When planning to start a business in South Carolina, one of the earliest decisions you’ll make is choosing a business structure. In simple terms, a business structure determines the rules your business must follow, the taxes you’ll need to pay, and the degree to which your personal property is at risk from business activities.

While it’s a popular choice for many business owners starting out in South Carolina, a sole proprietorship has its own pros and cons. Let’s explore those to give you a basis for making an informed decision about whether it’s right for you.

Related: How to start a business in South Carolina

What is a Sole Proprietorship?

A sole proprietorship is a business entity with a single owner who is personally responsible for all business debts and obligations. The business and owner act as one entity with no legal separation between personal and business assets and finances. Many small businesses choose the sole proprietorship for its simplicity and ease of setup. The owner has complete control and retains all profits, which are taxed as personal income. However, the owner also faces unlimited personal liability for the business. If the business takes on debt it can’t repay or faces legal action, the owner’s personal assets could be at risk.

Before exploring sole proprietorships further, it’s helpful to briefly understand the alternatives:

• General partnership: A business structure with two or more owners who share profits, losses, and decision-making.
• Corporation: A more complex structure where a business is a separate entity from its owners. A corporation is typically the most expensive entity and comes with specific rules to follow.
• Limited Liability Company: An LLC combines the personal liability protection of a corporation with the flexibility and simplicity of a sole proprietorship or general partnership.

Related: Business Structure Overview

Sole Proprietorship Advantages

To understand better why many businesses prefer to form as sole proprietorships, here are the top three advantages:

• Ease of setup: Sole proprietorships are the simplest to start. In South Carolina, there’s no need to file formation documents, meaning you can get your business off the ground quickly.
• Lowest startup costs: Due to the lack of required formal registration, startup costs are significantly less for sole proprietorships.
• Minimal paperwork: Compared to other structures, a sole proprietorship in South Carolina requires less ongoing paperwork, simplifying your administrative tasks.

Sole Proprietorship Disadvantages

However, a sole proprietorship also has its downsides:

• Unlimited personal liability: In the eyes of the law, you and your business are the same entity, meaning your personal assets can be sold off to pay the business’s debts.
• Less business continuity: In a sole proprietorship, the business terminates when the owner dies or decides to stop the business. This can impact long-term contracts and business relationships.
• Potential tax disadvantages: Though filing taxes is easy, you may face higher combined tax rates on income and self-employment taxes versus other structures.

A sole proprietorship, despite its simplicity and low setup costs, may still not be suited for everyone. If liability protection is a concern for you, an LLC provides personal liability protection and more flexibility in management and taxation, making it a popular option for many small business owners.

Related: How to form a South Carolina LLC

Steps to Start a Sole Proprietorship in South Carolina

Getting your new sole proprietorship legally set up in South Carolina is a clear process with a few key steps. Let’s go through each of these so you can be confident you’ve done it right.

Step 1: Come up with a Business Name

In South Carolina, a sole proprietor can operate a business under their own full name. If, however, you want to operate under a different name, you need to register it. For instance, take Anna Thompson, who is starting a homemade soap business. Instead of doing her business under “Anna Thompson,” she’d prefer “Sea Springs Soaps.” To do this, she’ll need to register her business name, “Sea Springs Soaps,” with the county.

Step 2: File the Assumed Name Form

In South Carolina, the place to register your business name, often referred to as a “Doing Business As” (DBA), isn’t with the South Carolina Secretary of State, but with the county where your business is located. To register the business name, you’ll need to fill out an Assumed Name Form, available from your County Clerk’s office. Some counties have this form online whilst others request you pick it up from the office.

Related: How to register a South Carolina Assumed Name

Keep in mind that registering your South Carolina assumed name isn’t a guarantee against others using the same name. If you want exclusive rights to your business name in South Carolina, you’ll need to apply for a trademark through the U.S. Patent & Trademark Office (USPTO).

Step 3: Research Business License Requirements

While there isn’t a South Carolina State business license, you might still need a local business license, depending on what your business does and where it’s located. A few common business registrations include:

• Local business license: There is no general state business license, but there may be local registration requirements. Check with city officials or your economic development office to see if one is required in your city.
• Retail license: Businesses selling physical products and certain services will need to register for a South Carolina Retail License through the South Carolina Department of Revenue.
• Professional license: Occupations like barbers, massage therapists, and landscapers require professional licensing in South Carolina. Be sure to check if your profession is one that’s regulated.
• Employer Identification Number (EIN): This is a unique number assigned by the Internal Revenue Service (IRS) for tax reporting purposes. Sole proprietors will be required to obtain an EIN if hiring employees, but some banks also require an EIN to open a business bank account.

Related: What business licenses are needed in South Carolina?

Wrapping Up

Starting a sole proprietorship in South Carolina might be the right choice for you. With simplicity, affordability, and the immediacy of operation, it’s an easy way to launch your business, however, it also comes with downsides, primarily the lack of personal liability protection. Understanding these advantages and drawbacks is important for making the best decision for your business.

No matter what you choose, the importance of careful planning and preparation can’t be overstated. With the information and steps outlined above, you should be well on your way to starting your own business.

Please feel free to share in the comments which business structure you’re thinking about and why. Your comments and questions are most welcome. We’re excited to hear about your future business plans and look forward to being of help where we can!