How to Start an LLC in South Dakota (Step-by-Step Guide)

When starting a new company, choosing a business entity is the most important decision that the founders must make. For most businesses with more than one founding member, forming an LLC is often the best option for a number of reasons.

An LLC is an uncomplicated business structure that affords business owners legal protection by separating personal assets from business debts. Moreover, LLCs often enjoy a lower tax rate than corporations. Nevertheless, creating an LLC can get complicated depending on where you are based, with the formation process, filing fees, and continuing legal obligations differing from state to state.

Forming a limited liability company in South Dakota follows the standard process used in most U.S. states, and the state does not impose any unusual requirements on LLC organizers. However, the fee for authorizing a foreign LLC to do business in South Dakota is one of the highest in the country at $750. After registration, all LLCs active in the state must file an annual report with the Secretary of State every year.

1. Select a name for your South Dakota LLC

Follow naming requirements

There are two major guidelines to follow when naming your LLC in the State of South Dakota:

1. An LLC’s name must be distinguishable from the names of existing business entities on file with the South Dakota Secretary of State.
2. An LLC’s name must contain one of the following phrases or abbreviations: “Limited Liability Company”, “Limited Company”, “LLC”,  “L.L.C.”, “LC”, or “L.C.” The abbreviations “Ltd.” and “Co.” may be substituted for the words “Limited” and “Company”, respectively.

Need help coming up with a business name? Check out our free business name generator.

Check the availability of your LLC name

Perform a search with the South Dakota Secretary of State’s Name Availability Search to confirm that the name you’ve selected for your LLC is available in the state.

Reserve your LLC name with the Secretary of State

While not a requirement, you should consider reserving your LLC name to prevent another South Dakota business entity from using it before you are able to file Articles of Organization. File an Application for Reservation of Name Limited Liability Company with the South Dakota Secretary of State by mail to reserve the name for up to 120 days. The filing fee is $25 and should be paid by check.

2. Designate a registered agent

As in every U.S. state, forming an LLC in South Dakota requires the appointment of a registered agent service to handle state and federal legal documents and service of process on the business’s behalf. The registered agent must either be a state resident or business entity with a street address in South Dakota OR if the individual or business is based out-of-state, they must have a business office in South Dakota.

3. File Articles of Organization

An LLC is created in South Dakota through the filing of Articles of Organization with the South Dakota Secretary of State.

The Articles of Organization must provide the following information:

• LLC’s name and address
• LLC’s purpose (optional)
• Registered agent name and address
• Whether the LLC is member-managed or manager-managed (include managers’ names and addresses if the LLC is manager-managed)
• Whether one or more LLC members will be liable for LLC debts
• Whether the LLC is perpetual or has a term end date
• The names and addresses of all LLC organizers
• The signature of one LLC organizer

You can file the articles online or by mail. The filing fee is $150 for online filing (payable by credit card) and $165 for mail filing (payable by check).

4. Create an operating agreement

Although not a legally mandated step for forming an LLC in South Dakota, drafting a comprehensive LLC operating agreement is strongly recommended for all nascent limited liability companies.

The operating agreement should do the following:

1. Describe the LLC’s business structure
2. Establish the individual responsibilities and obligations of LLC members
3. Detail how the LLC will be run

Without an operating agreement clarifying the specific duties of its members, an LLC may face significant legal and operational difficulties.

5. Obtain an IRS Employer Identification Number (EIN) 

All newly formed LLCs in the United States must acquire an Employer Identification Number (EIN) from the Internal Revenue Service (with the exception of single-member LLCs). The nine-digit EIN is like a social security number for a business and is necessary to pay income tax, file tax returns, open business bank accounts, and perform many other important functions.

You can apply for an EIN online on the IRS website without paying a filing fee.

6. Fulfill your legal obligations

Once an LLC is registered, its members must devote attention to fulfilling legal requirements that apply for the duration of the company’s existence.

File annual reports

All LLCs active in South Dakota must file an annual report with the Secretary of State each year. An LLC’s initial report is due the year after it is formed and in every subsequent year. The Secretary of State will issue a reminder 30 days before the report is due. The report can be filed online or through the mail. The filing fee is $50 for online filings or $65 for mail filings. There is an additional $50 fee imposed on delinquent filings.

Obtain business licenses and permits

In South Dakota, while there is no overarching general business license required for LLCs at the state level, it’s essential for business owners to understand that specific professional licenses and local permits may still be necessary, depending on the nature of their business and where it operates.

• Occupational licenses: Professional licenses are a critical requirement for LLCs operating in regulated industries. For instance, businesses in healthcare, legal services, construction, real estate must obtain the appropriate professional licenses to operate legally. These licenses are issued by various state boards and departments responsible for overseeing specific professions, ensuring that practitioners meet the necessary qualifications and adhere to industry standards.
• Local licensing: In addition to professional licensing, LLCs must also consider local licensing requirements, which can vary by city and county throughout South Dakota. Local licenses and permits may be required for a range of activities, from operating a retail storefront or restaurant to conducting home-based businesses or special events. These local permits are designed to ensure that businesses comply with zoning laws, building codes, health regulations, and other local ordinances.

