Setting Up a Business Partnership in South Carolina

In South Carolina, you can form several types of partnerships: 1) General Partnership (GP), where all partners share in management and have unlimited personal liability; 2) Limited Partnership (LP), which has both general partners who manage the business and limited partners who are typically investors with limited liability; 3) Limited Liability Partnership (LLP), which provides liability protection for all partners; and 4) Limited Liability Limited Partnership (LLLP), which combines features of LPs and LLPs. Each structure offers different levels of liability protection and management flexibility.

Unlike other business entities, a general partnership in South Carolina can be formed without filing any documents with the state. It's created automatically when two or more people agree to operate a business together for profit. However, while not legally required, it's highly recommended to create a written partnership agreement that outlines the rights and responsibilities of each partner. Additionally, you may need to file for business licenses, permits, and a fictitious business name (DBA) registration if you're operating under a name other than the partners' legal names.

A comprehensive partnership agreement in South Carolina should include: 1) Each partner's capital contributions; 2) Profit and loss allocation percentages; 3) Partner authority and decision-making processes; 4) Management responsibilities; 5) Procedures for admitting new partners; 6) Buyout provisions if a partner leaves; 7) Dispute resolution methods; 8) Procedures for dissolving the partnership; 9) Non-compete clauses if applicable; and 10) Provisions for death or incapacity of a partner. While not legally required for general partnerships, a written agreement helps prevent misunderstandings and provides clear guidance for handling various business situations.

Partnerships in South Carolina are generally considered "pass-through" entities for tax purposes. This means the partnership itself doesn't pay income taxes. Instead, profits and losses "pass through" to the individual partners, who report their share on their personal tax returns. Partners pay both state and federal income taxes on their share of partnership income. Additionally, partners typically must pay self-employment taxes (Medicare and Social Security) on their partnership income. South Carolina also requires partnerships to file an annual information return (SC1065) even though no tax is paid at the entity level.

In South Carolina, a Limited Partnership (LP) has two classes of partners: general partners who manage the business and have unlimited personal liability, and limited partners who are typically passive investors with liability limited to their investment. An LLP (Limited Liability Partnership), on the other hand, provides liability protection for all partners. In an LLP, partners are protected from personal liability for the negligence and misconduct of other partners, though they remain liable for their own negligence and the partnership's debts. LPs are often used for investment businesses, while LLPs are common for professional services like law and accounting firms.

To register a Limited Partnership (LP) in South Carolina, you must file a Certificate of Limited Partnership with the Secretary of State. For a Limited Liability Partnership (LLP), you need to file a Registration Statement of Limited Liability Partnership. Both filings require payment of a filing fee (currently $10). You'll need to provide information such as the partnership name, principal office address, registered agent information, and names of general partners (for LPs) or partners (for LLPs). These entities must also maintain a registered agent in South Carolina for service of process. Forms are available on the South Carolina Secretary of State website.

Partnerships in South Carolina have several ongoing compliance requirements: 1) Annual reports must be filed for LPs and LLPs with the Secretary of State; 2) Business licenses may need renewal at local and state levels; 3) Partnerships must file annual information tax returns; 4) Employer partnerships must comply with payroll tax requirements; 5) Sales tax collection and remittance is required for retail businesses; 6) Any significant changes to the partnership structure typically require filing amendments with the state; and 7) Professional partnerships may have additional regulatory requirements. Failure to maintain compliance can result in penalties, loss of liability protection, or even involuntary dissolution.

Liability varies significantly across partnership structures in South Carolina. In a General Partnership, all partners have unlimited personal liability for partnership debts and obligations. In a Limited Partnership (LP), general partners have unlimited liability while limited partners' liability is restricted to their investment amount. In a Limited Liability Partnership (LLP), partners are protected from personal liability for the negligence of other partners and employees, but remain liable for their own negligence and partnership debts. A Limited Liability Limited Partnership (LLLP) provides liability protection for both general and limited partners. The appropriate structure depends on your business activities and risk tolerance.

Yes, you can convert an existing business to a partnership in South Carolina. The process varies depending on your current business structure. Converting a sole proprietorship to a partnership involves bringing on partners and potentially creating a partnership agreement. Converting from an LLC or corporation to a partnership requires filing conversion documents with the Secretary of State and may have significant tax implications. Before converting, consult with both a business attorney and tax professional, as conversions can trigger tax consequences, affect existing contracts, and change liability exposure. The South Carolina Business One Stop website provides guidance on business conversions.