Starting a new business is difficult regardless of your state. Choosing a business entity type and completing all the paperwork and applications can be a real pain. But once you accomplish all of that, you then have to contend with things like processing times. How long does it take to get an LLC in South Dakota? We’ll address that and other aspects of Limited Liability Company formation in this guide.
Discovering South Dakota
Before we dive into information about LLC formation, we’re going to give you a bit of information about the state and what you can expect if you do business there.
“Dakota” is actually an Indigenous American Sioux word that translates roughly into English as “Allies” or “Friendly”. South Dakota is called the Mount Rushmore State because it’s home to the famous landmark. A 60- foot- tall depiction of George Washington, Abraham Lincoln, Thomas Jefferson and Theodore “Teddy” Roosevelt’s faces are carved into the Black Hills.
South Dakota is bordered by North Dakota, of course, as well as Nebraska, Minnesota, Iowa, Wyoming and Montana. The Missouri River runs through the middle of the state.
The state has a variety of geographic features, like hills, streams, plains, canyons, and more. The Great Plains make up around ⅔ of the state, and there’s an area called the Badlands where an ancient sea was once located and many prehistoric fossils have been found, such as marine animals, saber-toothed cats and three-toed horses. The Black Hills section of the state is home to the state’s highest point- the 7,242 foot Black Elk Peak- and is considered sacred to the Lakota, Northern Cheyenne and Omaha tribes in the area.
One of South Dakota’s biggest natural resources is its fertile soil, so the agriculture industry is big in the state. Some of the crops that are grown on a large scale in the state are soybeans, corn, wheat and sunflowers, which are used for their seeds. Mining is also big in South Dakota. All the way until 2001, the state was one of the nation’s biggest producers of gold. Today, mostly construction materials are pulled from the earth, like granite, limestone, sand and gravel.
Economic Overview of South Dakota
South Dakota’s Gross State Product (GSP) is $50.5 billion and experienced a growth rate of 13.7k% from 2018-2023.
According to revenue, these are the top industries in the state: Hospitals, Corn, Wheat & Soybean Wholesaling, Meat, Beef & Poultry Processing, Scientific Research & Development, and Commercial Banking. These are the companies who employ the most people in South Dakota: Avera Health, Walmart, Monument Health, Ellsworth Air Force Base, and Sanford Health. And the sectors that make the top contributions to the state’s Gross Domestic Product (GDP) and overall economy are: Finance & Insurance, Healthcare & Social Assistance, Real Estate & Rental & Leasing, Agriculture, Forestry, Fishing & Hunting, and Manufacturing.
Business Environment in South Dakota
South Dakota’s economy was ranked #19 in the nation by usnews.com, its business environment and growth #37 and employment #2. They interestingly ranked the state’s long-term fiscal stability #1 and short-term fiscal stability #10.
It’s infrastructure got really good ratings. It ranks #9 in the country for infrastructure overall, and #1 for energy because the state uses 43.1% renewable energy, while the national average is 12.3%. And only 13.5% of the state’s roads are in poor condition, compared to the 19% average of the rest of the nation.
The state ranks #8 for affordability and #17 for economic opportunity. The cost of living index in South Dakota is only 90.1, whereas it’s 100.0 on average in the rest of the county. The median household income is $66,143 which is just down from the national average of $69,717. And the poverty rate in the state is 12.3%, also just under the national average of 12.8%.
However, the state scored poorly in the equality section. It actually scored #50, which is dead last. So that’s worth considering.
State Specific Regulations and Incentives for Forming an LLC in South Dakota
Here’s a look at some of the incentives to help businesses in the state.
- South Dakota Jobs Grant & Reinvestment Payment Programs: This program provides grants that are designed to help offset the upfront costs of expanding or relocating a business to South Dakota. It’s specifically for highly competitive projects that cost less than $20,000,000 or have equipment upgrades along with a project cost of under $2,000,000. The maximum award isn’t allowed to exceed the state sales and use tax paid on the project costs.
