South Carolina LLC Operating Agreement: Drafting Checklist

Launching a limited liability company (LLC) in South Carolina can be an exhilarating and rewarding experience. However, you must go through several steps before implementing your business plan.

First, you must decide on your business name and register it with the South Carolina Secretary of State for a $125 filing fee. Next, you should draw up your LLC’s Articles of Organization, including the business name, the name of your chosen registered agent, and other information necessary for your business formation. You should also obtain necessary permits, business licenses, and Employer Identification Number (EIN) from the Internal Revenue Service (IRS) for future tax purposes.

An LLC operating agreement is another legal document that’ll ensure you start an LLC without difficulty. As per South Carolina state law, an operating agreement isn’t obligatory for LLCs doing business in the state. You’ll greatly benefit from this additional set of rules and regulations as a big or small business. This article will tell you exactly how.

Key Takeaways

• According to state law, an LLC operating agreement in South Carolina isn’t mandatory.

• Drafting a South Carolina LLC operating agreement benefits your LLC and its members.

• It can be challenging for new small business owners to prepare an LLC operating agreement, so turning to a professional service like Swyft Filings is always a good idea.

What Is an LLC Operating Agreement?

Before you read about how to draft an LLC operating agreement, you should first learn what this legal document is, what it contains, and how it affects your limited liability company in South Carolina.

An operating agreement is a set of rules, regulations, and responsibilities to which you, your LLC members, and even the state must conform.[1] Like your Articles of Organization, it contains basic information about your business. In addition to that, it also lists the following:

• Information about the LLC members

• Management structure

• Ownership percentages

• Capital contributions

• Voting rights

• Responsibilities

• Profits and losses

• Distributions of profit

• Buyout and buy-sell rules

• Holding and scheduling information about meetings

• Information about procedures regarding membership changes

• Indemnification details

• Details about the dissolution of the LLC, if it comes to it

A readily accessible, written agreement helps you clearly state each member’s rights and responsibilities and prevents any disputes and misunderstandings.

State Requirements

The South Carolina Secretary of State doesn’t require its limited liability companies to obtain an operating agreement. However, if you do choose to make one, according to the South Carolina Code of Laws, it doesn’t have to be a written operating agreement. You can create it orally and record it.

In addition, although an operating agreement allows you to tailor the company’s internal rules according to your business needs, it must comply with several state regulations.[2] Your South Carolina LLC operating agreement shouldn’t:

• Limit any member’s rights to inspect records or access other company information.

• Reduce or eliminate the duty of loyalty or care.

• Eliminate the obligation of good faith and fair dealing.

• Vary the right to expel members in certain situations.

• Restrict the rights of outside parties, i.e., those who aren’t members and managers.

• Appoint the right to close the LLC in specific cases.

LLC Operating Agreement Benefits

Although it’s not required, drafting a South Carolina LLC operating agreement brings your new business multiple benefits.

• With an operating agreement, your LLC becomes an independent legal entity. That eliminates the risk of losing your personal assets due to company debt or other members’ negligence or violating rules established in the operating agreement.

• All states have default rules that dictate how every LLC operates. These rules are usually too general and don’t satisfy the needs of each company, especially when it comes to internal disputes. With an operating agreement, you can change these rules to match your business needs.

• Some South Carolina financial institutions will gladly do business with you if you present them with a valid operating agreement. You might get your business bank account faster and become eligible for more grants and loans.

Who Needs an Operating Agreement?

Although an operating agreement is usually connected to LLC formation, it’s not only South Carolina limited liability companies that can draft this document. Any business entity can create it to customize its own provisions and regulations, override state default rules, and access other benefits mentioned above. Even sole proprietorships with a single business owner are advised to draft an operating agreement and customize its internal rules to their advantage.

Drafting Your South Carolina LLC Operating Agreement

Now that you know what an operating agreement is, who needs it, and what the benefits of creating this document are, it’s time to move on to its drafting. You must complete several steps before using an operating agreement to organize your internal business structure.

The most crucial aspect of an operating agreement drafting is ensuring it complies with the rules and regulations proscribed by the South Carolina Secretary of State. There are plenty of LLC operating agreement templates online to help you include all the necessary information and abide by these rules. 

You can use those templates as a base and fill in the necessary gaps or start from scratch by following the steps below. They’ll guide you through the entire process and ensure a successful operating agreement drafting.

