The Limited Liability Company (LLC) is a popular entity structure for many businesses starting in the state of South Dakota. The LLC provides personal liability protection and has the potential to save money on taxes. With our step-by-step guide, you can learn how to form an LLC in South Dakota without an attorney.
Unlike a sole proprietorship or partnership where the small business owner can be personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the asset protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Let’s break down the steps to complete the South Dakota LLC formation process.
Total Time: 10 minutes
Step 1: Choose a Name for the LLC
The first step in forming a South Dakota Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of South Dakota. The South Dakota Secretary of State makes it easy to search and verify if your LLC name is available. Learn how to do a no-cost South Dakota LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Liability Co.
– Ltd. Liability Company
– Ltd. Liability Co.
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is an LLC name you want to use, but you are not ready to register the LLC, the Application for Name Reservation can hold a name for up to 120 days. There is a fee of $25 to file this form with the Secretary of State
Before settling on a name, you may want to do a domain name search to try and match your business name and website address.
Step 2: Appoint a South Dakota Registered Agent
Every LLC in South Dakota is required to have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Registered Agent in South Dakota include:
– The agent must be a South Dakota resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a Registered Agent in South Dakota.
Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a company like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.
Step 3: File the South Dakota Articles of Organization
The paperwork to officially create an LLC in South Dakota is called the Articles of Organization. To submit the paperwork, either file online through the South Dakota Secretary of State’s website. If you prefer to fill out and mail the application, download the Articles of Organization Form.
When filling out the Articles of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Principal Address – In this section, enter the street address, city, state, and zip code of the initial principal office. This address can be the LLC’s physical address, or the address where the business records are stored. You may not use a PO Box for the designated office. There are also fields for a phone number and email address. Many people do not provide the phone number as it becomes public record. The email is required and is the address where the Secretary of State will send notifications when annual reports are due.
A mailing address is needed, and it can be the same as the principal address. If the LLC records will be sent to a different address, enter that information in the Mailing Address Section. If the address is the same as the principal office, click on the “Use this address as the Mailing Address also” box to copy the Principal Address address.
Organizer(s) – An LLC Organizer is someone involved with the formation of the Articles of Organization. The Organizer may or may not become a member, such as a mentor, attorney, or accountant, but any LLC member can be listed as an organizer.
For most LLCs, the members will also be the organizers.
Period of Duration – In this section, you can indicate how long the LLC will remain in existence. Most LLCs will choose a Perpetual duration; however, some businesses (usually investment-related) will have a specific closure date.
Delayed Effective Date – If you want the LLC to start immediately, leave this field blank. If you want the LLC to start later, enter a date less than 90 days in the future. The main reason for delaying the LLC start date is when the filing is made close to the end of a calendar year, but the business isn’t going to have any activity until the start of the next year. You can eliminate the need to file a partial-year business tax return by delaying the start date until the following year.
Management – This section asks if the LLC is Member-Managed or Manager-Managed.
– Member-Managed LLCs have an active involvement in the management and have the authority to act on behalf of the LLC.
– Manager-Managed LLCs are hired by the members to run the LLC, similar to a CEO of a corporation. This is generally used when there are passive members in the LLC, and the members do not actively manage or operate in the affairs of the business.
Most LLCs are Member-Managed.
Beneficial Owner(s) – This is an optional section, and each member of the LLC is typically considered a beneficial owner. Entering their names with the LLC filing puts their names and address on public record.
Turnaround Time: LLCs formed online are created immediately, while mailed in forms can take 5-7 business days for the Secretary of State to process.
You don't have to form your LLC by yourself or pay an attorney!Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.
Now you have a South Dakota LLC! Now what??
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a South Dakota LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally, a bank will request a South Dakota Certificate of Good Standing to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting a business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Sales Tax License – In order to sell products and certain services, registration with the South Dakota Department of Revenue will be necessary.
Get Business Insurance
Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:
General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.
File the Annual Report
LLCs are required to file an annual report with the South Dakota Secretary of State. There is a $50 state fee to file the South Dakota Annual Report (Form CL-1) and is due by the last day of the anniversary month of the LLC. For example, an LLC formed on November 5th, 2021 would have its first annual report due on November 31, 2022.
Common Questions To Starting An LLC In South Dakota
How much does it cost to start an LLC in South Dakota?
The state filing fee to start an LLC in South Dakota is $150 for online filings and $165 for mailed-in forms.
Is there a yearly fee for an LLC in South Dakota?
Each year, an annual report and $50 annual report fee will need to be sent to the South Carolina Secretary of State.
How long does it take to start an LLC in South Dakota?
LLCs formed online are processed immediately, while mailed in forms can take 5-7 business days.
Do I have to pay to hire a registered agent?
No. Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee in the state. The LLC will need to register as a foreign LLC in each state that the LLC plans to operate.
What is a Professional Limited Liability Company?
Businesses that require occupational licensing in South Dakota, such as accountants, architects, veterinarians, etc., will want to file for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of the LLC.