Are you looking to form a professional limited liability company (PLLC) in South Dakota, but you’re not sure how the formation process works? There are several important steps when it comes to creating a South Dakota PLLC that is compliant and able to do business in the state.
What is a South Dakota Professional LLC?
The professional limited liability company (PLLC) is a specialized type of LLC that is intended for licensed professionals to offer their unique services. Only certain professions are permitted to form PLLCs in South Dakota, including, among others, physicians, nurses, dentists, veterinarians, lawyers, and accountants. Each profession is subject to different requirements under South Dakota law.
The South Dakota PLLC is typically more popular than a professional corporation (PC) because it’s a more flexible business type, but it still includes the personal asset protection and professional qualifications that make the PSC valuable.
PLLCs in South Dakota have relatively simple formation and maintenance requirements, several options for how they want to be taxed, and flexible management. From one-person businesses to multi-member PLLCs with several owners, the PLLC is a popular choice for a reason.
An important detail of the PLLC that differs from a traditional LLC is that liability protection is not shared across all members of the company. For example, if you operate a PLLC for physicians, your business structure does not shield each individual member from malpractice suits. Instead, each member is liable for their own malpractice insurance, and no member is liable for another member’s malpractice.
Forming a PLLC in South Dakota (in 6 Steps)
Step One) Choose a PLLC Name
Your PLLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In South Dakota, PLLCs for different professions are subject to different rules, so you should be sure to confirm the requirements for your specific profession. In general, however, the name of a South Dakota PLLC must contain the words “professional limited liability company" or the abbreviation "Prof. L.L.C." You should also confirm that the name you choose follows any naming rules of your profession’s regulating body.
Another aspect to consider is including language that explains what your business does. For example, if you’re a doctor, put the word “physician” or the initials “MD” in your PLLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your PLLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming a PLLC is to not get too attached to any one business name until you know that it is available for use. To check if a name is available, you can use the Business Name Availability search tool on the South Dakota Secretary of State’s website. Once you’ve chosen a name, you can reserve it for up to 120 days prior to filing your Articles of Organization as described below in Step Three by mailing to the Secretary of State an Application for Reservation of Name with the filing fee of $25. Name reservations for LLCs currently cannot be completed online.
Step Two) Designate a Registered Agent
Every PLLC in South Dakota is required to designate a registered agent, which is the individual or business entity that receives government correspondence on behalf of your business, then forwards those documents to you.
In South Dakota, your PLLC’s registered agent can either be (i) a noncommercial registered agent, which may an individual who resides in South Dakota or a business entity registered in South Dakota, or (ii) a commercial registered agent. A commercial registered agent is an agent or organization that is registered with the Secretary of State as a commercial registered agent.
Without a registered agent, you could lose your good standing with the state of South Dakota, and the state also has the right to dissolve your PLLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend hiring a dedicated registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
Step Three) File Formation Documents with the State
Once you are ready to form your South Dakota professional limited liability company, you will fill out the Articles of Organization.
This is THE document that will register your PLLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Name of your PLLC
- Your PLLC’s purpose
- Address of the initial designated office
- Name and address of your PLLC’s noncommercial registered agent or the name and CRA number of your PLLC’s commercial registered agent, as applicable
- Name and address of each organizer
- Duration of your PLLC, if not perpetual
- Whether your PLLC will be member-managed or manager-managed, and if manager-managed, the name and address of each initial manager
- Whether one or more of the members of your PLLC are to be liable for its debts and obligations
- Any other provisions agreed to by the members
- Signature of each organizer
Your Articles of Organization can either be filed online or by mail. Note, however, that paper filings incur an additional $15 fee.
Cost to Form a PLLC
The filing fee for the Articles of Organization is $165. As noted above, an additional $15 fee applies to all paper filings as well.
Online filings are generally processed immediately, and paper filings are processed within 3-5 business days. Processing times may be longer during peak periods. Keep in mind that these estimates also assume that your documents are complete and error-free when submitted.
Step Four) Create an Operating Agreement
After you register a PLLC in South Dakota, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for a copy of this document. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your operating agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your operating agreement, or you can create one from a free template online. You can read more about operating agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the PLLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of PLLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important PLLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
South Dakota doesn’t have state income tax, but the members of your PLLC may still be taxed on the income of your PLLC depending on where the members reside and your PLLC’s tax classification. Other South Dakota business taxes, such as sales tax, may also apply to your PLLC.
More information about South Dakota business taxes is available on the South Dakota Department of Revenue’s website. If your PLLC is subject to any of these taxes, many can be filed and paid online through the Department of Revenue’s EPath website.
Depending on where in South Dakota your business is located, you may also need to pay some local taxes. You should contact your PLLC’s city and county to confirm your PLLC’s local tax obligations. If your PLLC is located in one of the four largest cities in South Dakota, you may find the following resources helpful: Sioux Falls, Rapid City, Aberdeen, and Brookings.
Step Six) Obtain Business Licenses and Permits
A generic state business license is not required to operate a business in South Dakota. However, your PLLC may still need to obtain certain industry- or profession-specific licenses from state agencies. The South Dakota Governor’s Office of Economic Development’s website includes information about licensing for some of these agencies. A list of occupational licensing agencies is also available on the Department of Labor and Regulation’s website. Given the nature of a PLLC, you will likely need to have at least one of these licenses in order to legally conduct your business.
Would You Prefer a Professional Form Your PLLC?
If you would prefer to have a professional handle the paperwork for you, consider hiring an online business formation service.
Because of the often-complex nature of professional limited liability companies, some of our favorite service providers don’t offer PLLC formations, but there are still plenty of quality companies that do provide this service. A couple of our favorites for PLLC formation are LegalZoom and MyCorporation.
Another option would be to hire a business attorney to handle your PLLC formation. While this is certainly a more expensive route than using an online formation service, a lawyer’s expertise could come in handy when you’re forming a specialized business structure like this.
Next Steps: What to Do After Creating a PLLC in South Dakota
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
South Dakota does not require insurance for businesses operating in the state. However, you may want to obtain workers’ compensation insurance to protect your PLLC from liability , as an injured worker can sue your PLLC in civil court. If your PLLC will have employees, you can learn more about obtaining workers’ compensation coverage on the South Dakota Department of Labor and Regulation’s website. Though not required, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies pertaining to the profession practiced by your PLLC.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year.
While you will need to file a federal income tax return to report income, South Dakota does not have an income tax, so a South Dakota state income tax return will not be required for your PLLC. Keep in mind, however, that if the members of your PLLC are residents of another state, they may be subject to the incoming reporting rules in that state.
Understand annual reporting
All LLCs in South Dakota, including PLLCs, are required to file an Annual Report with the Secretary of State. The Annual Report is due during the month of your PLLC’s initial filing anniversary and includes basic information about your PLLC. The filing fee is $65, plus $50 if the filing is late. You can file the Annual Report either online or by mail, though paper filings incur an additional $15 processing fee.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to best manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.