You have big plans, but before your business can officially take off, you’ll need to make a bit of an investment.
And we’re not talking about renting office space or paying employees — before you sell a single product, there are startup costs associated with launching an LLC in South Dakota.
Make sure that you consider all the possible costs associated with starting an LLC. To help you out, we’ve compiled the most common South Dakota startup fees here.
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Overall South Dakota LLC Formation Costs
LLC Name Reservation Fee
South Dakota’s LLC formation process doesn’t require that you reserve a business name, so this fee is completely optional. It’s $25 and will place a 120-day hold on your name. If you’re ready to start your business right out of the gate, name reservation probably isn’t for you, since filing the Articles of Organization will automatically register your name. But if you’ve come up with a perfect business name and aren’t ready to start your business, reserving it can be a good idea.
To clarify, most states don’t require name reservations, and they’re rarely necessary. If you’re concerned about someone else registering the name you want, you could opt to simply form your LLC instead of reserving the name.
Whether you reserve your business name or not, you should always perform a South Dakota business name search to make sure the name you want is available.
Articles of Organization Fee
This is the big one, the most important (and most expensive) form that you’ll file to start your South Dakota LLC. The $150 filing fee is a little steep, but the Articles of Organization are what makes your business official, so it’s worth it. You can file online or using a hard copy, but paper forms cost an additional $15 to file ($165 total). The bright side is that this is a one-time filing — as long as it’s accepted — so you won’t be paying the fee again.
The information required to file your Articles of Organization includes the official business name of your LLC, the address of your LLC’s primary business location, the name and address of your noncommercial registered agent or the name and CRA number of your commercial registered agent, the names and addresses of your LLC’s organizers, the duration of your LLC (if not perpetual), an indication that your LLC will be managed by its members or a manager, the names and addresses of your LLC’s managers (if applicable), an indication that one or more of your LLC’s members will be liable for its debts and obligations (if applicable), the date, and your LLC organizers’ printed names, titles, and signatures.
Before we move on, we’ll mention that if you’re forming a South Dakota professional LLC, you can use the same Articles of Organization form used by standard LLCs.
Business and Professional Licenses
Not all LLCs need to obtain professional licensure before doing business, but some do, even after filing the Articles of Organization. For example, an investment advising firm must obtain licensure through the Department of Labor & Regulation Securities Division and a car dealer through the Motor Vehicle/Motor Fuel Division. Outside of state agencies, cities and/or counties often have their own business license requirements, so check with the Office of Economic Development and your local government to see which (if any) your LLC needs.
What are some of the most commonly required business licenses for South Dakota LLCs? If your business operates in a regulated industry, you will probably need some sort of professional license to operate in compliance with state law. On the municipal level, things like alarm permits, building permits, and zoning permits are all very common.
LLC Formation Service
Starting an LLC in South Dakota can be a complicated and time-consuming process. If you want to spend less time on paperwork and more time planning your business, you might opt for LLC formation services. These services take care of the registration process for you, so you don’t have to spend time on research, paperwork, and filings.
Most of these services (like LegalZoom or ZenBusiness) offer basic LLC formation services like Articles of Organization filing, tax consultations, and phone/email support for a flat rate, with options to pay more for premium packages with premium services like Employer Identification Numbers, operating agreements, and expedited filing.
Registered Agent Service
Appointing a South Dakota registered agent is an important part of your LLC formation process. Your registered agent is responsible for handling sensitive legal and tax documents and keeping your business compliant with South Dakota business law. In short, you need an agent you can trust.
While you can be the registered agent for your own LLC, this puts pressure on you to keep up with business filings and potential legal disputes. Sometimes it’s better to hand off that responsibility to a professional. A registered agent service ensures that your annual reports and other forms are filed efficiently, saving you from the penalties of delinquent filings and the stress of having to do it yourself.
If you have questions or concerns about the LLC formation process or if it’s the best business structure for you, sometimes it’s best not to take chances and consult an attorney. They’re not cheap, but they can provide essential business advice, professional filing assistance, and peace of mind.
Some attorneys offer free consultations (usually 30-60 minutes) but will charge by the hour after that. On average, business attorneys charge between $150-350 per hour. Some will offer a flat rate for setting up an LLC, which can range from $500-2,000.
Cost variations depend on the experience and location of the lawyer. You have a lot of great options, and making the right choice can be a daunting task. But a site like Avvo can help. Avvo offers access to a database of South Dakota business attorneys, sortable by location, rates, areas of expertise, and more. By comparing and evaluating your options, you can be sure that you find a good fit.
If you don’t want to go digging for your own attorney, we compiled the following list of highly rated business lawyers in South Dakota. All of these attorneys are primarily focused on the business world, they all receive five-star ratings from clients, and they all have excellent Avvo ratings.
Foreign Qualification Fee
This only applies if your LLC was formed in another state and is now expanding into South Dakota. Foreign LLCs don’t need to file the Articles of Organization; rather, they must file the Application for Certificate of Authority.
All foreign business entities are required to foreign qualify in South Dakota, or they could incur some pretty severe penalties. Avoid them by submitting an Application for Certificate of Authority online or by mail. This form is quite a bit more expensive than the Articles of Organization: $750 for online submissions and $765 for paper ones. Fortunately, this is also a one-time filing, so you’ll only need to pay the fee once.
LLC Annual Fees
All of the previously mentioned fees have been startup costs that you’ll only need to pay once. But LLCs have maintenance fees too, namely the annual report. After starting your business, you will need to file an annual report before the LLC’s anniversary date each year. This is to ensure that the Secretary of State can keep its records current and accurate. Filing online will cost you $50 and on paper, it’s $65. You should plan this payment into your yearly budget.
