There are many reasons to start a corporation in South Dakota. For example, South Dakota offers a number of benefits such as perpetual existence, limited liability as well as ease of ownership transfer.
The following step-by-step guide will show you how to start a corporation in South Dakota.
1. Select a name for your corporation
The process of incorporating in South Dakota begins with deciding on a business name for your corporation. Additionally, your business name must adhere to South Dakota corporation naming requirements.
General corporate name guidelines
Your South Dakota business name must adhere to the following guidelines:
- Your South Dakota corporation name must not suggest that your business is organized for any illegal or unlawful purposes or any purposes that are not outlined in your corporation’s Articles of Incorporation
- Your business name must be significantly different from existing businesses in the state. This includes reserved names in the state of South Dakota
- Your South Dakota corporation name must contain the word limited, Inc., company, corporation, or an abbreviation of any of the above-mentioned words
For additional corporation naming guidelines, refer to the South Dakota state statute.
After deciding on your South Dakota corporation name, you may want to consider a trademark for your business name. A trademark will offer your corporation brand nationwide protection and also give you legal precedent in the event that any other business tries to conduct business or transact under the same or a similar name.
If you’re thinking of going national, then trademarking your South Dakota corporation name is recommended. There are two ways in which you can trademark your South Dakota corporation name. The first method is to register with the USPTO or United States Patent and Trademark Office to ensure that your corporation name has nationwide protection.
The next option is to register your South Dakota trademark with the South Dakota Secretary of State or the state’s office. However, this will only protect your corporation name within the state of South Dakota.
Your South Dakota corporation’s entity name is basically its legal name. Essentially, the company’s legal business name must be used when submitting legal documents and formation documents to the state, as this is the name that the state and the federal government will use to identify your business.
DBA (Doing-business-as) name
A DBA is short for (doing business as) name. It’s often referred to as a trade or fictitious name as well. While a DBA won’t protect your personal assets, there are various benefits to having a DBA.
A DBA is simply used for branding. It doesn’t offer any type of protection from personal assets in the event that your business is sued. Therefore, your DBA should only be used after creating a formal business structure like a corporation.
If you’d like to conduct business under a different name from your entity name, then a DBA will come in handy. The first step is visiting your South Dakota Secretary of State’s website and conducting a DBA business name search.
Once you’ve confirmed that the DBA name is indeed available, you can go ahead and file it online with the Secretary of State. You’ll need to submit your business’s Secretary of State ID as well as the name and address of the business owner during the application process.
2. Nominate a registered agent
The registered agents go by many names such as statutory, resident, and service of process agents. However, they all fulfill the same process irrespective of the names they are called.
Essentially, resident agents are responsible for accepting legal documentation as well as service of process in the event that your business is sued.
You may nominate any natural person or individual to fulfill the role of your corporation’s resident agent. However, the individual must meet a few requirements, such as:
- The resident agent must be at least 18 years of age
- The resident agent must maintain availability during usual business hours
- The resident agent must have a street address in the state of South Dakota where the business transacts
- The resident agent must consent to the appointment
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3. Appoint initial directors at the organizational meeting
Prior to forming your South Dakota corporation, you’ll need to fulfill a compulsory step which is holding an organizational meeting.
The purpose of the organizational meeting is to complete a few formalities such as creating and approving bylaws, selecting initial directors or a board of directors, determining your corporation’s share structure, and executing an incorporator’s statement.
When it comes to appointing directors for your South Dakota corporation, you’ll need to have at least one. This individual is referred to as the corporate director and will serve a term until the first shareholder meeting is called.
The corporate director has a responsibility to adopt, amend and repeal the corporate bylaws as well as elect, supervise and remove corporate officers.
4. File Articles of Incorporation
Your South Dakota corporation is legally formed when the Articles of Incorporation have been filed with the Secretary of State. The articles is a document that officially forms your corporation and allows it to operate legally both federally and statewide.
The document must cover some important information pertaining to your corporation, such as:
- Your South Dakota corporation’s statement of purpose
- Your South Dakota corporation’s street address and name
- The street address and name of your corporation’s resident agent
- The number of authorized shares your South Dakota corporation intends on issuing
- The addresses and names of the corporation’s incorporators
The Secretary of State does issue an Articles of Incorporation Form; however, this form may only be used to start a corporation with one share class. In the event that you plan on having multiple share class structures, then you need to create your own articles or attach an additional provision to your Articles of Incorporation.
There are two methods to submit your articles. The first method is to file online with South Dakota’s Online Business Services Portal. The next option is to download the Articles of Incorporation Form and submit it to the following mailing address:
Secretary of State Office
500 E. Capitol Ave.
Pierre, SD 57501
You will then receive a Certificate of Incorporation from the Secretary of State’s office.
5. Create and approve bylaws
Every South Dakota corporation will need to compile corporate bylaws. The bylaws determine how the organization will be run and governed and makes the priorities of the corporation clear for all involved.
Additionally, when creating your corporation’s bylaws, ensure that the document supplements the rules laid out by the state or federal governments.
