S corporations in South Carolina provide small business owners with the benefits of a corporate entity, without the tax disadvantages that hamper a regular corporation. A limited liability company, LLC, in South Carolina blends the simplicity of a partnership structure with the limited liability status achieved by a corporate entity.
When an S corporation submits articles of incorporation to the South Carolina Secretary of State, an initial annual report, also known as Form CL-1 must accompany the articles. Form CL-1 requests information such as the name, address and social security number of each director. The South Carolina Secretary of State charges a $25 fee, as of 2011, to file Form CL-1 with the state. On the other hand, an LLC in South Carolina does not have to submit Form CL-1 to establish the company. Also, S corporations have to file Form 2553 with the Internal Revenue Service within two months and 15 days of filing the company's articles with the state. The company has to supply information such as the date of incorporation and has to be signed by each shareholder on Form 2553. Unlike an S corporation, South Carolina LLCs do not have a requirement to file Form 2553 with the IRS.
LLCs in South Carolina lack the ownership restrictions that exist in an S corporation. For instance, an S corporation cannot have more than 100 shareholders, but a South Carolina LLC may have any number of members. Individuals that lack resident alien status or U.S. citizenship cannot own shares of a South Carolina S corporation, whereas foreign individuals may own an interest in a South Carolina LLC. Furthermore, partnerships, corporations and foreign businesses can have a membership interest in a South Carolina LLC, but this does not hold true for S corporations.
S corporations that operate in South Carolina have more paperwork and ongoing formalities in comparison to an LLC. South Carolina S corporations have to hold one annual meeting, and keep a record of how the company makes its decisions. LLCs do not have meeting requirements, and the company has no obligation to keep minutes from business meetings. S corporations have an obligation to create financial statements that indicate financial data about the business, but LLCs in South Carolina do not have such a requirement.
Members of a South Carolina LLC have the flexibility to split up the company's profits in any agreed upon manner, without regard to a member's ownership interest in the business. This means a member of the company may have 30 percent ownership interest in the business, but he may receive 35 percent of the company's profits and losses if the other members of the company agree to such an arrangement. This type of flexibility does not exist in a South Carolina S corporation, where the company's profits get divided according to a shareholder's ownership percentage. A shareholder that owns 15 percent of the business can only receive 15 percent of the company's profits.