How to Start a Business in South Dakota

Sole proprietorships are the easiest business entity to start in South Dakota. After sole proprietorships, general partnerships are the second easiest to form and could be considered similar to sole proprietorships, except they are formed with two or more people.

Unfortunately, a sole proprietorship or general partnership don’t provide you with liability protection. Without liability protection, there is no distinction between you and your business. And without a distinction, you will be held responsible for all business-related debts and legal issues. If you want liability protection, you’ll want to form either a limited liability company or a corporation.

South Dakota Limited Liability Company (LLC)

A simple business entity that still offers liability protection is a limited liability company or LLC. They have a flexible management structure and can choose to maintain their default tax status or be taxed as a corporation. Unlike corporations, which we’ll cover next, LLCs aren’t held to as many state regulations and close oversight. To start a South Dakota LLC, you’ll need to file paperwork with the Secretary of State.

South Dakota corporation

South Dakota corporations are the most complex business entity you can form. Since South Dakota recognizes corporations as individual entities, corporations must appoint a board of directors and offer stock. To form a South Dakota corporation, you’ll need to file paperwork with the South Dakota Secretary of State.

Naming a business in South Dakota requires following specific statues for your entity. However, as a sole proprietor or general partnership, your business name will be your human name—unless you get a DBA.

For LLCs and corporations, you’ll need a business name that meets South Dakota’s requirements. Your business’s name must:

• Use an appropriate identifier, like “LLC”, “L.L.C” for a limited liability company or “Inc.”, “Incorporated” for a corporation
• Be unique in the state of South Dakota

Find out if your desired name is available in South Dakota by searching the South Dakota Business Name Availability database.

To form a South Dakota LLC or corporation, you’ll need to file paperwork with the South Dakota Secretary of State.

• To form a South Dakota LLC, file South Dakota Articles of Organization
• To start a South Dakota corporation, file South Dakota Articles of Incorporation

You’ll need to list a South Dakota registered agent on these forms who will handle your legal mail.

Note: This information is all available through the South Dakota Business Information Search. Anyone with your business’s name can look up your home address, name, and any other personal information you list.

So far in this guide, we’ve dealt with public forms that you’ve had to file with the South Dakota Division of Corporations. Now, it’s time to organize your internal records. These are the documents your business will keep on record within your company.

Though these documents are internal, you’ll likely need to show them to third parties like the bank or—if you start a nonprofit—the IRS.

Here are the major internal documents you need to organize for LLCs and corporations:

South Dakota LLC Operating Agreement

This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint officers. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including dissolution.

Drafting an operating agreement is hard, and the internet is full of shabby templates that have been copy and pasted from who knows where. So we had our attorneys draft a South Dakota LLC Operating Agreement template that you can use as a solid foundation.

South Dakota Corporate Bylaws

Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things. Unlike operating agreements, corporate bylaws are required by law in South Dakota (see SD Codified L § 47-1A-206).

As with operating agreements, you can find plenty of bylaw templates online. But bylaws are pretty serious, so you don’t want to just use the first template you come across. Our attorneys drafted a South Dakota Corporate Bylaws template you can use to get started.

Starting a nonprofit? We also have South Dakota nonprofit bylaws.

Before you can start doing business legally in South Dakota, you’ll likely need to get a business license. In South Dakota, the Department of Revenue requires any business with a physical presence in South Dakota (including sole proprietors) to have a license to collect sales tax. Some businesses will need additional licenses. To help you sort out what you’ll need, we go over a few common licenses required in South Dakota below.

South Dakota State Tax License

The South Dakota Department of Revenue states any business conducting transactions related to the sale of personal property, products transferred electronically, or services must be licensed to collect sales tax. If your business doesn’t have a physical address in South Dakota, you don’t need a license. Unless your business’s gross revenue from South Dakota goes over $100,000 or you’ve made over 200 separate deliveries into South Dakota.