Therefore, ensure that your bylaws include the following information:
- How company contracts will be negotiated
- The date of the annual shareholder meeting
- How the corporate bylaws will be added and amended in future
- The process of handling company disputes
- The process of storing and maintaining company records or corporate records
- The process of holding annual meetings
- How voting procedures will be conducted
- How corporate officers and corporate directors will be elected
- How the corporation will be operated
- The roles and responsibilities of corporate directors and corporate officers
The following bylaws templates may be customized to suit the needs of your South Dakota corporation.
6. Select a share structure
One of the essential steps in forming your South Dakota corporation is choosing a share structure. A share of stock is a representation of the unit of ownership of a corporation. Therefore, each share of stock indicates the percentage of ownership of the company.
So, for example, if your corporation decides to issue stock or issue one share of stock to a stock owner, also referred to as a shareholder, then that individual then owns a hundred percent of your South Dakota corporation.
Additionally, shares may be structured into classes, with each class known as a share class, holding a different set of rights and privileges. Your South Dakota corporation may have multiple classes, and each class may hold any number of shares.
7. Obtain an EIN
Your South Dakota Corporation needs to apply for and obtain an EIN. The EIN is short for Employer Identification Number.
This number works more or less like a Social Security number for your business. It’s a unique nine-digit code issued by the Internal Revenue Service and is also used as a way to identify business entities in each state.
You should apply for the EIN after forming your business as you will need to submit some information in your EIN application, such as the date of your corporation’s formation as well as your corporation’s entity name.
The EIN is completely free of charge, and your corporation would need one to open a business bank account, hire employees, and complete paperwork for tax purposes.
The quickest way to secure an EIN is to complete the online application using the EIN Assistant. Alternatively, you may download the EIN application form, also known as IRS Form SS-4, and mail it to the Internal Revenue Service at this address:
Internal Revenue Service
Attention: EIN Operation
Cincinnati, OH 45999
8. File South Dakota state taxes
Depending on the type of business you’ve formed, or the type of corporation you’re running, your business may be liable for one or more corporate taxes:
The state of South Dakota does not impose a corporate income tax.
- South Dakota sales tax: All South Dakota corporations that are selling physical products will need to register for a sales tax, also known as a seller’s permit. The application will need to be submitted via the South Dakota Department of Revenue’s website. After the application, you’ll receive a certificate that allows you to collect sales tax on taxable goods.
- Employer taxes: If you plan on hiring employees for your South Dakota corporation, then you need to register for employer taxes. You need to register for employer taxes via the South Dakota Department of Labor and Regulations website.
9. South Dakota business licenses and permits
There is no general business license required in the state of South Dakota. However, prior to operating a business in the state, you may need to obtain one or more licenses and permits.
- Professional license: If you’re running a professional corporation, and offering services such as dentists, accountants, or contractors, then you need to register for a professional license prior to offering your services in the state.
Aside from the professional license, the seller’s permit is the only additional permit you may need.
However, to ensure that you secure the relevant licenses and permits, be sure to reach out to the Department of Revenue prior to conducting business in the state.
10. Annual report requirements in South Dakota
South Dakota corporations are required to file an annual report every year by the end of the corporation’s anniversary month. The annual report may be filed online or via mail in the form of a printable copy.
11. Costs of starting a corporation in South Dakota
The filing fees below apply to all South Dakota corporations:
- Name reservation: $25
- DBA name: $10
- Articles of Incorporation: $150
- Annual report: $50 online and $65 via mail
- South Dakota Certificate of Good Standing: $20
Next steps after forming a corporation
Once your South Dakota corporation has been formed, you’ll need to take a few additional steps to ensure that your company gets off to a good start.
Obtain a corporate bank account
One of the best ways to separate your personal and professional finances is by obtaining a business bank account. Not only will this protect your personal assets and legitimize your corporation, but it will help simplify the accounting process as well as your business’s tax filing. When opening up a business bank account, you’ll need to provide your Employer Identification Number along with your South Dakota corporation formation documents.
Get a business credit card
Just as a corporate bank account helps to separate your personal and professional finances and expenses, so too does a business credit card help your company separate personal and business expenses. Additionally, it will help build your business’s credit score to ensure that you raise capital and obtain loans as well as higher credit limits as and when needed.
One of the primary differences between sole proprietorships and limited liability companies is that the sole proprietorship owner is personally and completely liable for financial and legal transactions conducted by the business. Owners of a limited liability company, on the other hand, are protected completely from liability that the business may incur.
C corporations or C corps are considered the default or standard corporation structure under IRS rules. They are also liable for double taxation. S corporations, on the other hand, elect a special status with the Internal Revenue Service and enjoy some tax advantages over C corporations.
Liability protection should always be factored in when starting a new business. Additionally, corporations are the business type that offers the strongest personal liability protection to its owners as compared to any other type of business.
A nonprofit corporation is a separate legal entity. It does not have owners but founders instead. Nonprofit corporations are organized and operated for the greater good of the public and are not formed to generate a profit for their founders.
A shareholder agreement is essentially a contract regulating the relationship between the corporation and its shareholders. And not all corporations have shareholder agreements instead the relationship between the corporation and its shareholders is governed by the bylaws and the Articles of Incorporation.