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Starting a Limited Liability Company (LLC) in South Dakota is a straightforward process that offers entrepreneurs a flexible and protective business structure.
To initiate the formation of an LLC in the state, aspiring business owners need to follow a series of steps. This includes selecting a unique and compliant business name, appointing a registered agent, filing the Articles of Organization with the South Dakota Secretary of State, and creating an operating agreement that outlines the internal workings of the LLC.
Understanding the regulatory requirements, taxation, and compliance obligations specific to South Dakota is crucial for the seamless establishment of the LLC, providing a solid foundation for the new business venture.
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Starting an LLC in South Dakota Step-By-Step
If you’re seeking a business startup in South Dakota that combines minimal paperwork with legal safeguards for personal liability, opting for an LLC might be the ideal choice. By following our step-by-step guide and incorporating the provided tips, launching a South Dakota LLC becomes a streamlined process.
With careful preparation, creating an LLC in South Dakota involves completing a few straightforward forms. You can anticipate the process better by familiarizing yourself with these steps, and all the required forms are conveniently available on the South Dakota Secretary of State website or the IRS website.
1. Selecting a Name for Your South Dakota LLC
The initial step involves naming your business, and certain criteria must be met for your LLC name. It should be distinct from other business names within the state, and you can verify its availability through an online South Dakota LLC search.
To ensure uniqueness, explore variations of the chosen name. Additionally, your business name must explicitly indicate that it’s an LLC, incorporating either the words “limited liability company” or the abbreviation “LLC.” For brevity, “limited” and “company” can be abbreviated as “Ltd.” and “Co.,” respectively, while “LLC” can be punctuated or shortened to “LC.”
If you’re not ready to complete the rest of the LLC paperwork, you can reserve your selected name for future use by filing an application for reservation of name (LLC) on the secretary of state’s website or via mail, with a filing fee of $25, ensuring the name is secured for 120 days.
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2. Identify a Registered Agent
Ensuring that the government can reach you once your business is operational is vital. Every business must designate a “registered agent,” a contact with a physical address in the state where legal documents can be delivered during regular business hours. Numerous companies offer this service for a modest annual fee, and South Dakota provides a helpful list of registered agents that you can enlist, or you can explore options online.
While you have the option to act as your own registered agent, privacy can become a concern with a South Dakota LLC. Serving in this capacity exposes your physical address and contact details on publicly accessible platforms, making you susceptible to potential spam and scams. Many individuals opt to redirect their important mail through commercial addresses, providing a filter for unnecessary correspondence.
Registered agents can be either “commercial,” indicating you’ve engaged a company for the service, or “non-commercial,” denoting that your registered agent isn’t providing the service as part of a business. It’s crucial to choose a reliable agent, and commercial registered agents (CRAs) are listed with the state and possess a designated CRA number.
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3. Submit Your Certificate of Organization
The document that grants official status to your LLC is the Articles of Organization, providing the state with comprehensive information about your business.
In South Dakota, the Articles of Organization include details such as the LLC name, the purpose of the LLC, the primary business location, the registered agent’s name along with their address (for a non-commercial agent) or CRA number (for a commercial agent), contact information for each LLC organizer, the LLC’s duration, the decision on whether members will manage the company or a manager/management team will be designated, the existence of equity owners, and any other pertinent details.
Submission can be done online through the Secretary of State’s website or by mailing the form to the Secretary of State Office at 500 East Capitol Avenue, Pierre, SD 57501. The filing fee is $150 for online submissions and $165 for mail submissions.
While amendments to the articles are possible, they incur costs and time. To ensure accuracy from the outset, consider enlisting the assistance of an LLC formation company for the filing process.
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4. Establish an Operating Agreement
While no statute mandates the creation of an operating agreement, its significance cannot be overstated for the vitality and longevity of your business. An operating agreement holds legal weight among all members of your LLC, allowing you to articulate policies and procedures within the bounds of the law. Typically, these agreements encompass decisions regarding:
- Information contained in your articles of organization
- Identification of members
- Responsibilities of members and managers
- Business structure and management team configuration
- Voting Protocols
- Member contributions
- Allocation of profits and losses
- Preferred tax status
- Meeting protocols
- Membership interest procedures
- Dissolution
- Inclusion of a severability clause
Before obtaining signatures from all members, it’s advisable to have a legal or business professional review the agreement. This precautionary measure can forestall confusion and potential legal disputes in the future. Operating agreements, endorsed collectively by all members, ensure a shared understanding and alignment right from the initial stages.
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5. Obtain State and Federal Identification Numbers
It’s a common requirement that engaging in business within a state involves fulfilling specific annual filing obligations. In most cases, you’ll need identification numbers at both the state and federal levels.
Federal Employer Identification Number (EIN)
Start by obtaining your federal EIN, which you can request for free on the IRS website. This unique number is essential for paying employment and other taxes and may be necessary for certain activities, such as opening a business bank account. While South Dakota doesn’t legally mandate EINs for single-member LLCs without employees, obtaining one is advisable to avoid using your Social Security number for business purposes.