The information required to file your annual report includes your business ID number, your LLC’s official business name, your LLC’s principal business address, the name and address of your noncommercial registered agent or the name and CRA number of your commercial registered agent, the names and addresses of your LLC’s managers (if applicable), the date, your name, and your signature.
For more info on annual reports for South Dakota LLCs, check out our full article on this topic!
Income taxes are simple for South Dakota LLCs — they don’t apply. The federal government considers LLCs “pass-through” entities, which means the individual owners/members report income and losses on their personal tax returns, although South Dakota doesn’t have corporate or personal income taxes. Nor does the state impose a “franchise” or “privilege tax on its businesses.
But this doesn’t mean that your LLC is completely off the hook. There are certain circumstances under which the company will be required to pay taxes. If it sells merchandise, it will owe a Sales and Use Tax and need to register. Or, if it maintains employees, it will owe an Unemployment Insurance Tax. For more information visit the Department of Revenue website.
What if I Don’t Pay?
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Looking at all these fees, you might be thinking: how can I pay less? While you might be tempted to look for loopholes or find a way around them, this could cause you bigger problems in the future.
If you don’t file your formation documents — the Articles of Organization or Application for Certificate of Authority — you won’t be allowed to do business in the state. Miss an annual report and you will incur a $50 late fee; plus your business will be labeled “delinquent.” Delinquent companies cannot foreign qualify in most other states, apply for business loans, renew some professional licenses, and more. On top of that, if your LLC remains delinquent for too long, it will be administratively dissolved.
Delinquent tax payments also come with penalties. The late fee for a Sales Tax payment is 10% of the total amount owed, plus 1% interest per month. The Unemployment Insurance Tax carries a late payment penalty of $25 per month and a late filing penalty of $25 per month.
Planning Your Expenses
By now, your budget spreadsheet might be looking a little crowded, but have no fear! Most of these are one-time fees that you won’t have to worry about again. Plus, with all these on the books, there won’t be any surprise costs when you register an LLC in South Dakota.
Soon, you’ll have these fees behind you and you’ll be forging ahead, growing your business and earning profits. As you do, make sure to keep up with the few recurring fees — like annual reports and business taxes — so your business doesn’t fall out of good standing.
Key Steps for Starting a South Dakota LLC
- The first step to forming a South Dakota LLC is to come up with a good name for your business. You’ll want to make sure the name you want is still available and hasn’t already been claimed by another business, so you’ll need to search the state’s business database to verify its availability.
- Next, you’ll need to choose your registered agent. While you can legally serve as your own registered agent in South Dakota, this role can actually be more of a hassle than you might expect. That’s why we always recommend hiring a reputable registered agent service that can handle the responsibility of this position on your behalf.
- The third step involves the preparation and filing of your Articles of Organization. You’ll need to fill out the paperwork and pay a $150 fee. Once the state processes this document, your LLC will be officially open for business!
- That’s not the end of the road for the startup process though, as you’ll also need to create an operating agreement for your LLC. There is no legal requirement for South Dakota LLCs to have written operating agreements, but it’s still an extremely important element of any LLC. The operating agreement is an internal document that outlines how your LLC will operate, and there are several aspects of this document that can prevent messy ownership disputes down the line.
- You will also need to acquire a federal tax ID number (also known as an EIN, or employer identification number). This is essentially a Social Security number for your business, as it is a nine-digit code used to file taxes, hire employees, open business banking accounts, and more.
- Next, you’ll need to register for any relevant taxes with the South Dakota Department of Revenue, and also obtain all licenses and permits that apply to your business type. Keep in mind that, depending on the nature of your business, you might require licenses from the federal, state, county, and municipal governments.
Once you’ve finished all of these steps, you’re ready to operate a compliant business entity with the state of South Dakota!
Key Steps for Maintaining a South Dakota LLC
After you’ve completed all of the items in the previous section, you’ll need to focus on maintaining your LLC. The first step in this process is to open a business bank account. This will help you keep your business and personal expenses entirely separate, and it will also help immensely with your accounting and taxation responsibilities.
You should also keep detailed records of every financial transaction that takes place with your LLC. This means maintaining a file of invoices for every purchase and sale you make, along with information regarding your employees or contractors and the work they perform for your business.
As we already mentioned, annual reports are a key component of LLC maintenance in this state, and there are harsh financial penalties for delinquent reports. Additionally, you might want to hold an annual meeting to discuss goals and priorities for your LLC, although this is an optional step.
Frequently Asked Questions
Before we wrap things up, let’s take a look at some of the most common questions we hear from readers regarding the LLC formation process in South Dakota.
What are the state business tax rates in South Dakota?
South Dakota does not have personal or corporate income taxes. Therefore, it doesn’t matter if your LLC is set up to be taxed as a sole proprietorship/general partnership or as a corporation. Either way, you have no income tax obligations in this state.
How quickly does South Dakota process LLC formations?
The Secretary of State should be able to process your LLC’s formation immediately if you file online. Meanwhile, paper filings take 3-5 business days.
How many small businesses are there in South Dakota today?
The state of South Dakota is home to nearly 90,000 small businesses. Entrepreneurs of all backgrounds and business types find that South Dakota is a great place to own and operate a small business.
What are the top small business resources and websites in South Dakota?
The South Dakota chapter of the Small Business Development Center is a great place to start, as they offer a wide variety of tools and resources for South Dakota LLCs. The U.S. Small Business Administration’s South Dakota District Office is another valuable resource, and the state’s Office of Economic Development also has plenty of good info.
Should I form my LLC in South Dakota, or choose a state like Delaware or Wyoming?
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.
Cost to Start an LLC in All 50 States
We break down the LLC costs in detail in all 50 states. View all of our State LLC Costs guides below.