How to Start an LLC in South Dakota
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One of the first decisions a business owner will need to make is what structure their business will have. This election can influence everything from their own responsibility for debts to tax rates, to what they are allowed to sell or do. Each state then manages and registers the business with the appropriate structure. One of the most common choices is an LLC, or limited liability company, which offers small businesses a mix of tax benefits and asset protection. Starting an LLC in South Dakota is a simple process managed by the Secretary of State. This step-by-step guide will help you get an LLC set up in the state.
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To be considered a formal LLC, your business will need to be registered with the South Dakota Secretary of State. You will need to provide all the requested information and remain within state guidelines to have this registration approved and begin operations.
Name your LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
The name of your business is one of the biggest decisions you may make from a marketing perspective. A good business name not only conveys your services well, but it is also memorable for clients and can be easily found through online searches. This also means it should be unique.
Choosing a unique LLC name
There is no national or international database of names or universal requirement that businesses do not share a name. However, state law does require that each business entity have a name that is distinguishable from all others, so you will want to check their name search tool to check on name availability.
For wider protection, it is possible to trademark your business name if it is not already trademarked. This is done through the US Patent and Trademark Office and prevents other businesses from claiming the name at the national level.
In addition to the legal aspect of a business name, you may also want to check what is available in terms of an online presence. If the domain name is used, or social media handles are taken, it may be difficult for clients to find you when they perform an internet search.
Other South Dakota naming requirements
Along with availability considerations, South Dakota also imposes other guidelines on the names of LLCs. These rules include:
- The name must end with either the term “limited liability company” or an abbreviation, like “LLC” or “L.L.C.”.
- The name cannot imply it is organized for a purpose other than its stated purpose. For example, an accounting firm cannot be named “Bob’s Handyman Services.”
- The name cannot include words that may confuse a business with a government agency, like Department or Treasury.
- If the name contains restricted words, like bank or attorney, the business may be required to submit additional paperwork to prove there is an appropriately licensed individual within the LLC.
- The name cannot imply that the business is engaging in unlawful activity.
Reserving your LLC name
When a name is available, anyone in South Dakota can use it for their LLC. The best way to protect your name is to register it as your LLC’s name. However, if you are not ready to form your LLC, South Dakota allows for names to be reserved for up to 120 days. You will need to fill out a simple application and include a $25 filing fee.
You can file a name reservation form on the state website to hold an LLC name for 120 days.
Select a registered agent
One of the main features of an LLC is that the liability for most obligations lies with the business and not its owners. This affords the LLC owners and members protection for their personal assets and means that the business is treated in some ways as a separate legal entity.
If the business is sued or responsible for other financial obligations, it is important that the business itself has a designated point of contact – this contact is known as a registered agent.
South Dakota requires that every LLC nominate a registered agent to be responsible for receiving legal documents, like service of process, and government correspondence on behalf of the business.
Any resident of South Dakota can be named as a registered agent, as long as they are over 18, have a physical address in the state (not a P.O. box), and agree to be available during all normal business hours. This means that an LLC member or organizer can be named, or it can be anyone else you trust.
Because of the commitment to be available during all normal business hours, some entrepreneurs prefer to use a registered agent service. These entities must be able to conduct business in South Dakota and will act as a registered agent on behalf of your business.
We recommend:
File Articles of Organization
The most important step in forming an LLC is to file a document called the Articles of Organization. This form includes all the basic information about your business that South Dakota will need to keep on file, as well as allowing the Secretary of State to validate that the above items are in compliance with the law.
The Articles of Organization can be filled out and submitted online, and as an LLC, it’s required for this type of business. To complete the form, you will need to provide the following information:
- Entity name: The name you have chosen and confirmed availability for in South Dakota. If you submit a name that is not usable, your LLC will be denied and you will need to resubmit the forms.
- Business purpose: This is an optional field, but allows you to state your business purpose. You can choose to say “all lawful purposes” to allow your business to grow into other areas.
- Designated office address: The mailing address of your LLC’s office where business is conducted.
- Register agent and registered office: The name of your registered agent and the address used for correspondence.
- Organizers: Names and addresses of all organizers of the LLC. They must also sign the form.
- LLC’s duration: Most businesses will list their duration as perpetual, but if there is a planned dissolution date, it should be included.
- Management structure: It must be stated whether the LLC will be manager-managed or member-managed.
- Member liability: If any of the LLC members will take responsibility for the company debts, that must be listed here.
Once the form has been completed and signed, it can be turned in to the Secretary of State for approval.
You can fill out and submit your LLC formation documents here.
Filing fee
For Articles of Organization filed online, there is a $150 fee due at the time of submission. If the submission is done via paper and mailed in, the fee is $165. You can pay online with a credit card.
South Dakota processing time
When filed online, the Articles of Organization can be approved immediately upon payment. The average turnaround time for new paper filings is 3 to 5 business days.
Create an LLC operating agreement
An operating agreement is a legal document dedicated to outlining how a new business will run, including both future decision-making and daily operations. There is no requirement for South Dakota LLCs to have an operating agreement, but it is recommended that all businesses have them in place. You can create an operating agreement for your private records and reference it any time there is a dispute or conflict.
Not only does an operating agreement help prevent conflict by laying out decisions for startups, it also preserves the liability protection of your business. These documents help set an LLC apart from something like a sole proprietorship or partnership and can be pointed to if there is a question about the business structure. Additionally, if you do not have an operating agreement, the state will use its own LLC rules to solve any disputes.