Check out the South Dakota Governor’s Office of Economic Development: Start Your Business site for information on state business licensing requirements. For information on local licensing requirements, get in touch with a city or county clerk in the area where your LLC is based.

Understand state taxes

Due to its favorable tax structure, South Dakota stands out as a tax-friendly state for businesses, including LLCs.

LLCs enjoy pass-through taxation, where the business itself is not taxed at the state level. Instead, profits and losses are reported on the personal income tax returns of individual members. Profits from single-member LLCs are subject to self-employment tax, and this applies similarly to multi-member LLCs, with each member paying self-employment tax on their share of the profits.

• No sales tax: Additionally, South Dakota does not impose a general sales tax, further enhancing its appeal to small businesses.
• Additional taxes to be aware of: It’s important for LLC owners to be aware of local taxes that may apply in certain cities and counties, as well as industry-specific taxes that could affect businesses in particular sectors, such as hospitality or fuel.

Register with the South Dakota Department of Revenue

Certain LLCs active in South Dakota must register with the South Dakota Department of Revenue for the purpose of fulfilling a number of state tax obligations. This includes LLCs that collect sales tax on retail goods and services and LLCs with employees. You can register with the DOR online at their website.

Understand BOI reporting 

The Corporate Transparency Act (CTA), implemented in January 2023, mandates that a broad range of U.S. companies disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) under the Beneficial Ownership Information (BOI) Reporting Rule. All LLCs, not just those in South Dakota, are subject to this new rule.

The deadline for filing depends on when your LLC was formed.

• Entities established before January 1, 2024, must submit their initial reports by January 1, 2025.
• If you form your business in 2024, you have 90 days from completion to file.
• If you form in 2025, you’ll have 30 days to file.

While you only need to file once, BOI information must be kept updated if your business structure or details change.

Learn more about BOI Reporting.

Post LLC tasks

Set up business bank accounts 

Setting up a dedicated business bank account is a crucial step for LLCs, as it significantly enhances financial management and professionalism. A separate account not only simplifies accounting and tax preparation but also reinforces the legal distinction between personal and business finances.

This separation is vital for maintaining the limited liability protection that an LLC structure provides. By clearly demarcating business transactions, LLC owners can better defend against personal liability for business debts or legal actions.

Several digital-first banking platforms cater specifically to the needs of LLCs and startups, offering tools and features that traditional banks might not. Consider these options: Found, Relay, and Mercury.

These platforms understand the specific challenges and requirements of running an LLC today. They offer more than just banking solutions—they provide a financial hub that can support your business’s growth and management.

Obtain a Certificate of Good Standing

In South Dakota, you can obtain a Certificate of Good Standing as proof that an LLC or any other registered business entity is currently recognized and maintains good standing with the state.

To obtain this document, request one on the Secretary of State’s website. The fee for a Certificate of Existence is set at $20 for standard processing, with an expedited option available for $50 that typically ensures processing in less than a day, not including mailing time.

Build a website 

In today’s world, it is not an option to not have a website – that’s where any client will look for your services first.

While every LLC owner knows a website is necessary, you might not know where to start. Follow these steps to get started:

1. Search for and purchase a domain name.
2. Sign up for web hosting.
3. Pick a web builder like Domain.com or GoDaddy to create a site with no coding experience necessary.
4. Tailor your site to your customers, adding appropriate pages, content, and images.
5. If you’re selling goods, add an e-commerce section to your site.
6. Review, test, and publish your site.

Costs to set up an LLC in South Dakota 

Average cost to start an LLC in South Dakota: $200-$400

Starting an LLC in South Dakota is an appealing option for many entrepreneurs due to its straightforward process and relatively low cost. However, understanding the specific costs associated with forming and maintaining an LLC in South Dakota is crucial for effective planning and budgeting. As a startup, you’ll deal with these initial costs, like:

• Incorporation fees: The initial step in establishing your LLC is filing the Articles of Organization with the South Dakota Secretary of State. This foundational document legally establishes your business, and the fee for online filing is $150. If you prefer or need to file by mail, fax, or in person, the fee increases to $165.
• Annual Report filing fee: After the LLC is established, South Dakota mandates the filing of an Annual Report to keep your business in good standing. This report carries a fee of $50 each year, a nominal cost that ensures the state has your most current business information.
• Registered agent service fees (optional): Many LLCs also opt to use a registered agent service to handle legal and official documents, providing peace of mind and privacy. These services typically start at around $100 per year.

Foreign LLC registration

An LLC formed in a state other than South Dakota that intends to do business in the state must register with the South Dakota Secretary of State.

Complete these steps to do business in South Dakota as a foreign LLC:

1. Comply with South Dakota LLC naming rules and confirm that the LLC’s name is available using the Secretary of State’s Name Availability Search.
2. Appoint a South Dakota registered agent.
3. File an Application for a Certificate of Authority with the South Dakota Secretary of State online or by postal mail. The filing fee is $750 (or $765 for mail filing).
   • The application must include either a Certificate of Good Standing or a Certificate of Existence from the LLC’s state of origin.