South Dakota State ID Number
Upon filing your articles of organization, you’ll receive a state ID number, which is crucial for submitting your South Dakota LLC annual report. Depending on your business type, you might not owe annual taxes to the state, as South Dakota lacks corporate income tax or personal income tax. However, specific taxes, like sales tax for retail businesses, may apply.
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6. Annual LLC Reporting
To maintain compliance with state laws, it’s essential to file the LLC annual report every year by the commencement of your LLC’s formation anniversary month. Access the form online through the company business portal, log in, and submit it annually. Filing the annual report incurs a $50 fee, or you have the option to submit a paper report for $65.
Rectifying Filing Errors
If mistakes occur in the Articles of Organization, rectify them by completing an Application for Amended Articles of Organization. This form, costing $60 to process, is submitted to the Secretary of State. It’s a straightforward one-page document that captures the company’s identifying information and provides a section detailing the necessary amendments to the LLC.
Dissolving Your South Dakota LLC
To dissolve a South Dakota LLC, complete the Articles of Termination, incurring a $10 fee for processing. Upon dissolution, ensure the closure of any bank accounts and notify the IRS of the company’s termination.
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7. South Dakota Business Permits and Licensing
To operate your LLC successfully, adherence to federal, state, and local government regulations is imperative. The fees and prerequisites for licenses and permits will vary depending on the specific type of business license required.
8. South Dakota LLC Tax Filing Obligations
To ensure the ongoing good standing of your business, it’s crucial to stay current with your South Dakota LLC taxes.
Depending on your business’s nature, you may need to register for one or more tax types:
Sales Tax
If you’re involved in selling physical products, obtaining a seller’s permit through the South Dakota Department of Revenue website is typically necessary.
South Dakota’s sales tax rate stands at 4.5%, with a maximum additional local sales tax rate of 2%.
Employer Taxes
If your South Dakota LLC has employees, registration for unemployment insurance tax, referred to as Reemployment Assistance Tax in South Dakota, is required through the Department of Labor and Regulation’s website.
Income Tax
State
South Dakota doesn’t levy an individual income tax. Nevertheless, reporting your federal income tax is still necessary, utilizing either Form 1065 (multi-member LLC) or Form 1040 Schedule C (single-member LLC).
Hiring Employees
If hiring employees for your South Dakota LLC is part of your plan, ensure compliance with the law by following these steps:
- Verify new employees’ eligibility to work in the US
- Report new hires to the state
- Provide workers’ compensation insurance for employees
- Withhold employee taxes
- Display workplace compliance posters conspicuously in your workspace
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9. Review the Insurance Options Available for Businesses in South Dakota
Unforeseen setbacks can have severe consequences for a new business, whether it operates in South Dakota or elsewhere. While limited liability companies (LLCs) provide some personal asset protection, it’s prudent to consider purchasing insurance to safeguard your business and its assets. Common insurance policies in South Dakota include:
- Workers’ compensation: Although not mandated by South Dakota law, state authorities strongly recommend employers to have workers’ comp coverage to address injuries or illnesses suffered by employees during work.
- General liability insurance: This type of insurance offers comprehensive coverage for your business, addressing legal actions arising from accidents, injuries, or negligence.
- Commercial property insurance: This coverage helps replace commercial property lost or damaged during regular business operations, covering expenses related to incidents such as fire, weather damage, or theft.
- Professional liability insurance: Tailored for businesses providing professional services with a high risk of malpractice claims, such as those in law, accounting, or real estate, this insurance protects against claims related to competency.
- Cyber liability insurance: In the face of data breaches and ransomware threats that can harm customers, business operations, and reputation, cyber liability insurance comes to the rescue. It assists in notifying customers about an attack, compensating them in case of a claim, and covering costs for credit monitoring for affected customers.
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10. Market your LLC
Promote your LLC effectively by reaching out to potential customers and cultivating repeat business. A well-rounded marketing strategy for your South Dakota-based LLC could encompass the following components:
- Advertising and Promotion: Design and place advertisements either independently or through the services of an agency. While traditional paid advertising may seem somewhat outdated, it can still be remarkably effective in spreading the word about your new business.
- Social Media Presence: Establish and maintain a robust online presence across major social media platforms such as Facebook, Instagram, TikTok, and YouTube. Consistently create and share content that authentically aligns with your brand identity, enhancing visibility within South Dakota and beyond.
- Public Relations: Foster strong relationships with media outlets, both within South Dakota and nationally, to secure coverage for your brand and generate organic attention for your business.
- Customer Retention: Utilize your marketing materials, digital tools (such as an online store), and social media presence to build enduring relationships with customers. This approach can transform them into repeat customers and incentivize them to advocate for your business among their friends, family, and colleagues.
Conducting thorough market research is essential to understand your LLC’s target customer base.
