Are you looking to form a limited liability company (LLC) in the state of 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 LLC that is compliant and able to do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a South Dakota LLC?
The South Dakota LLC is one of the most popular business structures in state. It's a more casual and flexible type of business than a corporation, but includes personal asset protection that's lacking from sole proprietorships and general partnerships.
LLCs in South Dakota have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Forming an LLC in South Dakota (in 6 Steps)
Step One) Choose an LLC Name
Your LLC’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 the state of South Dakota, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC 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 LLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LLC is to not get too attached to any one business name until you have either reserved the name with the state of South Dakota, or you’ve officially formed your business. South Dakota makes this process rather easy, as you can search their entire database of business names at this link. If you’re not yet ready to form your LLC, you can reserve your desired name. Simply download this pdf and mail it in to reserve your name with the state. Reserving your name gives you an extra 120 days to get your business affairs in order; please note that there is a $25 fee to reserve a name.
Step Two) Designate a Registered Agent
Every LLC in South Dakota is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the South Dakota Secretary of State,
The South Dakota registered agent functions as the point of contact for a business entity registered in South Dakota. A registered agent MUST be a resident of South Dakota, with BOTH a physical and mailing address in South Dakota.”
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 LLC 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.
Step Three) File Formation Documents with State
Once you are ready to form your South Dakota limited liability company, you will fill out the articles of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
Cost to Form an LLC: The state of South Dakota charges a $150-$165 fee to form an LLC.
Processing Time: It can take 3-5 business days for the state to process your mailed-in South Dakota LLC formation paperwork and get your finalized documents in the mail to you. The additional $15 fee is for mailed-in filings. You can also file online and have your filings back within one business day. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
Step Four) Create an Operating Agreement
After you register an LLC 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 this document in order to open an account. 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 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 LLC
- 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 LLCs 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 LLC 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.
When it comes to state-level LLC taxes, South Dakota levies these taxes based on the nature of your business. Normally, LLCs will be subject to income taxes, but South Dakota does not charge a state income tax. There are other taxes you will be responsible for, however.
For instance, LLCs involved in retail sales are also responsible for the state’s sales tax. The current rate is 4.5%; you can read an in-depth guide for the tax here.
LLC owners with employees are also required to pay a number of taxes. For example, South Dakota employers are also required to make payments to the state’s unemployment insurance. While it’s not technically a tax, you do need to pay it on a regular basis, so we’ve included it in this section. You can learn more about this fund at South Dakota Department of Labor and Regulation.
In addition to these general taxes, South Dakota also requires taxes specific to particular industries. For example, there are taxes on hotels, alcohol, and more. You can learn more about the state’s business taxes here.
Depending on where in South Dakota your business is located, you could also need to pay some local taxes. For example, some counties require additional sales tax on top of what the state charges. You can find a listing of the municipal taxes here. We also recommend that you contact your local government office to be sure you don’t overlook any local obligations.
Step Six) Obtain Business Licenses and Permits
The state of South Dakota does not have a statewide general business license that each LLC needs to acquire in order to do business.
However, South Dakota upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
And much like the state has industry-specific tax requirements, it also has licenses and permits that are required for businesses in certain industries. South Dakota has hundreds of these licenses, so there’s a good chance at least one of them applies to your LLC. Fortunately, the state has made it easier to determine what licenses you’ll need. You can consult their guide here. Don’t forget that your local government may require licenses or permits as well.
Next Steps: What to do After Creating a South Dakota LLC
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.
Get Business Insurance
Every South Dakota business with employees is strictly required to acquire workers’ compensation insurance. For more information on this policy, check out the South Dakota Department of Labor and Regulation. Essentially, this policy helps to pay your employees when a work injury or illness keeps them from working. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
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. Since the state of South Dakota does not charge an income tax, you won’t need to worry about income reporting. However, you can find forms and information for the state’s other taxes here.
Understand annual reporting
South Dakota requires that all LLCs file an annual report. You can file it online or download a pdf of the form here. Please note that there is a $50 fee for online reports and a $65 fee for mailed-in reports. There’s also a $50 late fee, so be sure to file on time. Your annual report will essentially serve to update the state on any pertinent information regarding your business that has changed over the course of the year.
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 best to 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.