company and any successor thereto appointed by the Member, which manager may also be referred to as the Company’s president (the “Manager”). The initial Manager will be [Manager Name] , who will serve until the Manager’s death, removal by the Member (for any reason or no reason), or resignation. The Manager will have the right and authority to manage the affairs of the Company and make decisions and take action with respect thereto without further approval or consent of any kind by the Member. Except as otherwise required by this agreement and in lieu of any limitations set forth in [State Name] ’s laws for limited liability companies (the “Act”), the Manager will be solely responsible for and is hereby authorized to manage and operate the business of the Company. Except to the extent that the authority of the Manager is expressly limited by the Member, the vote, action, decision, or consent of the Manager will constitute a valid decision of the Manager and the Company.
The registered agent is responsible for receiving and handling important documents on behalf of your company. You may include this in your LLC operating agreement, but it's not mandatory since you already listed it in the formation documents you filed.
The Company’s registered agent in State is: Registered Agent Name , Address . The members may designate other registered agents or offices at any time in this state or, if necessary, in other states.
The "term" of an LLC is the length of time your Limited Liability Company is intended to exist, as outlined in your formation documents. Many business owners establish their LLCs to operate indefinitely, but you also have the option to set a fixed period or termination date for your LLC.
By default, LLCs are considered "perpetual" in most states, including South Carolina, meaning they can last as long as you want them to.
The duration of the Company will be perpetual.
Capital contributions are the funds, assets, or services you invest in your LLC to begin its operations. Consider it the initial investment you make to get your business up and running. For single-member LLCs, you can contribute all the capital as the sole owner, deciding how much money or resources to put into your business.
Properly documenting your capital contributions is crucial, as it shows a clear picture of your business's financial structure, helpful for tax purposes.
The Member’s capital contribution(s) to the capital of the Company for the Member’s membership interest in the Company will be reflected on the books and records of the Company.
The members have made or shall make the contributions of cash, property or services to the LLC as set forth on Exhibit A attached
Indemnification clauses in an LLC's Operating Agreement serve as a safety net, protecting the company's members from certain costs associated with legal issues arising from their work in the business. This means that the LLC will handle any legal fees or damages if a member faces a lawsuit related to their duties for the company.
The agreement should clearly define when and under what circumstances the LLC will provide this protection, including any exceptions. Typically, indemnification would not cover intentional wrongdoing or severe negligence. Adapt these terms to your business's specific risks to ensure proper protection.
The Member, the Manager, the officers, and the organizer of the Company and their respective affiliates, stockholders, members, managers, directors, officers, partners, employees, agents, trustees, and representatives (individually, an “Indemnitee”) will be indemnified by the Company against any and all losses, claims, damages, liabilities, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of the Indemnitee’s status as any of the foregoing, which relates to or arises out of the Company or its assets, business, or affairs, if in each of the foregoing cases (A) the Indemnitee acted in good faith and in a manner the Indemnitee believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful, and (B) the Indemnitee’s conduct did not constitute gross negligence or willful or wanton misconduct. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, will not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in clause (A) or (B) above. Any indemnification under this section 5 will be made only out of the assets of the Company, and the Member will not have any personal liability on account thereof.
Your South Carolina LLC can be taxed in one of four ways: as a sole proprietorship, partnership, S corporation, or C corporation. The method your LLC is taxed depends on the number of members and the tax status your business selects with the IRS.
Your operating agreement should include sections about tax classifications. These parts clarify your chosen tax status, how to change it, and how you manage tax returns and allocations. This helps create a clear guide for handling business finances, such as profits, losses, dividends, and taxes, providing a solid plan for managing any tax-related issues that may arise.
The Company will be disregarded for federal and state income tax purposes. The admission of one or more additional members, however, will cause the Company to be recognized for tax purposes, and to be taxed, as a partnership.
The Member acknowledges that the Company has elected to be taxed as a corporation for federal tax purposes pursuant to the regulations currently in effect under Section 7701 of the Code, and to be taxed as an electing small business corporation under the provisions of Subchapter S of the Code. Notwithstanding such tax treatment, the Member acknowledges and agrees that the Company will be a limited liability company, for state law purposes, under the provisions of the Act, the Articles of Organization, and this operating agreement.
The Member acknowledges that the Company has filed or will timely file a Form 2553 (Election by a Small Business Corporation) with the Internal Revenue Service and that the election made pursuant to the filing is or will be in force and effect covering all periods since the date of this operating agreement. Except as otherwise provided in this operating agreement, during the term of this operating agreement and the continuation of the Company’s “S” corporation election under Section 1362 of the Internal Revenue Code, no Member shall take any action which would cause the revocation or termination of the Company’s “S” election (under Section 1362(a) of the Internal Revenue Code) and any attempt to take such an action will be null and void and without effect. Without limiting the foregoing, and notwithstanding any provision hereof to the contrary, any transfer or attempt to transfer any membership interest to any of the following will be null, void, and without effect:
(a) a person whose ownership thereof would cause the Company to have a number of Members and assignees of membership interests (shareholders of an “S” corporation) greater than the number permitted by Section 1361(b)(1)(A) of the Internal Revenue Code;
(b) an individual who is not a United States citizen or resident;
(c) a trust (or the trustee thereof) which fails to satisfy the requirements of Section 1361(c)(2)(A) or 1361(d) of the Internal Revenue Code;
(d) a corporation; and
(e)any other entity whose ownership would cause the termination or revocation of the Company’s tax status as an “S” corporation.
Your profit and loss distribution provision determines when your LLC will allocate cash from its earnings. For single-member LLCs, this isn't very important. However, for multi-member LLCs, ensure you outline when, the requirements, and how these distributions will take place.
As the sole member of the LLC, the Member is entitled to all profits of the LLC and is responsible for all its losses. Profits and losses shall be determined annually and will be allocated to the Member's capital account. Distributions of cash or other assets will be made at such times and in such amounts as deemed appropriate by the Member.
Changing any term in your LLC is straightforward – just follow your LLC amendment provision. For single-member LLCs, it's simpler. However, for multi-member LLCs, give proper thought to voting percentages and requirements for amending the operating agreement.
This agreement and the articles of organization of the Company may not be altered, modified, or changed, and no provision of this agreement may be waived, except by an amendment or waiver, as applicable, approved by the Member.
Limited Liability Companies typically don't need to follow corporate procedures. However, not adhering to these formalities in certain situations might weaken the protection of your corporate veil. Therefore, it's wise to include a waiver of all formalities in your operating agreement.
The failure of the Company or the Member to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this operating agreement or the laws in the state in which the Company is which govern limited liability companies will not be grounds for imposing personal liability on the Member for liabilities of the Company.
This is your plan for what to do when things don't go as expected. It guides you on how to dissolve your LLC and designates who will maintain control of the LLC in the event of your death or incapacity.
Upon the occurrence of any event which terminates the continued membership of the Member in the Company, the Company will not be dissolved, and the business of the Company will continue. The Member hereby specifically consents to such continuation of the business of the Company upon any such event. The Member’s legal representative, assignee, or successor will automatically become an assignee of the Member’s interest and will automatically become a substitute Member in place of the withdrawn Member.
The effective date of your operating agreement is the day the agreement comes into force or when it "takes effect."
No! Unlike your Articles of Organization, your operating agreement is an internal document that you keep among your company's private records. Sign it, and make sure to have it accessible when needed, that's all!
When your business grows beyond your control, and you're ready to add a new member to your LLC, you'll need to revisit the paperwork as per the agreement between you and your new partner. In most cases, consider creating an entirely new agreement since a multi-member operating agreement differs significantly from a single-member operating agreement.
