How to Form an S Corporation in South Carolina

Introduction

An S corporation is a business that has the limited liability of a traditional corporation, but it is taxed like a partnership. An S corporation can be formed by one or more shareholders who have invested in the company and are considered “shareholders” for tax purposes. Shareholders have voting rights, but they do not have to contribute cash to form an S corp.

Choose a Name for your Business

You must choose a name for your business. Your name cannot be the same as or too similar to another registered business name, a trademarked name, or anything that is offensive or deceptive. For example, if you are opening a retail store called “Bath & Body Works” and there is already an existing store by that name in South Carolina, then you would need to pick something else.

Name availability can be checked at any time by visiting the Secretary of State website.

File Articles of Incorporation

Go to the South Carolina Secretary of State’s website, and follow the instructions for filing articles of incorporation. You will need to pay a fee, which varies based on several factors but generally ranges from $50-$200 per year. It is also highly recommended that you have your lawyer review your filing before submitting it, as mistakes can cause problems with your business down the line.

Appoint and Elect Corporate Directors

The board of directors is the group of people who manage your company. It makes decisions on behalf of the shareholders and must take into consideration their interests when deciding how to run the business. The board members are generally responsible for setting policies, managing finances, hiring and firing employees, and resolving disputes between shareholders or with other companies.

A corporation can have one director or as many as 100; however, there are some restrictions on how many individuals from one family can serve on a single board (i.e., no more than 20).

Create Bylaws for Your Corporation

If you plan on creating an S corporation in South Carolina, you must first draft bylaws for your new company. Bylaws are the rules that govern how a business operates, including things like how meetings will be conducted and what happens if an officer resigns or dies. Your bylaws should include:

• A brief overview of the company’s purpose and structure. For example, if your company is formed as a limited liability corporation (LLC), include the type of business entity you have chosen to form under. This should also include information about whether or not shareholders have any voting rights on certain matters such as replacing officers or approving major financial decisions; if so, state what those rights are as well as when they apply (e.g., during shareholder meetings only).
• The name of all owners/shareholders who are authorized to conduct business on behalf of the corporation in accordance with their percentage ownership interest in said corporation.* A list of motions which require unanimous consent from all shareholders before they can be enacted by corporate management personnel.

Hold the First Meeting of Your Board of Directors

Once you have decided to form an S corporation, the next step is to hold the first meeting of your board of directors.

• Hold at least one annual meeting of your board each year and as often as necessary to conduct business. The initial meeting can be held in person or by telephone; subsequent meetings must be held in person or by telephone if all members consent.
• Meetings should be held at a place that is accessible to all directors. A written record of each director’s attendance must be kept during each meeting and included as part of their records upon dissolution or expansion.
• Meetings must begin on time and end within one hour after starting time unless all directors agree otherwise. No director may leave before adjournment without permission from another director present at the meeting (if more than one director is present).

Adopt an Annual Meeting Schedule

If you choose to hold annual meetings, be aware that these meetings are not mandatory. However, if you do have them and intend to follow the S corporation rules, they must be held on a date that is not less than 10 days nor more than 60 days before the anniversary of your incorporation.

Annual meetings must also be held in South Carolina, which means that if you incorporate in another state but live elsewhere, it may be difficult for owners who live out-of-state to attend annual meetings without incurring significant travel expenses.

Issue Stock Certificates to Shareholders

Once you’ve formed your S corporation and filed the necessary paperwork with the state, it’s time to issue stock certificates. The process is similar to issuing stock in a private business: You’ll need to take care of some administrative details and then distribute the certificates of ownership. Here’s what you need to do:

• Purchase or create official-looking stock certificates for each shareholder.
• Record each shareholder’s name on the front side of their certificate of ownership (this will be used for recordkeeping purposes). If there are multiple shareholders, include both names on each certificate; if only one person owns 100% of the shares, list that person alone on each certificate without any co-owners listed alongside them (for example, “John Smith” instead of “John Smith & Mary Jones”). Make sure all information is readily available via an electronic database so it can be accessed easily when needed later on down the road!

Elect Officers

Once you’ve decided on your business structure, it’s time to elect officers. A board of directors is responsible for electing officers. An officer is someone who will run the day-to-day operations of the company and includes president, vice president, treasurer and secretary. Each officer has specific responsibilities such as managing financial transactions or overseeing human resources matters.

If you have more than one shareholder, each shareholder must vote separately in favor of any proposal before an election can take place. This means that if there are three shareholders voting on whether or not to elect an employee as a new officer of their company, then all three shareholders would need to vote yes for this motion to pass (or no if they wanted to reject it).

Obtain an Employer Identification Number

To obtain an EIN, you will need to apply online at the Internal Revenue Service website. You will be asked to provide your social security number, bank account number and a copy of your articles of incorporation in order to complete the application process. Once you have received your EIN from the IRS, this is what will be used for tax purposes for your business.

Conclusion

Congratulations! You have formed an S corporation in South Carolina.