Setting up and managing an LLC provides many of the benefits of a corporation while being significantly easier to create. The LLC is a separate jural person formed by filing Articles of Organization with the South Carolina Secretary of State. Owners of an LLC are known as members. You can think of LLCs as a “happy medium” between partnerships and corporations. Like a corporation, LLCs provide protection from personal liability for business debt – creditors cannot legally come after your personal assets if you find yourself unable to pay. There are exceptions to these protections, such as personally injuring someone or personally guaranteeing a bank loan, but these exceptions apply to corporations as well.
LLCs also don’t have double taxation or excessive paperwork like corporations do. Like a partnership, the profits or losses of the business pass through to the members’ personal income tax return, where as a corporation must file its own tax return. Taxes on the corporation’s income are taken, as well as the distributions to the owners. Essentially, the government takes two bites out of profits instead of the one bite if an LLC is formed. LLCs are especially popular for real estate as they have “easy in and easy out” strategies. In comparison, taking real estate out of a corporation triggers an income tax liability. Beyond tax benefits, LLCs can provide estate benefits, accomplish orderly succession of management and restrict the sale of any member’s interest. Advantages of restricting the sale of interests in an LLC plays a vital part in a business continuation strategy. It protects members by preventing an individual from outside of the company from acquiring an interest in the business.
The South Carolina Statute presumes that members of an LLC will enter into a comprehensive Operating Agreement. Almost all Statute provisions can be varied in an Operating Agreement, which provides for highly customized governance for your company. However, the Operating Agreement may not unreasonably reduce duty of care, restrict access to information or records, eliminate the duty of loyalty, eliminate the obligation of good faith and fair dealing, or vary the right to expel members by judicial determination. If you are interested in setting up an LLC and creating an individualized Operating Agreement, call Beth Santilli Law, LLC for all your needs.