Whether you've already decided to establish an LLC in South Dakota or would like to learn more about the LLC formation process in South Dakota before doing so, you've come to the right place and deserve congratulations. Starting a new business or expanding an existing one into a new state is usually an exciting experience.
I'll cover all you need to know about the South Dakota LLC formation process in this article, but first, I'll cover some essentials, such as what a Limited Liability Company (LLC) is and some of the advantages of creating an LLC.
(If you want to skip to the “How to Form an LLC” section, click here.)
What Is a South Dakota LLC?
A South Dakota LLC is a Limited Liability Company formed in the state of South Dakota that is governed by the laws, regulations, and statutes of the state of South Dakota.
Why Choose an LLC?
There are various advantages to forming a South Dakota LLC, and you'll be able to list your favorites after you understand how an LLC might benefit your firm. When compared to an alternative business structure such as a corporation or sole proprietorship, it's evident that LLCs provide significant benefits to small business owners.
1. Limited Liability and Asset Protection
The primary (and arguably most significant) advantage of having a Limited Liability Company (LLC) is the protection that LLC owners enjoy from personal liability and asset protection. LLC owners cannot be held personally accountable for their South Dakota LLC's corporate debts or legal responsibilities. This is because when you create an LLC, the South Dakota Secretary of State considers your personal assets and liabilities as distinct from the business debts and assets of your Limited Liability Company.
This ensures that creditors of your South Dakota LLC are not permitted to list or acquire your personal property (such as your vehicle, home, or personal funds) to repay debts owed to them by your business entity. Their choices are limited to your South Dakota LLC's assets and income.
This provides significant reassurance to a large number of business owners. Whatever misfortune strikes your South Dakota business (whether it's a natural disaster, economic downturn, or even legal issues), you can be confident that you'll walk away with at least your personal possessions and earnings.
Another advantage of forming a Limited Liability Company over other business structures (such as a sole proprietorship or corporation) is that your personal information will be protected.
If you choose a sole proprietorship as your business structure, you will need to register your personal information with the South Dakota Secretary of State, which will make it publicly available on their website (i.e., the public record).
Privacy is critical these days because hackers and thieves have mastered their craft. With a few clicks and a few apparently trivial pieces of information (such as your name and address), fraudsters may exploit your name to rack up thousands of dollars in debt before you ever realize it.
However, when you form an LLC in South Dakota, you can keep your information private and off the public record.
Simply hire a professional service known as an LLC formation service to do this. Among the services they provide is registering their information with the South Dakota Secretary of State in lieu of yours, ensuring that your privacy, identity, and credit score are protected.
LLC formation services can charge as little as $0 plus the state filing fees. However, my preferred LLC formation service is Northwest Registered Agent. They typically charge $225 for their services, but because of a special deal we have with them, BoostSuite readers can now enjoy a discounted rate of only $39.
(*prices do not include state filing fees)
Finally, we'll explore the tax benefits that a company owner may take advantage of when forming a South Dakota LLC. These advantages become most apparent when comparing how LLCs are taxed to how corporations are taxed.
If you choose to register as an S or C corporation rather than an LLC, you will face what is known as “double taxation.” Here’s how double taxation works:
When a corporation earns a profit, the earnings are subject to corporate income tax first, and subsequently to personal income tax on the dividends issued to corporate shareholders. This results in a double taxation of earnings.
When you start an LLC in South Dakota, you avoid double taxation entirely. The following describes how LLCs are taxed:
By default, LLCs have a tax structure known as a “pass-through entity” and are generally exempt from federal taxes. The profits earned by the South Dakota LLCs are taxed at the corporate rate, but are subsequently distributed to the LLC members as personal income (rather than dividends, which are subject to higher taxes). As a result, you will only have to pay tax on these profits once.
Beyond avoiding double taxation, there are further tax advantages to forming a South Dakota LLC.
The Qualified Business Income Deduction (QBID) is a new tax benefit for Limited Liability Companies (LLCs) introduced in the 2017 Tax Cuts and Jobs Act.
This allows the majority of LLC owners to benefit from a tax discount of up to 20%—a benefit that is not available if you pick another kind of business entity. This tax reduction is an excellent reason to form an LLC in South Dakota.
How to Start an LLC in South Dakota
Now that you’re familiar with what a South Dakota LLC is and some of its benefits, you’ll have a better understanding of whether forming an LLC is the right move for you and your South Dakota business. Here are the steps to follow when starting an LLC in South Dakota.
*IMPORTANT* If you’ve never formed an LLC before or you’re nervous about navigating the LLC formation process on your own, a particular type of professional service can make the process go more smoothly for you.