Professional Business Licenses

Are you a licensed nurse or social worker in South Dakota, looking to start your business? Then, you (along other professions that require special education or training) will need to get additional South Dakota licensing through the South Dakota Department of Labor & Regulation and with the Department of Social Services and the Department of Health. Check out the South Dakota Department of Labor & Regulation for the list of all professional licenses and the filings needed.

Local Business Licenses

Regardless of where your business is located, you’ll still need to check your local jurisdiction’s licensing requirements. For example, in Sioux Falls, South Dakota, auctioneers are required to obtain an Auction Sale of Jewelry License. And in Aberdeen, South Dakota, home daycare providers must get licensed from the city. So, you’ll want to make sure you’re compliment with your city or county.

Learn more about How to Get a Business License.

The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too.

Open a Business Bank Account

To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.

Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.

Set up Payroll

One of South Dakota’s biggest perks for small business owners like yourself is their lack of income tax. No income tax means less forms and calculations for you if you decide to hire employees or independent contractors. To do so, you’ll need to:

• get an EIN
• register for a South Dakota Reemployment Assistance Tax Account Number
• register with the South Dakota Department of Labor & Regulation
• determine whether you’re hiring employees or independent contractors
• prepare the forms your employees will fill out
• choose a payroll service or software
• decide on a payroll schedule

Setting up payroll in South Dakota doesn’t have to be complicated. To help you along the way, select a reliable and secure payroll service or software that will automatically withhold payroll taxes, file state and federal returns, and pay your employees either by check or direct deposit

Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is on the hook to pay. Business insurance can help cover the costs.

South Dakota does not require every business to have business insurance, but depending on what you’ll be doing, you may want to make sure you and your business are insured.

Here’s what you need to know:

Workers’ Compensation Insurance

South Dakota doesn’t have a law requiring employers to have workers’ compensation insurance. However, you may want to get workers’ insurance to avoid dealing with being sued by injured employees. Without the insurance, you’re liable for any injuries sustained by your employees while performing their jobs.

Liability Insurance

This covers the costs of claims against your business for injuries or damages to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Whether or not you need it depends on whether your business is likely to be sued and how many assets your business needs to protect. If it’s just you and your computer in your basement, you might feel comfortable skipping liability insurance. Or maybe you won’t. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.

South Dakota has no corporate, individual, business inventory, or personal property taxes. Having limited taxes to pay, makes South Dakota a top state to form a business in. But your tax burden isn’t determined by the state alone. You’ll also have federal, state, and local taxes to consider.

Federal Taxes

• LLCs. Single-member LLC? By default, you’re taxed similar to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. Good news: because there’s no state income tax in South Dakota, you’ll only have to pay the 15.3% federal self-employment tax rate. An LLC can file paperwork with the IRS to be taxed as an S-Corp or C-Corp instead.
• Corporations. Corporations are taxed as C-Corps by default. This means that corporations pay the 21% federal corporate tax rate and no corporate tax in South Dakota.

To pay your federal taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.

Local South Dakota Business Taxes

While there may be low to no taxes on the corporate and high level, but there are still local taxes to take into account. South Dakota’s local business taxes are municipal sales tax (up to 2%), use tax, and gross receipts tax (1%).

If you want South Dakotans to find your business, they have to be able to find you online. This means you’ll need a website, a business email account, and social media accounts. Don’t worry if you’re not especially tech-savvy—you don’t have to be a web developer or an influencer to establish a robust online presence. You’ll just need the following:

• Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
• Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“[email protected]”).
• SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
• Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built-in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.

South Dakota requires LLCs and corporations to file an annual report on the 1st day of the anniversary month in which you formed. For example if you formed on August 15, 2012, then your annual report is due on August 1 every year. Corporations and LLCs in South Dakota must file separate forms for their annual reports.

Read more about How to File a South Dakota Annual Report.

A trademark is a design, symbol, word, phrase—or any combination thereof—that represents a brand’s goods or services exclusively. Only some businesses register trademarks.

You can apply to register your trademark with the State of South Dakota or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in South Dakota is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in South Dakota.

You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.

Our attorneys can review your application, offer advice, and prepare and submit the application for you—Check out our Trademark Service.