Guide to Forming an LLC in South Dakota
Follow our free guide to form an LLC in South Dakota
- Pros and Cons of Forming an LLC in South Dakota
- Starting Your South Dakota LLC
- Maintaining Your South Dakota LLC
- Additional South Dakota Resources
The process of starting an LLC in South Dakota includes several steps, but our comprehensive guide makes the LLC formation journey easily understandable.
Pros and Cons of Forming an LLC in South Dakota
South Dakota is one of the friendliest states in the US when it comes to taxes since the state does not have an income tax, corporate income tax, or an inheritance tax. The only taxes that residents must contend with is a low sales tax and a moderate property tax rate.
Among the Best States for Businesses
South Dakota has ranked #15 in a recent poll on the nation’s best places for business owners, with highest marks going to quality of life, fiscal stability, and strong infrastructure. The state has long been a favorite new home for retirees, but South Dakota is also quite supportive of independent business owners.
Privacy for Owners
South Dakota does not require the names of LLC members to be included in the Articles of Organization. An organizer can submit the formation paperwork in place of the members. (Managers do have to be named)
Qualified Worker Shortage
As South Dakota’s unemployment rate drops, the lack of qualified workers is becoming an epidemic. In early 2018, the governor referenced the worker shortage and called it “the state’s biggest issue.”
While South Dakota’s population has increased over one percent every year, the population is still far below most states — recent reports show that South Dakota has 11.3 people per square mile (psm), which is far below that of New Jersey (1,210 psm), Connecticut (742 psm), and New York (420 psm).
Cost of Doing Business
- $150 filing fee
- $50 annual report
- No corporate/franchise tax
Phase One: Starting Your South Dakota LLC
The first phase of starting an LLC in South Dakota focuses on the initial set-up of the business with the Secretary of State. These steps are listed below:
- Step 1: Name your LLC
- Step 2: Establish Ownership of your LLC
- Step 3: Decide on a Registered Agent
- Step 4: File the Articles of Organization
- Step 5: Create your Operating Agreement
- Step 6: Register for an EIN
Step 1: Name Your South Dakota LLC
Forming your South Dakota LLC begins with naming your business. Keep in mind that there are several state and federal guidelines concerning business names — see below:
Tip: Use a free business name search tool to ensure your company’s desired name is available.
Business Name Guidelines
- The official name of your business must end with: Limited Liability Company, Limited Company, LLC, or L.L.C.
- Your business name cannot be intentionally misleading to consumers
- The name of your new LLC must not be similar to another organization’s name/trademark
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educational or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
LLC business names associated with government and/or financial entities are not always restricted - it depends on the state. Additional paperwork may be required.
In addition to choosing a name for your LLC, creating an online presence is equally important in the current culture. You can easily check domain name availability at a number of online web services sites.
Step 2: Establish Ownership
The owners of an LLC are considered members and managers. All LLCs have members, but not every LLC has managers — the difference depends on the management structure of the business.
LLC Management Structures:
- Member-managed: All members participate in operating and making decisions for the LLC
- Manager-managed: An appointed manager oversees the daily operations of the LLC and the members are not actively involved
South Dakota LLC Member Guidelines
Required Number of Members
There must be at least one member or manager to form an LLC in South Dakota.
Member Disclosure Requirements
An organizer/authorized representative may sign and file the Articles of Organization in place of the LLC members.
Please Note: The manager(s) must be listed in the Articles of Organization
LLC members in South Dakota may be of any age.
There are no residency restrictions imposed on LLC members in South Dakota.
Step 3: Find a Registered Agent in South Dakota
All South Dakota LLCs must have a registered agent. In fact, your business cannot officially function without filling this position.
What is a registered agent?
A registered agent is a person or business who receives all official government mail and notices for the LLC.
Why do you need a registered agent?
South Dakota law requires you to appoint a registered agent so that the state government has a consistent contact person for your LLC.
What are the main requirements for a registered agent?
- The registered agent must have a physical address — not a P.O. Box
- The registered agent must be available during business hours
Who can be a registered agent in South Dakota?
- A state resident with a physical address in South Dakota
- An LLC or corporation that is licensed to conduct business in South Dakota
Is the registered agent’s contact information publicly accessible?
The name and contact information of the LLC’s registered agent is a matter of public record.
Can I be my own registered agent for my business?
You are legally allowed to be your own registered agent as long as you have a physical address in South Dakota.
Is being my own registered agent discouraged?
LLC business owners who choose to be their own registered agent risk compromising their personal information.
Tip: Avoid the hassles and choose Swyft Filings to fill the registered agent needs for small businesses in South Dakota. Find more information here.
Step 4: File the Articles of Organization
The most important step for your LLC in South Dakota is filing the Articles of Organization with the Secretary of State.
What is the Articles of Organization?
The Articles of Organization is a legally binding document that is filed with the state government to officially and legally form your LLC.
Why do I need the Articles of Organization?
Your LLC business in South Dakota will not be legally recognized by the Secretary of State without filing this document. Consider the Articles of Organization as part of your LLC’s foundation.
What is the cost of filing the Articles of Organization?
The filing fee for South Dakota is $150.
What information is included in the Articles of Organization?
- The name and address of the LLC
- The name of the organizer filing the paperwork
- The name of the manager — if applicable
- The name and location of the registered agent
- The chosen LLC management structure
- The duration of the LLC
Additional South Dakota Filing Information — Professional LLCs
South Dakota does not have specific rules for “professional LLCs/PLLCs”; however, professional services businesses may form an LLC.
