Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
If you want to start a business in South Dakota, a great choice for many business owners is to form a limited liability company or LLC. This business structure provides flexibility as well as liability protection.
Forming an LLC in South Dakota is actually relatively easy to do yourself. This article will cover every aspect you need to know about forming an LLC.
Step 1: Choose a Name For the LLC
Before anything else, you must first decide on a name for your LLC. In the State of South Dakota, there are several guidelines that need to be taken into consideration when choosing a name.
Here are the naming guidelines:
- All names must include one of the following phrases or abbreviations: Limited Liability Company, Limited Company, LLC, L.L.C, LC, or L.C.
- The chosen name must be 100% unique and not already registered with the State of South Dakota. You can search if your desired name is already used on the South Dakota Secretary of State’s business name database.
- The chosen name cannot have words or abbreviations used by military or government institutions.
- You will need proper licensing if you plan to use the words “Doctor,” “Lawyer,” or any other restricted words.
If you’re still unsure what name to choose, a great option is to use an online business name generator, which you can find online with a simple Google search.
If you have chosen a name but are not ready to file the Articles of Organization yet, you can reserve the name for up to 120 days for a fee of $25. This reservation needs to be sent by mail.
In South Dakota, you also have the option to use a fictitious name, meaning you can trade under a different name than what is filed in the Articles of Organization. You can apply for this online for a fee of $10.
Step 2: Appoint a Registered Agent
South Dakota law states that every LLC must have a registered agent. A registered agent can either be an individual or a business entity that accepts all mail, complaints, legal disputes, and legal paperwork on behalf of your business.
A registered agent must have the following:
- A physical address in South Dakota
- Must be available and onsite during business hours to accept all mail
- Must be able to send/forward the received mail to the LLC owner/manager as soon as possible
You can even appoint yourself or another LLC member to be your LLC’s registered agent. However, remember that if you do this, your name and address will be made public. If you would prefer to keep this information private, it is highly recommended to hire a third-party registered agent service.
Step 3: File the Articles of Organization
Once you have chosen or reserved a name and appointed a registered agent, you will need to officially file for your LLC to be registered with the State. To do this, you will file what is called the Articles of Organization.
There are two ways of filing the form: online or by mail.
Filing online through the South Dakota Secretary of State website will cost you $150 using online payment methods. If you wish to file the form by mail, this will cost you slightly more at $165.
The Articles of Organization will include:
- The name of your LLC
- The name and physical address of your registered agent
- A general statement about the LLC could be things like why you want to form one, the services offered, etc.
- The end date – only applicable if your business has an end date
- The management structure
- A list of the members liable for the LLC’s debts
- The signature of the organizer
Step 4: Receive the Certificate From the State
After filing the Articles of Organization, if approved, the State of South Dakota will issue you with a stamped and approved Certificate of Organization either online or through the mail.
This certificate authorizes your LLC to do business in South Dakota and other activities like opening a bank account or hiring new employees.
Congratulations! Now your business is officially formed.
Step 5: File an Annual Report
In the State of South Dakota, you must file an annual report for the LLC. This report needs to be filed on the first day of the second month of the following year after the date the Articles of Organization were originally filed. Your annual reports will be due on that date every year following. The fee for submitting this report is $50 for online submissions and $65 by mail.
Cost to Start an LLC in South Dakota
At the base level, you will need to file the Articles of Organization to form your LLC in South Dakota. To file these Articles, there is a fee of $150 if you file online or $165 if you file by mail. Both are non-refundable fees.
On top of that, if you reserve your business name, there is a $25 fee to consider. To register a fictitious name will cost $10. And finally, registered agent service fees can start around $39 and upwards, depending on your service provider.
Filing your Articles of Organization yourself is definitely the cheapest route. If you simply file the Articles online and nothing else, starting your LLC in the state will cost just $150. However, this cost can go up depending on many factors, such as if you decide to hire an LLC formation service or attorney to help you through the process.
What To Do After Forming Your LLC in South Dakota
Forming an LLC is only the beginning. To ensure that the business operates legally and smoothly, there are still several things you need to do.
Create an Operating Agreement
Creating an operating agreement is not a legal requirement in the state of South Dakota, but it is strongly recommended. Think of the operating agreement as a set of guidelines to help with day-to-day running, legal disputes, and general information regarding the business.
