Investors In S.C. Startups Get Tax Credit – Even If They're Not Paying S.C. Taxes

With gorgeous beaches, fantastic weather and beautiful scenery South Carolina somehow consistently flies under the radar. Startups that are looking to be creative might want to take a serious look at launching in South Carolina. Charleston is consistently ranked as one of the best cities in the world for travelers who love the southern charm of the city, Greenville is one of the fastest growing cities in the US and Myrtle Beach offers year-round family fun. The cost of living in South Carolina, including hiring staff and overhead expenses, are much lower than New York or California. 

In 2013 South Carolina signed into law the High Growth Small Business Job Creation Act of 2013. One of the problems with starting a business in South Carolina is that it's more difficult to find financing than in a place like NYC or San Francisco. What the High Growth Small Business Job Creation Act of 2013 does is it provides tax credits to investors even if they do not live in South Carolina. This makes South Carolina not only an enticing option to launch your startup because of the cost of living but it also provides a large incentive for investors outside of South Carolina to invest in your early stage company. 

Investors in South Carolina startups do not need to be South Carolina taxpayers to receive the substantial 35 percent tax credit available via the High Growth Small Business Access to Capital Act. Folks from out of state can sell the credits and benefit even if they don’t have a South Carolina tax liability.

The S.C. bill is meant to encourage individual angel investors to put money in early-stage, high growth businesses and increase the number of quality, high-paying jobs in the state. It’s also intended to support businesses commercializing technology developed in the states colleges and universities.

There is an annual cap of $100,000 per investor and $5 million in aggregate. Investors must meet the U.S. Securities and Exchange Commission’s definition of an accredited investor, and no brokerage fees or commissions are allowed.

For businesses to qualify for investments under the bill, they must be headquartered in the state; started within the last five years; employ fewer than 25 people and accrue annual revenues of less than $2 million.

The reason such legislation is needed is a persistent early-stage funding gap that leaves many startups struggling to nab seed or Series A financing. Venture Capital firms increasing want the potential for $100 million plus exits and firms with substantial revenue or profitability before they invest, while many angel investors were subdued by the recession.

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