These services are called LLC formation services, and they not only help you gather and file all the formation documents necessary to legally establish your LLC with the South Dakota Secretary of State but also keep your information secure and help you throughout the formation process. They can cost as little as $0, but my favorite is Northwest Registered Agent, which charges $39.
If you’d like to know more about different LLC formation agencies or about the professional service packages that an LLC formation service has to offer your new business in South Dakota, check out my article about the best LLC services.
1. Obtain Articles of Organization Form
The first step in forming a South Dakota LLC is obtaining a copy of the South Dakota LLC Articles of Organization from the South Dakota Secretary of State.
Here is a link to the Articles of Organization form from the South Dakota Secretary of State’s business form database.
Because the South Dakota LLC Articles of Organization is the main formation document you’ll need to file in the state of South Dakota, the subsequent steps on this list will refer to this document.
2. Choose Your Business Name
The business name is one of the first pieces of information you'll need to provide on your Articles of Organization form and one of the most important bits of information that South Dakota LLCs are required to provide to the Secretary of State.
However, before you begin scribbling down the first creative idea that occurs to you, you must ensure that the business name you are contemplating is not already in use by another South Dakota corporation.
Fortunately, this is a simple operation. Simply go to this page on the South Dakota Secretary of State website, enter the LLC name in the search field, then click the “search button” to finish the procedure.
Within seconds, you'll be given an exhaustive list of all businesses that have a similar business name. This will enable you to determine if the LLC name you've selected is available.
To be legally recognized in South Dakota, the name of your LLC must include the words “Limited Liability Company” or one of its abbreviations, such as “LLC” or “L.L.C.” Certain other terms, such as “bank,” “credit union,” “State Department,” or “lawyer,” will need extra documentation to comply with South Dakota's naming regulations if you choose to use them in your LLC name.
After deciding on a company name and ensuring that it is available, you can submit an Application for Reservation of Name, which you may do online or by mail, along with a $25 filing fee.
If you dislike the company name you were required to register with the South Dakota Secretary of State, you may register a Trade Name, Fictitious Name, or DBA (“Doing Business As”) Name. This is the name that will appear in ads, on signage, and on your website, not the actual company name registered with the Secretary of State. Your trade name does not have to include the phrases “LLC” or “Limited Liability Company,” and it cannot contain words referring to financial institutions. You can register your Trade Name online.
3. Choose a South Dakota Registered Agent
Your registered agent is another critical piece of information that your Articles of Organization form needs. South Dakota law requires that each South Dakota LLC have a “registered agent.”
A registered agent is an individual or business entity who serves as the point of contact for your South Dakota LLC and receives mail, service of process, and legal papers on behalf of your South Dakota LLC during business hours. This means that you may either act as the registered agent for your LLC in South Dakota yourself or employ a registered agent service. I'll discuss the advantages and disadvantages of each so you can make an educated choice about whether to be your own registered agent.
If you become the registered agent for your LLC in South Dakota, you must be available during regular business hours to collect mail, service of process, and legal papers from any government agency (such as the South Dakota Secretary of State). Given that your South Dakota LLC is almost certain to function during regular business hours, this presents a dilemma since you cannot be in two locations at the same time and you do not want to overextend yourself fulfilling your registered agent obligations.
If you miss a service of process while acting as the registered agent for your South Dakota LLC, you may find yourself in legal trouble with no defense. Default judgments against your LLC may be debilitating financially. Additionally, if the South Dakota Secretary of State determines that you were not available to receive service of process as the registered agent of your business, as required by state law, they may determine that your LLC is not compliant and revoke its “good standing” status, which means that your South Dakota LLC will be unable to conduct business in the state.
The sole advantage of serving as registered agent for your South Dakota LLC is that you will avoid paying the expenses associated with a professional registered agent service.
Hiring a commercial registered agent service ensures that you get mail, service of process, and legal papers delivered to your South Dakota Limited Liability Company. This guarantee reduces the risk that your South Dakota LLC may lose its good standing status with the Secretary of State, which would render it unable to do business in the state.
The sole disadvantage of choosing a commercial registered agent service is that you will be required to pay their annual costs, which normally range between $99 and $299.
However, when the risks connected with acting as your own registered agent are considered, it is worthwhile to pay the expenses associated with a commercial registered agent service. As a result, I ALWAYS urge that new LLCs use a professional service rather than attempting to serve as their own registered agent.
If you're interested in learning more about the sorts of services a registered agent may give or in locating the finest registered agent in South Dakota, please see my post on the Best South Dakota Registered Agent services.
4. Choose Your LLC Address
Additionally, the business address for your new company that you register with the Secretary of State is critical. Each LLC in South Dakota is obliged to maintain a public mailing address.
If you want to organize your LLC without using a registered agent service, you must provide your business's physical street address. If your business does not have a physical location, you must specify your residence or place of business. Whichever address you select to register, it's worth remembering that a PO Box address is not permitted.