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Laws Governing South Dakota LLCs
Understanding the legal framework applicable to your business is crucial. South Dakota is among the 20 states that have adopted the Revised Uniform Limited Liability Company Act—a standardized set of laws formulated by a national expert body. The comprehensive South Dakota Limited Liability Company Act consolidates all pertinent provisions in one document.
In the absence of specific guidelines outlined in your operating agreement, default laws come into effect. For instance, unless stated otherwise, an LLC manager is required to obtain consent from every member for the following actions:
- Selling the majority or entirety of the LLC’s assets outside the ordinary course of business.
- Merging with another company or transitioning to a different business structure.
- Acting on behalf of the LLC outside the ordinary course of business.
- Making amendments to the operating agreement.
In scenarios where obtaining unanimous consent is impractical, especially with numerous members, your operating agreement can specify that only a two-thirds majority of the membership needs to agree to facilitate the aforementioned changes, preventing significant delays in necessary modifications.
Options for Establishing an LLC in South Dakota
Before exploring the steps to form an LLC, it’s crucial to identify the most suitable method for setting up your Limited Liability Company in South Dakota.
DIY
For entrepreneurs on a budget, the DIY option could be ideal for initiating their LLC, given the abundant information available in this guide and on the South Dakota Secretary of State website. It’s entirely possible to independently complete the process for uncomplicated and straightforward LLCs.
Using an LLC Formation Service
Online LLC services specialize in managing the necessary documentation for LLC formation. Small business owners in South Dakota, especially those with limited time, might find the modest cost of hiring an LLC service well justified. These services often provide valuable features, including guaranteed state acceptance, assistance with EIN application, registered agent services, and help with drafting an operating agreement.
Furthermore, many of these services are customizable, allowing you to choose the one that best fits your specific needs.
ZenBusiness
Eliminate paperwork hassles by choosing ZenBusiness. This company focuses on ensuring the correct business establishment and prompt submission of all necessary documentation to the relevant state government department. While there is a cost associated with ZenBusiness services, customers often perceive it as a cost-effective choice.
Northwest Registered Agent
Starting a business often involves navigating a maze of state-mandated paperwork, which can be confusing for new business owners. Northwest Registered Agent provides business services to assist entrepreneurs in finding the right documents, accurately filling them out, and submitting them promptly to the appropriate government agency.
In addition to helping establish an LLC, Northwest offers various supplementary services, including registered agent services, which can be highly beneficial for new business proprietors.
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Incfile
Incfile offers a valuable resource library to guide first-time business owners in determining the type of business they should establish. Beyond this, Incfile assists with document preparation and filing procedures, making concepts like a registered agent, articles of organization, and EIN more accessible. The company has built a strong reputation and receives positive online reviews.
How to Start an LLC in South Dakota – Frequently Asked Questions
Is a Business License Necessary for Operating in South Dakota?
As of now, South Dakota doesn’t mandate a general business license for operations within the state. However, if your business involves selling goods or providing services for a fee, you’re required to obtain a tax license from the South Dakota Department of Revenue and Regulations.
Additionally, certain county or city governments may stipulate that businesses obtain licenses to operate within their jurisdiction.
Can I Establish an LLC Without Incurring Any Costs?
While the registration fee for forming an LLC varies from state to state, there is a fee associated with registration in every state. Companies that claim to offer “free” LLC formation essentially mean that they will assist you in completing the necessary paperwork at no charge. Nevertheless, you’re still responsible for covering the filing fee imposed by the state.
What Motivates Companies to Establish Themselves in South Dakota?
Choosing to form an LLC or corporation in South Dakota serves to minimize liability for company owners. Furthermore, opting for this business structure may offer potential tax benefits.
What Is the Expense Associated With Establishing an LLC in South Dakota?
The filing cost for the Articles of Organization in South Dakota is $150. If the application is submitted by mail, an additional $15 processing fee is applied to the filing fee.
What Is the Timeframe for Establishing an LLC, and Is There an Option for Expediting the Process?
The duration for creating an LLC in South Dakota can range from a few business days to several weeks. Expedited processing is an option for those seeking a faster turnaround, involving an additional fee. This expedited service can notably reduce the processing time, typically completing the process within a matter of days.
It’s crucial to verify the current timeframes and fees for expedited processing by consulting the South Dakota Secretary of State for the latest information, as these details may undergo changes.
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About the author
Dr. Gabriel O'Neill, Esq., a distinguished legal scholar with a business law degree and a Doctor of Juridical Science, is a leading expert in business registration and diverse business departments. Renowned for his academic excellence and practical insights, Dr. O'Neill guides businesses through legal complexities, offering invaluable expertise in compliance, corporate governance, and registration processes.
As an accomplished author, his forthcoming book is anticipated to be a comprehensive guide for navigating the dynamic intersection of law and business, providing clarity and practical wisdom for entrepreneurs and legal professionals alike. With a commitment to legal excellence, Dr. Gabriel O'Neill, Esq., is a trusted authority dedicated to empowering businesses within the ever-evolving legal landscape.