Step 1: Provide Business Information

Your first step is compiling all the basic information about your LLC in South Carolina. It includes the following:

• Your LLC name that’s compliant with the rules provided by the South Carolina Secretary of State[2]

• Effective date and the duration of your LLC

• Your primary place of business

• Information about your registered agent and their registered office

• The purpose of your business

• The industry to which your business belongs

If you’ve already created your Articles of Organization, you can use it to help you add this information to your operating agreement. These two documents should contain the same information, from your business name to your registered agent information. However, even without the Articles of Organization, you can start drafting an operating agreement as soon as you settle on the company’s name and keep adding information as you progress.

Step 2: List LLC Members

Whether your company is a single-member LLC or multi-member LLC, you must list all the members in your operating agreement. Apart from their names, you must also include the following information:

• Information that presents the ownership structure of your company, i.e., membership interest, usually expressed in ownership percentages

• How involved each member is in the affairs of the company, i.e., their roles and responsibilities

• Each member’s rights, such as their voting rights and how their personal assets are protected

• How each member contributes to the company’s growth

Step 3: Decide Member-managed vs Manager-managed

Your LLC has two options in terms of management structure: manager-managed or member-managed. Your operating agreement might vary significantly depending on the structure type, so deciding on this as early as possible is vital.

In a member-managed structure, each member has a certain degree of involvement in the company’s day-to-day operations. All decisions are determined by a vote amongst all members. In contrast, manager-managed companies allow only select members or non-members to deal with business operations, while the rest have a more passive role.

Step 4: Lay Out Administrative Operations

This section of your operating agreement spells out how your company deals with all the aspects of your business and various situations that may arise during its existence.

Thus, the administrative operations include tax clarifications, such as details about income tax, tax returns, annual reports, profits, losses, and distributions. You should also state how each member’s capital contributions affect their voting rights and describe how to conduct member meetings and voting.

It’s necessary to customize this section to your company’s needs as much as possible so there are no unpleasant or surprising situations in the future.

Step 5: Add and Remove LLC Members

Various situations can lead to member addition or removal. Perhaps you’ve started as a single-member LLC and wish to add more members to your growing company. Some members may have retired or passed away, so there are empty places to fill.

Regardless of the reason, membership changes alter your company’s whole internal structure and require new drafting of the operating agreement. To complete this as quickly as possible and without disputes with the remaining members, you should devote a whole section outlining the processes in case of member replacement.

Create Your Operating Agreement Through a Filing Service

Now you know how beneficial drafting an LLC operating agreement is for your business. As a new business owner, you’re dealing with plenty of other affairs regarding your future company. We advise you to leave this task to a professional filing service like Swyft Filings.

Whether you’re just starting your LLC filing journey or only need to draft an operating agreement, Swyft Filings is here to assist you every step of the way. You just need to input details about your company and let us do the rest. Swyft Filings will complete your South Carolina LLC operating agreement in a blink of an eye for the most affordable price on the market.

FAQs

Is an LLC Operating Agreement required in South Carolina?

According to South Carolina state law, an operating agreement isn’t required for LLCs operating within the state. However, you can still draft this legal document to ensure that your South Carolina LLC runs smoothly in the long run.

How does an LLC Operating Agreement help protect my assets?

An operating agreement protects your personal assets and its members’ personal liability by confirming the status of your LLC as a separate legal entity. Whatever debt befalls the company or its members won’t affect your assets. 

In addition, by clearly establishing each member’s duties in written form, everyone is more likely to comply with them. If you add an indemnification clause to your agreement, your assets will also be secure in the event of rule violation.

Who needs access to this document once it’s drafted?

An operating agreement is an internal document that should be accessed only by its members. However, some situations require external parties like lawyers, accountants, and financial institutions to access your operating agreement for tax purposes, opening a business bank account, bookkeeping, etc.

How do I edit information on this document if membership changes?

If one or multiple members of your LLC enters or leaves the company, the whole membership structure, membership interest, and other aspects outlined in the operating agreement change. For this reason, you’ll have to re-draft the entire agreement. You don’t have to start from scratch, of course. Your old agreement can serve as the base, and you need to revise the parts affected by membership changes through amendments.

What other legal documents do I need to draft for my South Carolina LLC?

Unlike an operating agreement that isn’t obligatory, there are documents you must draft to start an LLC in South Carolina. One of them is the Articles of Organization. You also need an EIN issued by the IRS. You might need specific business licenses and permits depending on the company’s business. 

If your LLC is incorporated elsewhere and wishes to operate within the state, you must also obtain a South Carolina Certificate of Authority.[3] If you plan on running your business outside South Carolina, you’ll need a Certificate of Existence.

Bibliography

1. U.S. Small Business Administration. “Basic Information About Operating Agreements.” Accessed June 23, 2023.

2. South Carolina Code of Laws. “General Provisions.” Accessed June 23, 2023.

3. South Carolina Code of Laws. “Certificate of Authority.” Accessed June 23, 2023.