This operating agreement can be drawn up by the owner, members, or with a lawyer’s help.
No law dictates what an operating agreement should look like, but as a general rule, it should have the following information:
- The name of the LLC
- The principal members
- The name and address of the chosen registered agent
- Brief summary of the information provided in the Articles of Organization
- Management structure
- The day-to-day runnings of the business
- The way losses and profits are divided amongst members
- Hiring and firing procedures
- Any indemnification and liability clauses
This document should be read and signed in agreement by all members or owners of the LLC.
Get an Employer Identification Number
You will also need an Employer Identification Number, also called an EIN, from the Internal Revenue Service. There is no fee to obtain this nine-digit number. This can be done online or by mail.
If you are a single-member LLC with no employees, getting an EIN is not required, but there are advantages to getting one. With an EIN, you can:
- Manage and pay federal and state business taxes
- Open a bank account for the business
- Hire new employees
Get Necessary Licenses and Permits
In South Dakota, a business with a physical address and selling goods or services will need to apply for a Sales Tax License. There is no fee to apply for this license.
Open a Business Bank Account
With your EIN, you can open a bank account for the business. This is a great way of separating personal and business assets, making filing and paying taxes much simpler. Having a credit card for the business can help keep track of business expenses as well.
Get Legal Advice and Coverage
Getting sound legal advice can help prevent your LLC from potentially making costly legal mistakes. Hiring a professional lawyer can save you money in the case of legal disputes and settlements. Lawyers can also help draw up contracts and operating agreements for the LLC.
Taxes can get a bit consuming at times, so hiring an accountant can help ensure that tax filings are correct and done on time. An accountant can also manage the business accounts.
For added protection, it is wise to purchase general liability insurance for the business, to protect the business.
How to Keep Your LLC Compliant in South Dakota
Simply forming an LLC is not enough. You need to manage and ensure the business remains compliant with the regulations set out by the State of South Dakota to ensure your business remains legal.
Ways to keep your LLC compliant in South Dakota:
- File the annual report every year and pay the fee before the deadline
- Maintain your registered agent
- Manage and pay required taxes (state and federal)
- Collect and pay sales tax
- Ensure all business licenses are up to date
- Maintain your business as outlined in the Articles of Organization
Tax Filing Requirements for LLCs in South Dakota
Unlike other states, South Dakota does not have a personal income tax or corporate income tax. This means that you won’t be paying state taxes if you are taxed as a pass-through entity or as a corporation.
The only type of state tax that most small businesses will need to worry about is the sales tax, which you will need to collect and pay to the South Dakota Division of Taxation.
If your LLC has employees, you must pay employer taxes. State unemployment insurance is paid to South Dakota’s Department of Labor and Regulation. You can either submit these taxes online or by mail.
Frequently Asked Questions
How long does it take to register an LLC in South Dakota?
The fastest way to register an LLC in South Dakota is by registering online. Online filings are approved instantly, and the certificate can be downloaded right then and there.
If you filed by mail, the processing time is about 3 to 5 business days. But in reality, it can take up to 3 weeks if you include the mailing time. There is an expedited service available only to people filing by mail. For an extra $50, your documents will be approved within 24 hours. But again, this does not include mail time.
If you would like to have your LLC formed as soon as possible, it is recommended to file online.
What tax structure should I choose for an LLC in South Dakota?
In South Dakota, all LLCs are automatically treated as pass-through entities. This means that LLC does not pay taxes; instead, the members do through their personal income tax returns. However, since South Dakota does not charge income tax, you would only need to worry about federal taxes and sales tax.
Again, if you choose to be taxed as a corporation, you would not need to worry about state taxes. South Dakota does not charge any corporate taxes either.
So, choosing the right tax structure for you will depend on how much tax you will need to pay at the federal level. To make an informed decision, hire a business attorney or accountant.
Should you hire an LLC formation service in South Dakota?
There is no right or wrong answer to this question. Forming an LLC on your own is a lot of paperwork but still doable. Hiring an LLC formation service can help ease the workload and allow you to focus on other aspects of starting a business. If you want specific recommendations, head over to our LLC service companies research.