From Dream to Reality: How to Start an LLC in South Dakota in 8 Steps

South Dakota LLCs have this unique advantage where your business is protected from your personal creditors. In many other states, a personal creditor can potentially get the assets of your business, but South Dakota severely limits what they can extract from your business. 

This is one of the reasons why many small business owners want to learn how to start an LLC in South Dakota so that they can take advantage of this unique protection.

What Is a South Dakota LLC?

A Limited Liability Company or LLC is a type of business entity that helps business owners protect their personal assets from the creditors of their business. There can be one or more members in a South Dakota LLC. This business structure is also tax efficient, in which the income flows to the owners who are then required to report it on their personal returns. Incorporating an LLC in South Dakota is easy and the entire process can be done within a few days.

What to Consider Before Forming an LLC in South Dakota?

When it’s time to bring your ideas for a new business to reality, you must form an LLC. However, before you begin the process, it’s important to consider several factors that can have an impact on the business. If you’re mindful about them at this stage, it will help things run smoothly in the future. 

Once you’ve decided on the type of business you want to do, you’ll need to create a business plan. This is an important document that will include the market research you conduct to identify gaps in the market and how your products will be positioned to best exploit them. Your growth strategy will also be a part of the business plan as it will provide you with a roadmap on how to take it to the next level.

This is also the stage where you decide which type of business entity will suit your company the best. You might want to consider an LLC if you want something that’s easy to set up, has minimal ongoing paperwork requirements, and provides substantial protection for your personal assets against the debts and liabilities of the business.

How to Start an LLC in South Dakota in 8 Steps

Incorporating an LLC is relatively easy but there could be certain matters that end up confusing you. By following a step-by-step plan, you can make sure that your business entity is set up correctly and won’t run into any problems because of this in the future. 

Step 1: Decide on a Business Name

If you’ve decided what to call the business, check the business name availability first. You can’t have the same business name as someone else so if it’s already taken, or trademarked, you’ll have to come up with another one. The name should be unique and distinguishable from other business entities. 

You’ll also need to put Limited Liability Company or the LLC abbreviation at the end of the LLC name that you choose. It’s possible to use a fictitious business name or DBA in case you want the trading name to be different. 

Step 2: Choose a Registered Agent

All LLCs in South Dakota require a registered agent. You can choose to be your own agent if you’re a resident of the state. Registered agents are required to have a physical address in South Dakota and they must be available during regular business hours to accept the service of process and other legal documents.

Those who are not residents of the state can opt for a registered agent service. The agent will ensure that any legal documents sent to your business are received. Agents typically also provide additional services such as annual report filings.

Step 3: Prepare and File LLC Articles of Organization 

You’ll need to put all the important information about your business in a document called the Articles of Organization. The information will include details about the members of the business entity, address, business purpose, and more. It’s only when this document is filed with the Secretary of State does the LLC become a legally recognized entity separate from its owners. Once it’s incorporated, your South Dakota LLC will shield your personal assets from the debts and liabilities of the business.

Step 4: Draft an LLC Operating Agreement 

The LLC operating agreement details how the business is going to be governed. It includes information about the rights of the members, as well as various operating procedures and responsibilities of the LLC. It provides a management structure for effective operations. 

This agreement will also include details about how the profits and losses will be distributed between the members. It’s best to outline a dispute resolution mechanism in the operating agreement so that any future problems can be dealt with effectively. This is an internal document for South Dakota LLCs as the Secretary of State doesn’t require you to file it. 

What’s Next After Filing an LLC in South Dakota?

Setting up an LLC is just the beginning. You’ll need to ensure ongoing compliance with state and federal regulations to maintain its status as a going concern. The following steps will highlight what needs to be done to remain compliant.

Step 5: Apply for EIN

You must obtain an EIN or Employer Identification Number for your business from the IRS. It’s a nine-digit number that’s unique to your business. The IRS uses this to identify businesses for taxes. That’s why you can’t have multiple LLCs under one EIN, each must have its own. 

You can apply for an EIN online and once the application is approved, you’ll find the EIN on the approved form returned to you. If you end up losing it, reach out to the IRS to recover the lost EIN, or find the confirmation letter that was sent to you when the application was approved.

Step 6: Open a Business Bank Account

Using your personal bank account for business transactions is a mistake that you shouldn’t make. Accurate income and expense tracking is crucial for the financial health of the business. That’s why you should open a separate account. Head over to your preferred bank and choose a business bank account.

As for how to open a business bank account, just visit the bank and ask them about their offerings. You can also ask them questions about opening an account for your business, such as the additional services they offer for small businesses.

They’ll also let you know what you need to open a business bank account. The entire process is usually very swift and accounts are typically opened on the spot if all the documentation is in order.

Step 7: Obtain Licenses or Permits

Depending on the line of work that you’re in, you may require a business license from state or other local agencies. To figure out whether your business needs a license or permit in South Dakota, check online resources including the Secretary of State’s website. You can also reach out to small business development centers for more information about licensing requirements.

The paperwork process for these documents tends to be fairly easy. There’s usually a nominal filing fee that needs to be paid. For some licenses and permits, you may be required to comply with ongoing certification and fee payments.

Step: 8: Get Business Insurance

While South Dakota doesn’t mandate that LLCs get business insurance, it would still be a good idea to get adequate coverage for your business. If you’re hiring employees, consider workers’ compensation insurance. General liability insurance can protect you against most eventualities, covering a wide range of claims for injuries or damages.

4 ​​Types of LLCs to Consider in South Dakota

There are different types of LLCs that you can choose from. Make sure that you pick the right one that best aligns with the goals of your business. The following types of LLCs can be incorporated in South Dakota:

Single-member LLC

A single-member LLC has one sole owner who exercises full control over the business. It’s best for those who want the convenience of a sole proprietorship with the liability protection that an LLC provides. Pass-through taxation is one of the biggest advantages, as the profits and losses flow through to the owner who then reports them on their tax returns. 

Multi-member LLC

This type of LLC works similarly, with the only major difference being that it will have two or more members. The profits and losses will pass through to them and they will all have the same level of liability protection whereby their personal assets remain safe from the debts of the business. Members can decide on the equity share themselves. It’s a simple process to set up a multi-member LLC and there are minimal ongoing paperwork requirements.

Series LLC

South Dakota is among the states that recognize Series LLC. It enables you to have multiple LLCs grouped under a parent LLC, so you can separate different parts of the business while exercising control over them through one primary LLC. 

This type of LLC is fast becoming a preferred option for real estate businesses since they can manage different properties under one LLC. Each subsidiary LLC has its own assets and liabilities separate from the parent. Since Series LLCs are still not recognized in a lot of states, it can be difficult to figure out regulatory requirements.

PLLC

PLLCs are suitable for licensed professionals such as doctors, lawyers, etc. Not only does it provide the standard liability protection of a conventional LLC, but it also protects them from personal liability stemming from malpractice. PLLCs are therefore best for licensed professionals who want to protect their personal assets in case of a malpractice claim. 

Starting a South Dakota LLC Made Easy

Whether you want the protection against personal creditors that South Dakota LLCs can provide or want to take advantage of the state’s thriving business environment, incorporating an LLC is the first step to transforming your vision into reality.

With doola’s LLC formation services, everything is handled for you, so you can rest assured that all of the required filings have been made. Take the stress out of the process so you can focus on growing the business.

FAQs