Examples of Professional Service Businesses:
- Physicians/Medical Professionals
- Professional Counselors and Psychologists
- Architects and Engineers
- Social Workers
A few points to consider:
- All members of the LLC must be licensed in the profession of the business.
- The LLC is only allowed to provide services for which the business was formed.
- The members are still subject to whichever licensing boards govern the LLC’s profession.
Step 5: Create an LLC Operating Agreement
The Operating Agreement is necessary for your LLC in South Dakota as part of the business’s successful foundation.
What is an LLC Operating Agreement?
The LLC Operating Agreement is a legal document that explains the roles and responsibilities of each member and details the LLC’s procedures of operation.
Why do I need an LLC Operating Agreement?
The LLC Operating Agreement is necessary because it protects business assets, provides structure for the members, and reduces internal disputes and lawsuits.
Do I need to file the LLC Operating Agreement?
The Operating Agreement is for your business and does not need to be filed anywhere. It remains in-house.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC Operating Agreement, most documents include the following information:
- List of the members/managers and their roles
- Designation of authority in the LLC
- Initial capital contributions of the members
- Voting designations and percentages of the members
- Member transfer/addition rules and restrictions
- Distribution of profits
- Meeting schedule
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Add structure to your LLC now.
Step 6: Register for an EIN
Most businesses in South Dakota must register for an EIN. Your LLC will not be officially recognized without this ID.
What is an EIN?
The EIN is a nine-digit number that is assigned to your business by the Internal Revenue Service (IRS) as a means of identification.
What does EIN stand for?
EIN is an acronym for Employer Identification Number. It is also known as a Federal Tax ID.
Are all businesses required to have an EIN?
Federal law dictates that certain types of business entities register for an EIN:
- Any business with employees (even if owned by one person)
- Any business with more than one member
- A partnership (LLC or C-corp)
Please Note: A sole proprietorship is not required to have an EIN, but it is still recommended.
Why does my LLC business need an EIN?
The more common reasons you would need an EIN are:
- To hire employees
- To open a bank account in the U.S.
- To file your company’s taxes
- To pay independent contractors
In short, if you make money through your business and it has employees, you must have an EIN.
Is the EIN publicly listed?
The EIN for your LLC will be part of public record.
Can I use my Social Security Number as the EIN?
You can use your social security number; however, your EIN is part of public record.
Swyft Filings offers EIN services for small businesses in South Dakota. Find more information here.
Phase Two: Maintaining Your South Dakota LLC
The second phase involved in setting up your South Dakota LLC deals with getting your business ready for daily operations and making your LLC compliant with state laws. The next set of steps are:
- Step 1: Register for Taxes in South Dakota
- Step 2: Apply for Permits and Licenses
- Step 3: File the Annual Report
- Step 4: Request a Certificate of Good Standing
Step 1: Register for South Dakota State Taxes
South Dakota does not charge LLCs with a corporate or franchise tax. LLC members are still required to pay federal income taxes on their earnings.
State Income Taxes
South Dakota does not have a state income tax.
Corporate Tax Information
South Dakota does not have a corporate income tax — corporations/S-corps are only responsible for federal taxes assessed against their business.
Additional Tax Information
Other taxes your LLC may need to pay:
- Sales and Use Tax at 4.5%
- Employee Withholding Tax
- Unemployment Tax
Step 2: Obtain Business Licenses and Permits
The licenses and permits required for an LLC in South Dakota can vary, depending on a number of variables:
- Location (city and county)
- Type of Business
Tip: If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: File an Annual Report
All businesses formed in South Dakota are required to file an annual report with the Secretary of State.
What is an annual report?
An annual report, which is also called a periodic report, is a legal form that is filed with the Secretary of State on a periodic basis that is designed to keep your business’s information current with the state.
What kind of information is in the annual report?
The information requested in the annual report is similar to what is in the Articles of Organization:
- The name and address of the business
- The name and address of the registered agent
- The name of the LLC manager(s)
- The business’s EIN
Is the annual report part of public record?
The annual report filed on behalf of your LLC is a matter of public record.
Fees and Due Date
Due Date: anniversary month of LLC formation
Frequency: Every year
Implications of Late Filings: $50 late fee and eventual LLC dissolution
Swyft Filings helps you stay compliant by providing stress-free solutions. File your annual report with us today.
Step 4: Request a Certificate of Good Standing
Your South Dakota LLC is almost ready to go — the last thing you will need is a Certificate of Good Standing for your business.
What is a Certificate of Good Standing?
The Certificate of Good Standing confirms your newly created business is in compliance with all state regulations.
Who issues the Certificate of Good Standing?
The Certificate of Good Standing is generally issued by the Secretary of State.
When can I request a Certificate of Good Standing for my business?
You will be able to request a Certificate of Good Standing after your LLC is officially formed through the Secretary of State.
Why do I need a Certificate of Good Standing?
The Certificate of Good Standing gives your LLC credibility with banks, financial institutions, and other businesses. Many companies will not conduct business if your LLC does not have this certification.
Does the Certificate of Good Standing have an expiration date?
The Certificate of Good Standing does not expire/does not need to be renewed.
Swyft Filings can create a Certificate of Good Standing for your South Dakota LLC. Click here for more information.