## Corporate formation in South Carolina Forming a corporation creates a separate legal entity owned by shareholders. Provides liability protection but more administrative burden than LLCs. ## C-corp vs S-corp vs LLC **C-corporation:** - Default corporate tax treatment - Separate tax entity (Form 1120) - Double taxation (entity + dividends) - Unlimited shareholders, multiple classes of stock - Required for venture capital + IPO - Best for high-growth tech / biotech **S-corporation:** - Tax election (Form 2553) - Pass-through taxation (Form 1120-S + K-1s) - Limited to 100 US-resident-individual shareholders - One class of stock - Saves self-employment tax - Best for small businesses with profits to distribute **LLC (limited liability company):** - Hybrid — limited liability of corp + tax flexibility - Default pass-through; can elect C-corp / S-corp - Most flexible structure - Best for most small businesses **Benefit corporation:** - Profit + social mission - B-Corp certification separate from legal status - Available in most states ## Corporate formation steps **1. Choose state of incorporation:** - **Home state** — usually simplest for local business - **Delaware** — sophisticated business law + Court of Chancery; preferred for VC-backed startups - **Nevada** — strong asset protection + no state corporate tax - **Wyoming** — privacy + low fees + favorable laws - Most businesses incorporate in home state UNLESS raising VC **2. Choose name:** - Must be unique in state - Must include corporate designator (Inc, Corp, Co, Ltd) - Reserve name if not ready to file **3. Choose registered agent:** - Person / company at physical state address - Receives legal documents - DIY (yourself) or service ($100-$300/year) **4. File articles of incorporation:** - File with Secretary of State - Required information: name, registered agent, share authorization, incorporator - Filing fees: $50-$500 typical **5. Adopt bylaws:** - Internal governance document - NOT filed publicly - Defines: board structure, officer duties, meetings, voting, amendments **6. Hold organizational meeting:** - Initial board meeting (or written consent) - Adopt bylaws - Elect officers - Authorize stock issuance - Adopt fiscal year - Adopt banking resolutions **7. Issue stock:** - Stock certificates (or book entry) - Track in stock ledger - File appropriate state / federal exemptions - 83(b) election for founders (within 30 days) **8. Obtain EIN:** - IRS Employer Identification Number - Free at irs.gov - Required for banking + taxes **9. Open business bank account:** - In corporate name - Critical for liability protection (avoid commingling) **10. State / local registrations:** - State sales tax (if applicable) - State employer registration (if hiring) - Business license / permits - Zoning / occupational licenses **11. Federal tax election (if S-corp desired):** - Form 2553 within 75 days of formation OR 75 days of tax-year start - Or by March 15 for tax year ## Ongoing compliance requirements **Annual / periodic:** - Annual report / franchise tax filing (state-specific) - Annual meetings of shareholders + directors (or written consents) - Maintain corporate book + minutes - Update beneficial-ownership info (FinCEN under Corporate Transparency Act) - File federal tax returns (1120 / 1120-S) - Issue K-1s (S-corp) or W-2s (employees) **As needed:** - Special meetings / consents for major decisions - Stock issuances / transfers - Officer / director changes - Articles amendments - Updated bylaws ## Beneficial Ownership Information (BOI) — Corporate Transparency Act **Federal law (effective 2024):** - Most corporations must report beneficial owners to FinCEN - Existing entities had until Jan 1, 2025 to file - New entities: 30 days from formation - Updates within 30 days of changes - Significant penalties for non-compliance - Status under litigation (subject to change) ## Common formation mistakes - **Wrong entity choice** — LLC vs S-corp vs C-corp matters for taxes / structure - **Wrong state** — incorporating in DE for local business adds cost without benefit - **Missed S-corp election deadline** — costs entire first year - **No bylaws** — defaults to state law (often suboptimal) - **No stock ledger** — issues with cap table later - **Comingling funds** — pierces corporate veil - **Inadequate annual meetings** — same problem - **Missing 83(b) election** — costs founders tax - **DIY VC-track companies** — angels / VCs require professional setup ## Maintaining corporate veil Liability protection requires actually treating corporation as separate entity: - Separate bank account - Adequate capitalization - Annual meetings - Documented decisions - Don't pay personal bills with corporate funds - Sign contracts in corporate name - Maintain corporate formalities - File required reports / taxes ## What you should do For South Carolina corporations with VC / IPO ambitions: hire a startup-experienced attorney from the start. Most South Carolina business attorneys offer flat-fee formation packages ($1,500-$5,000+ for full corporate setup). Online services (LegalZoom, Stripe Atlas, Clerky) work for simple cases but generally inadequate for fundraising or complex situations. --- *This guide is general information about South Carolina law as of early 2026 and is not legal or tax advice. Corporate law is highly specific. Talk to a licensed South Carolina business attorney about your specific situation.*