However, if you hire a registered agent service, they will put their registered agent address as your LLC's business address, and you will not have to worry about it.
5. Sign and File Your Articles of Organization
Once you've confirmed that you've finished all the sections on the South Dakota LLC Articles of Organization form, it's time to file South Dakota Articles of Organization.
Some of the information required on your South Dakota Articles of Organization form includes:
- LLC name
- LLC mailing address
- Registered agent’s name and address
- LLC effective date
- LLC duration if not perpetual
- LLC purpose
- LLC managerial structure
- Names and addresses of LLC managers, if applicable
- If any LLC members will be liable for the LLC’s debts
- Organizer’s name and address
- Organizer’s signature
Of course, you may name yourself as the organizer and sign the form, but any information you provide on the form will be filed with the Secretary of State and made public.
You can file online to submit your South Dakota Articles of Organization via the South Dakota Secretary of State's website, which also has a PDF version of the form that can be printed out and sent. If you want to file Articles of Organization by mail, you may do so at the following address:
Secretary of State Office
500 E Capitol Ave
Pierre SD 57501
There is a $165 filing fee if you file online, which may be paid online with a business credit card or debit card. Mail-in submissions are subject to an additional filing fee of $15.
The South Dakota Secretary of State's office will notify you through mail or email after your form and filing fee have been completed. Processing time is generally 24 hours for online filings and 1–2 business days for mail filings.
Other LLC Activities
Contrary to popular belief, submitting your Articles of Organization will not be your last activity as the owner of your new LLC. There are several other duties that you must accomplish in order to keep your good standing with the South Dakota Secretary of State.
One of the primary responsibilities of an LLC owner is to file a South Dakota annual report. In South Dakota, all LLCs are required to file annual reports. The South Dakota annual report serves as a mechanism for the Secretary of State to verify that the information they hold on file for your firm is accurate and current, while also collecting fees from your LLC. The first annual report for your LLC is due on the first day of the second month after its approval, so you are not required to submit it the same year you establish your LLC.
Following your first annual report, your subsequent annual report is due on the same date each year, and your submission is subject to a $50 filing fee. You may submit your annual report online using the Secretary of State's filing system, which is accessible here.
Numerous regulations may need you to obtain a business license for your LLC. A local business license may be obtained by contacting the clerk in the city where your LLC operates and transacts business. For state business licenses, see the South Dakota government website's business licensing section.
If your business engages in operations such as sales tax collection or the selling of goods, you will need to register with the South Dakota Department of Revenue, which may be done online. It’s worth noting that in South Dakota you may have to deal with both city sales taxes and state sales taxes.
If you do not reside in South Dakota but want to create an LLC in the state, you may do so via the formation of a foreign LLC. To register a foreign Limited Liability Company in South Dakota, you'll need to file an Application for Certificate of Authority. This must be accompanied by a Certificate of Good Standing or Certificate of Existence from the Secretary of State in your home state. Your foreign LLC will also be required to appoint a registered agent with a physical street address in South Dakota. The filing fee for application is $750, plus an additional $15 if filing by mail.
If this all seems like a lot of effort for any business owner, it is. If you need assistance keeping track of all the filing deadlines for things such as your annual report, documents, and licensing requirements, you may engage a South Dakota PEO service or online legal service to alleviate some of the strain.
South Dakota LLC Fee Summary
When you're learning how to form an LLC in South Dakota, it's reasonable to wonder about the costs of starting an LLC. The following is a breakdown of the filing costs and taxes that you might anticipate paying for your South Dakota LLC:
Articles of Organization filing fee: $165 (plus $15 if by mail)
Name Reservation filing fee: $25
Registered Agent Fee: $99–$299 per year
Annual Report filing fee: $50
State Personal Income Tax: 0%
State Corporate Income Tax: 0%
After Starting Your South Dakota LLC
Forming an LLC is a major business victory, and it’s one that’s worthy of celebration. So take a moment to enjoy a glass of champagne, go out to dinner or have a nice weekend trip. But don’t stay gone for long.
Filing the annual report for your LLC isn’t the last activity you’ll need to take part in as the owner of your new South Dakota LLC. There’s still work to be done to ensure that your LLC has all the foundations it needs to function well as a business. Here are the three steps you need to complete after you’ve formed your LLC.
Step 1. Create an Operating Agreement
While South Dakota law does not require LLCs to draft Operating Agreements before conducting business in the state, it is highly recommended that you create a South Dakota Operating Agreement for your business.
The purpose of an LLC Operating Agreement is to offer guidelines on how your organization should function. A solid LLC Operating Agreement should include a list of all LLC members, specify whether the LLC is member- or manager-operated, specify which members have the right to make business decisions, and clarify each member's ownership percentages as well as their profits and losses.