- Tax Exemptions: In South Dakota, businesses don’t have to pay corporate income tax, business inventory tax, personal income tax, personal property tax or inheritance tax.
- Local Infrastructure Improvement Program: This program awards grants to help with the funding to construct or reconstruct public infrastructure for economic development projects. Any local development corporation or political subdivision in South Dakota can qualify for this program.
- Revolving Economic Development & Initiative (REDI) Fund: This program is discretionary and provides low-interest loans of as much as 45% of the total costs of a project to aid in the attraction of businesses to the state and expansion projects. The REDI Fund supplies financing on a permanent basis for purchasing land for site improvements, acquisition, construction, building renovations, and equipment. Furthermore, you can use the fund to offset services, fees and other construction costs. These loans have low, fixed interest rates and are paid off according to the life of the assets which were financed, and there’s a balloon payment at the end of a 5 year payment period. Companies that apply should have matching funds and supply at least 10% minimum equity contributions before they apply to receive the fund.
- South Dakota WORKS: This program provides commercial loans to businesses that need working capital. The loans can be used as working capita., pay for interim construction of new buildings, or equipment. Loans are for 1-5 years and have a 3% fixed interest rate and are paid off depending on useful asset life, with a balloon payment after the 5 years is up. These loans usually have a maximum of $1 million.
- MicroLOAN: This program is designed to help small businesses fund their projects with costs under $750,000. The funding can be used for working capital, pay for equipment, or as real estate financing. Loan maximums typically don’t exceed $100,000 and are for a period of 10 years with a 3% interest rate.
- Proof of Concept Fund: Eligible businesses can qualify for an advance of up to $25,000. Research that highlights the economic likelihood of innovation must be submitted prior to commercialization. There are three different ways you can use the POC fund: research funding, patent funding and market analysis funding. Funds can’t be used to pay for research or project leader salaries, legal fees associated with incorporation, or for business operating expenses. You’ll need to make a 10% matching contribution.
- Workforce Development Program: This program supplies funding in the form of matching grants to train new employees or re-train current employees. The program provides 50/50 fund matching. Every dollar provided from Workforce Development must be matched by contributions from the private sector. Companies that qualify for this program must pay at least $15 an hour, plus have wages that match wages of comparable jobs in the same labor market.
- Dakota Seeds: This program provides an internship for high school and post secondary students. Companies that participate can receive up to $2,000 per intern in matching funds. Interns are required to have links to science, engineering, technology, accounting, mathematics or manufacturing.
- Economic Development Partnership Program: This program matches grants to help developing or expanding community development programs. You can use the funds for training needs, equipment, new staff, or promoting existing part-time employees.
Pros and Cons of Establishing an LLC in South Dakota
You’ll find that doing business in South Dakota has a number of benefits, but there are drawbacks as well. We’ll go over both so that you have an accurate representation of what to expect from running a business in the state.
South Dakota has low taxes. There are no corporate income taxes in the state. You won’t have to pay business inventory tax. The sales tax in the state is only 4.50%, with local rates maxing out at 4.50 and an average rate for combined state and local sales tax of 6.40%. It also doesn’t have personal income taxes or personal property tax.
South Dakota is pretty well-known for lax regulations on businesses, as well as for having a business-friendly environment. This is great news for anyone who wants to start an LLC in the state. While the formation process to form an LLC is typically simpler than the incorporation of a corporation, less regulation means it’s even simpler in South Dakota.
South Dakota’s location makes it easy for you to ship your products anywhere in the country.
Now for the drawbacks.
South Dakota isn’t near many major metropolitan regions.
Its small population means you’ve got a limited market in the state.
Funding opportunities in the state are limited.
The climate in South Dakota is harsh because winters are cold and summers are hot.
Procedure of Establishing an LLC in South Dakota
Here is our guide to LLC formation in South Dakota. While it can be a scary process for some people, we’ve got your back with instructions every step of the way!