While you can include any topics you’d like in an operating agreement, there are some common sections you would find in a good template. The most important things to cover can include:
- Ownership percentages: You should include names and addresses of each member, as well as their ownership percentage. This may also include information on their initial contributions to the business.
- Rights and responsibilities: For each member, detail their rights and responsibilities, including pay. You can spell out each member’s voting rights, performance requirements, and daily duties. Hourly or salary pay can be listed, or not.
- Joining and leaving the LLC: An operating agreement should specify how a new member can join and what steps take place when that happens. Similarly, it should discuss the process for someone leaving the LLC, or what happens in the event of a tragedy like death.
- Dissolution terms: Lay out what happens if the business is dissolved, including how debts and assets will be divided and what role each member will play.
If your business is particularly complex, you can use a business attorney to draft the document. However, there are many free templates online that most LLCs can use.
After your LLC is formed, you may be ready to jump into business operations. However, it is important to be aware of other requirements for your business and ensure they are all met. This will help keep your business in good standing with the state and make administrative tasks easier in the future.
Get your EIN
In order to better manage and track business taxes, the Internal Revenue Service (IRS) issues tax identification numbers to each business. This is called an EIN, or Employer Identification Number, and acts like a social security number for a business.
Any business that will hire employees or pay excise taxes must have an EIN in place. However, this number may also be required to do things like open a business bank account, so it is generally advised to have one even if it is not required. Getting an EIN is free and can be done quickly online.
You can get your EIN by visiting the IRS website.
Get South Dakota business licenses
While there is no general business license required by the state of South Dakota, there is one main permit at the state level: the sales tax license, or seller’s permit. Any business with a physical presence in South Dakota must obtain a seller’s permit in order to collect and pay sales taxes. The state may also require some businesses to have specific licenses or permits related to their industry and occupation.
Cities and counties in South Dakota may also impose additional licensing requirements. You should always contact municipal and county government offices where your business operates to be sure you have obtained all the permits you need.
Open business bank accounts
Most banks will allow you to open accounts specifically linked to your business, including both checking and savings accounts. Even for the smallest business, this can be useful for managing your finances and making accounting and tax season much easier. Having an account specifically dedicated to business income and expenses is one way to simplify operations.
Having a business account can also be critical protection for you. An LLC offers personal asset protection for its members only when they operate as a separate entity. If it appears that you are mingling finances or not following this separation, you could lose asset protection and be held liable for company obligations. Having a bank account is one way to prove that you are properly separating assets and avoiding this issue.
Review LLC tax rules in South Dakota
South Dakota is one of the few states in the country that does not impose state taxes or franchise taxes. This means that your company will not pay any LLC taxes on profits, either through the business itself or through the members’ returns, at the state level.
LLC owners do pay federal taxes via their personal tax returns. For tax purposes, LLCs are pass-through entities, which means profits are taxed as personal income on the owner’s tax return.
File an annual report
All LLCs in the state of South Dakota are responsible for filing an annual report, which can be done both online and through the mail. This report includes basic information about your LLC in order to keep your state records updated. Annual reports are due the first day of the second month following the month of formation each year and require a $50 filing fee.
Other states refer to this report as a Statement of Information.
Get insurance for your LLC
Even though your personal assets are protected by an LLC, it is still important to protect your business assets. There are various forms of insurance that an LLC can purchase. The most common is general liability insurance, which is meant to protect against lawsuits surrounding things like personal injury, bodily harm, or property damage.
Some businesses may also need professional liability insurance. This is important when licensed professionals or professional services are involved and offer coverage for accusations of malpractice and business error.
South Dakota also requires businesses with one or more employees, including LLC members, to have worker’s compensation insurance. This provides coverage for employees who suffer from illness or injury related to their world.
About BOI Reports…
For LLCs to operate legally, owners must understand and comply with Beneficial Ownership Information (BOI) reporting rules under the Corporate Transparency Act. Properly filing your report with the Financial Crimes Enforcement Network (FinCEN) is crucial to avoid penalties. If you are unsure whether your LLC must disclose ownership information to FinCEN, see our post about BOI reporting here.
Additional resources to help you set up a business in South Dakota
The South Dakota Secretary of State’s office is dedicated to helping South Dakota’s small businesses grow. Their website contains all the resources necessary to begin work on your business, register the LLC, and maintain your good standing.
- All of the forms used in creating an LLC and maintaining it with the state.
- FAQ about starting and running a business in South Dakota.
FAQs
Do LLCs in South Dakota pay taxes?
South Dakota has no corporate or personal income taxes at the state level. That means that LLCs, no matter their tax election, will not owe taxes on their profits at the state level. State sales taxes and federal taxes will still apply to these businesses.
How do I know if my LLC was approved in South Dakota?
If you file your Articles of Organization online, you will be immediately told if it is approved. You will later receive a Certificate of Organization in the mail from the Secretary of State, as well as be able to access it online. Receiving this approval may take 3 to 5 business days if you file by mail.
Is there a seller’s permit in South Dakota?
Any business that has a physical presence in South Dakota must obtain a seller’s permit, also called a sales tax certificate by the state. This allows for sales taxes to be collected and later paid to the state. There is a $25 fee to obtain this permit.
Does my South Dakota LLC have to have LLC in the name?
In South Dakota, an LLC name must include the phrase “limited liability company” or “limited company.” Abbreviations are also acceptable, including “ltd.” and “co.” or “LC,” “L.C.”, “LLC” and “L.L.C.” These must be at the end of the business’s name, not anywhere else like the beginning or middle.
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