Additionally, your Operating Agreement should define the roles of each LLC member, their supervisors, the members and departments with whom they should collaborate most closely, and the functions of each department. Designing your Operating Agreement with these sorts of structural details is important because if your Operating Agreement contains explicit instructions on how to operate your LLC in this manner, it will help avoid many workplace conflicts.
Additionally, your Operating Agreement should contain a section describing the LLC members' succession procedure. Although many business owners exclude this provision from their Operating Agreements, it is essential. By including this part in your Operating Agreement, your LLC members will have clear instructions on what to do if an LLC member leaves or if new members join, ensuring that a strategy is already in place in the case of a member leaving due to a dispute among LLC members.
Your Operating Agreement is critical to your business's success since it establishes how it will operate. Because your business is expected to function in accordance with the terms of your Operating Agreement, a weak instructional framework might stifle it. However, a properly drafted Operating Agreement enables your business to grow without being constrained by operational instructions that prohibit change and innovation.
If this is your first time writing an Operating Agreement, there are a few ways to guarantee that you get it done properly. The first is a free Operating Agreement template for LLCs provided by Northwest Registered Agent. Online legal services can assist in writing Operating Agreements and ensure that the legal language is correct. Additionally, if you retain the services of an LLC formation service, they will typically draft an Operating Agreement on your behalf as part of their services.
Step 2. Apply For an Employer Identification Number
The next step is to apply for your LLC's South Dakota EIN (Employer Identification Number). A federal Employer Identification Number, or EIN, is a type of federal tax identification number that you must get if you want to collect sales tax or hire employees. They also qualify your LLC for certain business licenses and permits. Technically, you are not required to hire employees or collect sales tax in order to receive an EIN; this is merely a number that identifies businesses for federal tax purposes and simplifies payroll.
Obtaining an EIN from the Internal Revenue Service is relatively simple. All you need to do is visit the Internal Revenue Service (IRS) website here between the hours of 7 a.m. and 10 p.m. to complete and submit the application online.
If you hire an LLC formation service, they will often file for an EIN on your behalf, saving you time and trouble.
Step 3. Open a Business Bank Account
The last step in establishing the proper business foundations for your LLC is to open a business bank account to manage your business money.
This critical step is often skipped by LLC owners, but it is well worth the effort.
Many company owners utilize their personal bank accounts for both business and personal spending and then attempt to ascertain whether a previous transaction was done for business reasons for tax purposes. There are two compelling reasons to refrain from doing so.
The first reason is that, although you may believe you’ll be able to distinguish between commercial and personal transactions later, it’s difficult to do so many months after the transactions were done, particularly when attempting to distinguish between several hundred transactions. As a result, creating a business bank account just for business transactions alleviates most of the stress associated with filing your personal tax returns.
The second reason you should avoid using your personal bank account for company spending when forming an LLC is that you risk jeopardizing your personal information, identity, and personal finances. Using your personal bank account for company activities defeats the purpose of forming a South Dakota LLC, which provides limited liability and personal asset protection.
So to make filing state and federal income taxes less stressful, and to safeguard your privacy and personal assets, register a corporate bank account.
To establish a bank account for your LLC, you'll need a “bank kit.” This bundle contains a variety of paperwork and many certified copies of your LLC’s formation documents, including your EIN, an Operating Agreement, and Articles of Organization. You may compile these papers and get certified copies on your own, or you can pay an LLC formation provider to produce a bank kit for you.
South Dakota LLC FAQs
Are there any South Dakota LLC taxes I need to pay?
Many states impose a state income tax on businesses, but South Dakota isn’t one of them. LLCs count as “pass-through entities” in South Dakota so the tax responsibility falls on the LLC members, not the LLC. This means that LLCs aren’t required to pay corporate income, business inventory, personal income, or personal property tax.
Can I form a Professional LLC in South Dakota?
If your LLC will be providing a licensed professional, such as legal or accounting services, then you’ll need to form a Professional Limited Liability Company, or PLLC. Generally speaking, if the service your LLC will provide requires a special license from the state in order to practice, then it’s considered a professional service.
PLLCs in South Dakota are limited to providing a single type of professional service and all the owners must be licensed or registered with the state.
Establishing a South Dakota LLC is a major event, and you should be commended for your courage in taking control of your professional life: congratulations!
If you want to create your South Dakota LLC without using an LLC formation service (which may cost as low as $0), you must complete five critical procedures. They include the following:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
While negotiating the red tape and legal jargon is a time-consuming process (particularly if you're doing it alone), completing it will be the first of many gratifying stages on your path to building your business empire.
So, once again, congratulations and best wishes for the remainder of your business endeavors!