- Obtain an Articles of Organization Form: The first step that initiates the formation process is obtaining an Articles of Organization form. It’s quite easy to get one from the Secretary of State, either online or in person.
- Choose a Business Name: Business names must meet several legal requirements. Once you’ve ensured that yours ticks all of the requirement boxes, you must file an Application for Reservation of Name form with the Secretary of State.
- Choose a Registered Agent: Your LLC is required to have a registered agent. This is a person who agrees to accept service of process, legal notices and mail from government agencies at their address for your company. It’s an important role and should be considered carefully because if your registered agent misses a service of process then your business could lose its good standing with the Secretary of State, incur legal and financial repercussions, or even be barred from doing business in the state. You can name a friend, employee or family member as your registered agent, or you could hire a professional registered agent service for extra assurance.
- Choose Your Business Address: Your business address is important. Whichever address you choose will be listed on the public record, which means that using your home address will cause several breaches of privacy and security. The idea of everyone being able to come to your home is alarming. So if your business lacks a physical address, you should consider asking your registered agent if they would mind you using their address, or research virtual offices or virtual addresses in your area.
- Sign and Submit Your Articles of Organization: First, make sure that you’ve added all the pertinent information, that it’s correct, and that you have the right number of copies. Once everything is in order, the form needs to be signed and submitted to the Secretary of State. You can do this yourself, but be aware that your name will likely be listed on the public record as the LLC’s organizer. If you want to avoid that, you can hire an LLC formation service. These businesses will not only fill all of the paperwork out for you, sign it and submit it on your behalf, but several quality companies have a 100% accuracy guarantee.
Necessary Documentation for Filing an LLC in South Dakota
Before you submit your Articles of Organization, there are several documents you need to have in hand. Here’s a look at what you’ll need:
- Articles of Organization: Your Articles of Organization functions as both a critical formation document and as an LLC formation application. It includes important information such as your business’s name, address, a list of LLC members and their contact information, your registered agent’s information, and an explanation of your LLC’s management style: will it be member-managed or manager- managed?
- Operating Agreement: Operating agreements aren’t required by the Secretary of State, but since they’re an important internal document that you’ll frequently reference, it is recommended. It includes information for LLC members such as how they should behave and interact with each other, how the business will run, how they’ll be paid, their jobs and contributions, and more. Your operating agreement will include: the names, roles and contact information for each member, the contributions of each member, and an explanation of the distribution of profits and losses of the company. It should also include information for managers, like voting rights and meeting schedules- basically what authority they have and how and when they should conduct meetings. One important section of the operating agreement is a detailed account of how to remove and add members, and how members should act if an LLC member were to die.
- Employer Identification Number (EIN): You need an EIN to hire employees, fill out tax forms, or open a business bank account. It’s useful because it identifies your business and is unique to it, so you can use it in place of your Social Security Number for privacy. You can obtain an EIN from the IRS website quickly, easily, and best of all, for free!
- Name Reservation Form: Your business name must be unique to it. That’s a fancy legal way to say that it can’t be the same as other business names already in use in the state, and it can’t be too close either. Since you likely aren’t aware of every business name in the state, you can determine if your business name can legally be used by performing a search on the business name database put out by the Secretary of State. Once you’ve found a viable business name, you need to submit an Application for Reservation of Name to the Secretary of State so that other businesses can’t use it.
- Initial Report: LLCs in the state are required to file an annual report, which ensures that the Secretary of State always has current, up-to-date contact information for your company. The first one is called an initial report, and you have to file it when you submit your Articles of Organization.
- Tax Registrations: Whether you’re selling goods or collecting sales tax, you need to register your business with the South Dakota Department of Revenue.
- Business Licenses: Your business will need a business license from the state government. But what many people don’t know is that it will probably also need a number of licenses and permits from county and local governments. For state licenses, head to the Secretary of State’s website. For county and local permits, consult county and municipal clerks.
