How To Form A South Carolina Corporation

A corporation is a business structure that provides personal liability protection by separating the owner’s personal assets from the business’s assets. Thus, a corporation is liable for the business’s actions and finances, while the owners (known as shareholders) are not.

Corporation Pros

• Corporations provide liability protection for the shareholders
• A corporation can raise non-debt financing by selling shares of the business
• Taxation may be lower than a sole proprietorship or partnership

Corporation Cons

• Corporations are more complex and expensive to set up than sole proprietorships, partnerships, and Limited Liability Companies (LLCs)
• At a minimum, corporations are required to hold an annual board of directors meeting and shareholders meeting, take minutes at the meetings, issue shares, etc., to maintain the entity’s liability protection.

Generally, Corporations are chosen over Limited Liability Companies when a significant amount of funding is being raised from investors. However, due to the cost and complexity of a Corporation, most small businesses are better off forming an LLC.

Related: How To Form An LLC In South Carolina

The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in South Carolina include a foreign Corporation (an out-of-state Corporation wanting approval to physically operate in the state), a professional Corporation (designated for Corporations offering professional services), or a non-profit Corporation.

Related: South Carolina Business Checklist

Steps to Forming a Corporation in South Carolina

Step 1: Choose a Name

The first step in forming a Corporation in South Carolina is selecting a name.

The name of the corporation has to be different from other entity names in the state of South Carolina.  Check corporation name availability in South Carolina.

The name of the Corporation must include one of the following designators at the end of the business name:

• Corporation
• Company
• Incorporated
• Limited
• Or an abbreviation for one of those words: Corp., Co., Inc., or Ltd.

A comma may be used after the business name and before the designator.  For example, “Common Grounds Coffee Inc.” and “Common Grounds Coffee, Inc.” are both acceptable.

If you want a name but are not ready to register the Corporation, you can file the Application to Reserve Corporate Name (Form F0037) with the South Carolina Secretary of State. The name reservation will hold a name for up to 120 days.

While a Corporation has to select a unique name that another South Carolina Corporation isn’t using, that doesn’t guarantee that the name isn’t currently used by someone else.  Before registering a Corporation name, be sure to do a trademark search to verify it is available for you to use.

Step 2: Choose a Registered Agent

To have a Corporation in South Carolina, a South Carolina Registered Agent (also known as an agent for service of process) must be identified to act as a central point of contact for receiving legal documents, tax notices, summons, subpoenas, etc., on behalf of the Corporation. This can either be a resident of South Carolina or a commercial registered agent service.

You can act as the Corporation’s Registered Agent in South Carolina, and you are not required to pay for a registered agent. The requirements to be a Registered Agent include someone generally being present at a registered address in the state during normal business hours.  A PO Box is not allowed.

Related: Do I Need To Hire A Registered Agent In South Carolina?

Step 3: File the South Carolina Articles of Incorporation

Next, you can start filing the Articles of Incorporation with the Secretary of State. The Articles of Incorporation can be filed on the Secretary of State’s website or the paper form.

The information requested includes:

• The name of the Corporation must contain the words “Corporation,” “Company,” “Incorporated,” “Limited,” or an abbreviation.
• Address of the initial registered office.
• Signature that the Registered Agent agrees to be the corporation agent.
• Information regarding the shares of the Corporation.   This section includes the class of shares (common shares are the most common) and the total number of shares authorized.
• Effective date. If you want to finalize the corporation’s paperwork but not have it start until 90 days in the future, enter the future date. Otherwise, leave it blank.
• The name, address, and signature of the incorporator(s). These can be the corporation’s owners or someone helping with the formation of the entity.

In addition to the Articles of Incorporation, the Initial Annual Report of Corporations (Form CL-1) will be filed at the same time.

The South Carolina Articles of Incorporation and Initial Report can be filed online or submitted by mail.  The mailing address is:

South Carolina Secretary of State
1205 Pendleton Street, Suite 525
Columbia, SC 29201

Step 4: Create Corporate Bylaws

Bylaws are the general guiding principles and procedures for a business’s operations. For example, the bylaws may include the name of the corporation’s officers, the responsibilities of the board members, terms of office, procedures for removing or adding a new director or shareholder, policies for authorizing new shares, when shareholder and director meetings will be held, and more.

While bylaws are required in South Carolina, they are critical for reducing owner and shareholder disputes.

Step 5: Hold the Initial Board of Directors Meeting

During the first board meeting, the board of directors will, at a minimum, elect the officers of the Corporation (the President, Vice President, Treasurer, and Secretary). They will also typically review and approve corporate bylaws, choose a bank, issue shares of stock, and decide whether the corporation will be taxed as a C corporation or S corporation.

It’s critical to remember that taking meeting minutes at all meetings is necessary to protect the shareholders from lawsuits and court actions. The minutes provide a written record of all decisions and actions taken during the meeting. Minutes aren’t filed with the state but should be stored with other corporate documents.

Step 6: Issue Shares of Stock

The corporation can exchange shares of stock in exchange for money or services. The number of shares of stock issued cannot be more than the number of authorized shares listed in the Articles of Incorporation.

Step 7: Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Like an individual’s social security number, the EIN identifies the Corporation for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.

The EIN is free when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Step 8: Elect the Corporation’s Form of Federal Income Taxation

By default, a new corporation will be taxed by the Internal Revenue Service (IRS) like a C-Corporation.  C-Corporations pay corporate taxes on their profits, and the owners pay personal income taxes on their dividends.

A Corporation can elect to be taxed as an S-Corporation. S-Corporations are taxed as “pass-through entities,” meaning the Corporation does not file corporate taxes. Instead, the profits (or losses) “pass through” to the shareholders, who then report this income on their individual taxes.

For most small businesses, the S-Corporation tax election is the most beneficial because it eliminates the double taxation of the C-Corporation. This tax election can be changed; however, it is highly recommended to talk with an accountant before making this decision.

Step 9: Open a Bank Account

Opening a bank account for your Corporation is important for liability protection as the bank account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:

• A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
• Copies of the original Articles of Incorporation showing the creation of the Corporation in addition to the bylaws.
• Driver’s licenses of the members.
• Depending on the age of the Corporation, a South Carolina Certificate of Good Standing may be needed to prove the business entity is active and in good standing with the state.

Step 10: Apply for Business Licenses and Permits

Depending on what your business does and its location, various business licenses and permits will likely be needed before starting your business. Some common registrations include:

• Business License: Some cities require businesses to obtain licensing before they can start. More information about city, county, and state business licenses is available on the South Carolina Business One Stop website.
• Professional License: Certain services, such as barbershops, accountants, salons, and others, must be licensed.
• Retail License: To sell products and certain services and collect sales tax, you must register for a South Carolina Retail License from the South Carolina Department of Revenue.
• Unemployment Insurance Registration: Businesses with South Carolina employees must register with the South Carolina Department of Employment and Workforce to obtain unemployment insurance.

Related: How To Register A Business In South Carolina

Step 11: File Annual Reports

Corporations are required to submit a South Carolina annual report to the South Carolina Department of Revenue State. The annual report due date is different by type of Corporation. C Corporations’ annual reports are due on the 15th day of the fourth month following the end of the fiscal year (April 15th for most) and the 15th day of the third month following the end of the fiscal year for S Corporations (March 15^th for most).