Our work is reader-supported, meaning that we may earn a commission from the products and services mentioned.

2022 Guide to Starting an LLC in South Dakota

South Dakota LLC Quick Facts

South Dakota LLC Costs

Initial Cost – State LLC Filing Fee:
– Filing Online: $150
– Filing by Mail: $165

 

Recurring Cost:
– Annual Report Filing Fee: $50

South Dakota LLC Processing Time

– Filing Online: Immediate
– Filing by Mail: 5-7 business days

Not sure about filing an LLC yourself?

Want an LLC, but not sure about filing the paperwork yourself? Let Zenbusiness, IncFile, or IncAuthority help guide you through the LLC formation process, so you know everything was done right.

IncFile and IncAuthority are both currently running a special where you only pay state fees for your LLC formation!

Overview

Guide to Starting an LLC in South Dakota

Starting a business can be an intimidating process. There are so many things to think about, from what type of business to form, to where to get started. In this post, we’ll walk you through the process of starting an LLC in South Dakota. We’ll cover everything from what documents you need to file with the state, to ongoing compliance requirements. Let’s get started!

What is an LLC?

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.

Related: Guide to starting a business in South Dakota

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 Company
– L.L.C.
– LLC
– L.C.
– LC
Additionally, Limited can be abbreviated as Ltd. and Company abbreviated as 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 commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being listed on the state’s website.

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.

Related: How to fill out the South Dakota Articles of Organization

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 should 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.

Consider using an LLC formation service like Zenbusiness, IncAuthority, Northwest, or IncFile to guide you through the LLC formation process, so you know everything was done right.

IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!

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.

Related: South Dakota operating agreement template

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
  • Partnership
  • C-corporation
  • S-corporation

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.

Related: How to Open a Business Bank Account for your LLC

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.

Related: What Business Licenses are Needed in South Dakota?

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), which 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.

Related: How to File a South Dakota LLC Annual Report

Common Questions To Starting An LLC In South Dakota

How much does it cost to start an LLC in South Dakota?

The cost to start an LLC and file the Articles of Organization with the South Dakota Secretary of State is $150 to file online and $165 to send the form in by mail.

How long does it take to start an LLC in South Dakota?

South Dakota LLCs that are formed online are processed immediately with the Secretary of State, while mailed-in forms can take 5-7 business days.

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.

Who can be a registered agent in South Dakota?

Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state of South Dakota, and are generally available to receive documents during normal business hours.

What kinds of permits and licenses does your LLC need?

It’s sometimes thought that the LLC and business license are the same in South Dakota, 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.

Related: What business licenses are needed in South Dakota?

What is a Foreign Limited Liability Company?

A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state that wants to physically operate in South Dakota. Physically operating means having a presence, such as having an office or hiring an employee.

Related: What is the difference between a domestic South Dakota LLC and a foreign LLC?

What is a Professional Limited Liability Company?

Businesses that require occupational licensing in South Dakota, such as accountants, architects, veterinarians, etc., can register for a Professional Limited Liability Company (PLLC), but it is not required.

Related: What is the difference between a domestic South Dakota LLC and a foreign LLC?

Is an LLC the same as a corporation?

The LLC is one of four main types of business entities. You can learn more about each here:
What is a sole proprietorship?
What is a general partnership?
How to form a South Dakota corporation

Is South Dakota the best state to form an LLC?

It’s generally best to form an LLC where you reside and will be doing the work, however, there may be reasons to form in another state.

Related: What is the best state to form an LLC?

What is a beneficial owner of an LLC in South Dakota?

A beneficial owner of an LLC in South Dakota is an individual or entity who owns or controls the LLC. The beneficial owner is commonly the LLC members or managers.

The beneficial owner may also be a person or entity who is not a member or manager of the LLC, but who owns or controls the LLC through another entity. The beneficial owner’s interest in the LLC may be direct or indirect. The beneficial owner’s interest in the LLC may also be evidenced by a contract, trust, or other agreement.

Subscribe Now to the 60-day Startup Challenge!

Subscribe Now to the 60-day Startup Challenge!