An LLC provides liability protection, tax advantages, and other benefits for small businesses. Are you looking to start a business in South Dakota with minimal paperwork and maximum legal protection? Consider forming an LLC. Our complete guide and tips make setting up a South Dakota LLC easy.
Setting up an LLC in South Dakota involves simple form submissions. These steps offer a clear path, detailing expectations and providing necessary forms on the South Dakota Secretary of State or IRS websites.
Here’s a breakdown of the steps to start your South Dakota LLC:
#1: Name Your South Dakota LLC
#2: Hire a Registered Agent
#3: File Articles of Organization
#4: Obtain a Certificate From The State
#5: Create an Operating Agreement
#6: Obtain an Employer Identification Number
#7: Apply for State and Federal ID Numbers
1. Name Your South Dakota LLC
Start by choosing a unique name for your LLC. It must meet certain criteria, like standing out from other business names in the state. Confirm its availability through an online South Dakota LLC business name search.
Ensure your names meet South Dakota’s criteria:
- Must include Limited Liability Company, LLC, or L.L.C.
- Should differ from existing state businesses (check on the Secretary of State’s site)
- Avoid using government agency terms (State Department, CIA, FBI, Treasury)
- Some words (bank, lawyer, etc.) may need extra documentation/licensure
For details, refer to SD naming rules.
Once you finalize your business name, reserve it for future use before completing the rest of your LLC paperwork. Apply for a name reservation online or via mail through the secretary of state’s website. Pay a $25 filing fee to reserve your name for 120 days.
Additional considerations:
Check URL availability early. Even if you don’t plan an immediate website, securing the domain is wise for future use. Before confirming your LLC name, ensure the URL is free.
2. Hire a Registered Agent
South Dakota mandates a registered agent for your LLC, responsible for receiving legal documents and notices.
Agents, individuals or entities need the following:
- A South Dakota address.
- On-site availability during business hours.
- Entities offering registered agent services.
South Dakota offers a list of registered agents for hire, or you can search online for options. Registered agent fees often range from $50 to $300 annually.
While you can be your own registered agent for a South Dakota LLC, consider privacy concerns. Your personal address and contact details become public, potentially exposing you to spammers and scammers. Using commercial addresses helps filter unnecessary mail, a preference for many.
Agents can be commercial (hired companies) or non-commercial (not business-related). Ensure reliability when choosing. Commercial agents are state-listed and have a CRA number.
3. File Articles of Organization
The articles of organization establish your LLC, detailing crucial business information for the state. To prepare this, you’ll need the following information:
- LLC name
- Registered agent’s details
- Organizer names and addresses
- A brief reason for the formation
- LLC duration (often perpetual)
- Management type (members or managers)
- Manager details, if applicable
- Signature of the LLC’s founder
File online via the secretary of state’s website or mail to the given address.
Secretary of State Office
500 East Capitol Avenue
Pierre SD 57501
Fees are $150 online or $165 by mail. After filing, the secretary of state reviews the documents. Once approved, the authorities officially establish your LLC as a legal entity.
Amending articles costs time and money. Save both by using an LLC formation company for accurate filing.
4. Obtain a Certificate From The State
Once approved, the state issues a formal certificate confirming your LLC’s existence. This approved certificate from the South Dakota Secretary of State can be accessed online and enables you to secure an Employer Identification Number (EIN), business licenses, and open a business bank account.
5. Create an Operating Agreement
While not legally mandatory, operating agreements are vital for your business’s future. These binding documents cover various aspects, such as details from your articles of organization, member identities, duties, management structure, voting procedures, financial allocations, tax preferences, and dissolution processes. Having a legal or business expert review the agreement before signatures can prevent confusion and potential legal issues down the line.
These agreements, signed by all members, align everyone’s understanding from the outset.
6. Obtain an Employer Identification Number
The Internal Revenue Service issues a nine-digit Employer Identification Number (EIN) to identify your LLC for tax purposes. Obtaining your EIN can be done via mail or online through the IRS.
An EIN serves the following purposes:
- Tax filing and management at both state and federal levels
- Opening of a business bank account
- Hiring of employees.
7. Apply for State and Federal ID Numbers
When conducting business in a state, expect annual filing obligations and often the need for identification numbers at both state and federal levels.
Federal EIN
Get a free federal employer identification number (EIN) via the IRS website. This number enables tax payments and other necessary activities, like opening a business bank account. In South Dakota, single-member LLCs without employees don’t need to obtain an EIN, but having one can prevent 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 necessary for filing your South Dakota LLC annual report. South Dakota, lacking corporate and personal income taxes, might not require annual taxes for certain businesses. However, specific taxes like sales tax might apply, especially for retail operations.
South Dakota LLCs don’t have annual fees, but filing the annual report carries a $65 cost, with a $50 late fee for delayed submissions.
Pros and Cons of Starting a South Dakota LLC
Pros
- South Dakota exempts individuals and businesses from state income tax, providing potential tax advantages for LLC members.
- The state’s minimal government regulations and business-friendly environment streamline the process of starting and operating an LLC.
- South Dakota allows the use of nominee officers and directors, enhancing confidentiality and privacy for LLC owners.
Cons
- Limited market size due to South Dakota’s relatively small population might constrain growth for certain businesses.
- Geographic distance from major metropolitan areas poses logistical challenges for businesses requiring easy access to larger markets.
LLC State Guides
How to Start an LLC in South Dakota FAQs
The filing cost for the Articles of Organization in the state is $150. If you opt for a mail application, there’s an additional $15 processing fee on top of the filing charge.
Operating as a sole proprietorship involves minimal paperwork and is the most straightforward option. On the other hand, establishing an LLC demands initial paperwork and expenses, yet the potential long-term advantages could justify the investment for your business.
LLC registration fees vary by state, requiring a fee in all states. Some companies claim “free” LLC formation, which usually means they’ll help with paperwork for free, but you’ll still have to cover the state’s filing fee.
Currently, South Dakota doesn’t mandate a general business license for operation. Yet, if you sell goods or provide services, a tax license from the state’s Department of Revenue and Regulations is required. Additionally, local governments often stipulate licenses for business operations within their jurisdictions.
If you’re considering operating in South Dakota, you’ll generally need to register your existing LLC as a foreign entity in South Dakota. This entails completing essential paperwork and fulfilling the mandatory fees to obtain legal authorization for business operations within the state.
