Operating Agreement LLC South Carolina

A South Carolina Limited Liability Company (LLC) Operating Agreement is a written contract among the members that outlines how the business will be owned, managed, and operated. Although drafted internally and not filed with the state, this governing document establishes clear rules for decision making, profit distribution, responsibilities, and internal procedures. It also helps maintain the LLC’s separate legal identity by defining each member’s rights and obligations.

Is a South Carolina Operating Agreement Required?

South Carolina does not require LLCs to adopt an Operating Agreement. The South Carolina Uniform Limited Liability Company Act of 1996 permits, but does not obligate, members to create one.

Even though it is optional, creating the Operating Agreement when forming the LLC is highly recommended. Because the document is not state mandated, there are no government fees associated with adopting it. The only state fee involved at formation is the $100 Articles of Organization filing fee payable to the South Carolina Secretary of State.

Without an Operating Agreement, the LLC must follow South Carolina’s default statutory rules in SC Code Section 33-44, which may not reflect how the members actually intend to operate the business.

Why a South Carolina Operating Agreement Matters

Protects limited liability

The Operating Agreement documents that the LLC is functioning as a separate legal entity. This is crucial for safeguarding members’ personal assets. The United States Small Business Administration notes that having a written agreement strengthens the LLC’s liability shield. For single member LLCs, the OA is particularly valuable because it shows the business is distinct from its owner rather than being operated like a sole proprietorship.

Sets internal guidelines

Without an OA, internal operations default to South Carolina statutes, which may result in unintended governance rules. While state and federal laws must still be respected, an OA allows terms tailored to the business so long as they are not illegal or inconsistent with mandatory provisions of the Act, such as the duty of loyalty, duty of care, or right to information.

Builds credibility

Banks and lenders commonly request a copy of the Operating Agreement before approving business accounts or financing. The document verifies ownership, roles, and decision making authority.

Key Provisions to Include in a South Carolina Operating Agreement

A complete South Carolina Operating Agreement typically includes the following provisions:

• Basic Company Details: Includes the LLC’s legal name (with required designator), business purpose, duration, and principal office address.
• Member Information: Names of all members and each member’s ownership percentage (Membership Interest).
• Capital Contributions: Initial cash, property, or other contributions made by each member. Additional contributions may require a majority vote.
• Management Structure: Specifies whether the LLC is member-managed or manager-managed.
• Profit and Loss Allocation: Details how profits and losses will be allocated among members. Under SC Code § 33-44-405, distributions must leave sufficient funds to cover liabilities.
• Tax Election: Federal tax classification (sole proprietorship, partnership, S corporation, or C corporation). South Carolina does not allow Qualified Joint Venture taxation.
• Voting Procedures: Outlines voting power, required thresholds for decisions, meeting procedures, and quorum requirements.
• Transfers of Interest: Rules governing how members may be added, removed, or transfer their ownership interests, including buyout and buy-sell provisions.
• Records and Bookkeeping: Procedures for maintaining company records, financial documentation, and tax materials.
• Compensation: Terms explaining compensation for members or managers, if applicable.
• Dissolution: Events that trigger winding up and guidelines for distributing remaining assets. Filing Articles of Termination with the South Carolina Secretary of State requires a 10-dollar fee.
• Amendments: Procedures for modifying the Operating Agreement. Most South Carolina LLCs require unanimous consent unless the agreement states otherwise.

Management Options for South Carolina LLCs

Member managed (default)

Members oversee daily operations, have authority to act on behalf of the business, and vote on major decisions based on their ownership interest.

Manager managed

Members appoint one or more managers who handle operations, legal decisions, and contracts. Members limit their involvement to major structural or ownership decisions. If multiple managers are selected, the Operating Agreement may authorize one manager to act as the Chief Executive Manager with final authority.

Creating and Maintaining the South Carolina LLC Operating Agreement

Drafting and signing

Members may draft the Operating Agreement using a template or create one tailored to their needs. Signatures are strongly recommended. Notarization is optional.

Recordkeeping

The Operating Agreement is an internal document and is not filed with the South Carolina Secretary of State. LLCs should maintain the OA with company records because banks, courts, financial institutions, and government agencies may request it.

Amending the Agreement

Members can revise the Operating Agreement by following the procedures listed in the agreement. Most changes require unanimous member approval. If an amendment affects information contained in the Articles of Organization, such as management structure, state filings must also be updated.