Legal Requirements for Starting an LLC in South Dakota
Here are a few legal requirements you’ll need to fulfill if you want to start an LLC in South Dakota.
- Registered Agent: All LLCs in the state must have registered agents. This is to ensure that your business doesn’t miss important correspondence or legal notices. This mail is received at your registered agent’s address and then forwarded to you at another address. Some registered agents now use digital methods to upload photos of the mail to you before it’s forwarded. Registered agents must have a physical address in the state, be 18 years old, and more. P.O. box addresses aren’t permitted for use by registered agents, and coincidentally aren’t permitted to be used as business addresses, either.
- Annual Report: Your business may not have to pay taxes, but it does have to file an annual report. Every year after your initial report, you’ll submit an annual report on the same date and pay a $50 filing fee. Missing the filing deadline for an annual report can lead to financial penalties, but not filing at all can cause serious legal repercussions for your business.
Time Frame for Establishing an LLC in South Dakota
Here are the times you can expect when forming an LLC in South Dakota.
How Long Does the Initial Paperwork Take in the State of South Dakota?
Approval times are the total times from the time you submit your documents to the Secretary of State to the time your Limited Liability Company is approved and includes both transit times and processing times. They’re immediate if you file online and take about a week if you file by mail.
Processing Times in the State of South Dakota
Processing times are the amount of time it takes for the Secretary of State’s office to go over your documents and enter your business information to their system. Processing times for online filing are immediate, and are 1-2 business days for mail filing.
Common Delays in the LLC Formation Process in South Dakota
There are a number of things that could delay the formation process. Here are a few delays you should be aware of.
- Document Issues: All of the information you include on your documents must be correct. You must include all of the required information, too. If you make a typo, leave information out, provide incorrect information, or forget to add two copies then your documents could be rejected by the Secretary of State, which means you’ll have to go back to the drawing board.
- Time of Year: Both the end and the beginning of the year sees an influx of LLC filings at the Secretary of State’s office. If you’re filing at either of these times, you can expect formation delays as the employees work diligently to process mountains of paperwork.
- Non-Business Days: The Secretary of State’s office will only process filings on business days, which exclude holidays and weekends. This means you don’t want to file on or before government holidays or weekends. It’s pretty likely that there literally won’t be anyone in the building to process your documents.
Expedited Processing for LLC Formation in South Dakota
If you’re in a hurry to form your LLC, then expedited processing services can be a real lifesaver. Here’s what you need to know about expedited processing in South Dakota.
What Are the Expedited Options Available?
There is only one expedited service option for mail filing in South Dakota: 24-hour processing. There isn’t expedited processing on online filing because it enjoys immediate processing.
Additional Costs for Expedited Services in South Dakota
For expedited service, you must pay extra fees in addition to the filing fee. For 24-hour processing, the fee is $50 extra.
Comparing LLC Formation Time Frame in South Dakota with Other States
Before you choose whether to form a domestic LLC or opt for a foreign LLC, it’s important to learn how your state’s formation time frame compares with time frames in other states.
Brief Comparison with Key States
To recap, processing times in South Dakota are 1-2 business days for mail filing, and online filings have immediate processing times. There’s a 24-hour expedited option for mail filing for an additional fee of $50, too.
A 24-hour expedited processing option is relatively quick. For instance, in Arizona expedited processing takes 5 days, and in Maryland it takes 7 days. Mail filings in New York can take 8 months to process. And online filings in Arizona are processed in 14-16 days.
There are faster options, as well. While you won’t beat immediate processing on online filings, Delaware, Pennsylvania, Michigan, Nevada, Montana and West Virginia all have a 1-hour expedited processing option. And both Ohio and Kentucky can process mail filings in just 1 business day.
Why is South Dakota a Favorable Place for Forming an LLC?
South Dakota can be an ideal place to start a business because its location makes it easy to ship products throughout the United States, it has low taxes which means lower business costs, and it doesn’t impose strict regulations on businesses which means it’s easy to start an LLC in the state.
