Starting a Business in South Dakota: LLC or Corporation

To start a business in South Dakota, LLC or Corporation, you must complete three steps: appoint a Registered Agent, choose the company name, and file the Articles of Incorporation with the Secretary of State.

One of the significant benefits of having a business in SD is that there is no corporate income tax in South Dakota, just like in Wyoming for example, and there are also no taxes on personal income. In other words, South Dakota has neither corporate nor personal income taxes. This makes South Dakota an optimal state for starting businesses whose income comes from intangible activities such as consulting, web services, digital marketing, cloud services, and, under certain conditions, even for companies selling online [depending on where the server is located, where orders are shipped from, and how the business is structured].

In South Dakota, there is also no Franchise Tax, making it one of the most tax-friendly states in the United States.

The Articles of Incorporation for starting a business in South Dakota must contain the following information:

• Full name of the company including the designation [LLC, Corp, Inc, Ltd, etc.]
• Statement of the company's purpose: This information is optional. Companies formed under the South Dakota Business Corporation Act automatically have the general purpose of "conducting any lawful business." However, the purpose of the company can be limited with a more specific description of activities (such as "real estate management," for example)
• Number of shares for which authorization is requested [the number of authorized shares can, and usually does, differ from the number of shares that will be issued]
• Address of the company's main office. Including an email address is optional
• Name and address of the Registered Agent
• Name and address of the Incorporator, i.e., the person who signs and proceeds with filing the Articles of Incorporation. The Incorporator does not necessarily have to be a director, an officer, or a shareholder of the company but simply a person authorized to submit the Articles of Incorporation to the Secretary of State
• Optional provisions: Only if necessary, such as the request for authorization to issue additional classes of shares

Initial management steps for companies started in South Dakota

After starting the company, you will then need to:

• Apply for an EIN (Employer Identification Number) and
• Draft the Bylaws (the company's statutes)

Following this, it's necessary to call the first Shareholders' Meeting to elect the Directors and hold the first Board Meeting to:

• Elect the company's Officers [in the case of Corporations] such as President, Treasurer, Secretary, and possibly one or more Vice Presidents
• Decide the number and type of shares to issue
• Set the issuance price of the shares
• Ratify the actions of the Incorporator
• Adopt the Bylaws
• Give a mandate to open the company's bank account.

Annual Administrative Report for companies established in South Dakota

Companies in South Dakota must file an annual report on the first day of the anniversary month of their incorporation. For example, if the company was opened on April 13, the annual report must be filed before April 1 of the following year. If it is not filed on time, a penalty of $50 is applied, and the company loses its good standing.

The state Sales Tax rate in South Dakota is 4.5%, to which a local additional tax may be added, with a maximum rate of 4.5%. In 2023, the average sales tax rate in South Dakota was 6.4%.

If a company has a physical presence in South Dakota, it is necessary to register with the South Dakota Department of Revenue and apply for a South Dakota tax license. Even without a physical presence, registration is required if the company makes more than $100,000 in gross revenue from sales in the state or more than 200 transactions for sales delivered within the state.

A Brief Overview of South Dakota's Economy

In 2023, South Dakota's Gross Domestic Product (GDP) reached $50.5 billion, with a total growth of 13.7% over the past five years.

In 2023, South Dakota had a population of 925,245 people, with an average annual growth rate of 1.0% over the past five years, ranking it 15th in population growth among all U.S. states.

The number of employed people in South Dakota was 508,688 in 2023, with an average annual growth of 1.0% compared to 2022. The three main sectors for total employment are Finance and Insurance, Healthcare, and Real Estate.

The unemployment rate in South Dakota was 2% in 2023.