How to Start a South Dakota Corporation

When you plan to start a business in South Dakota, you must decide on the appropriate structure. Starting a corporation may be more complicated than creating an LLC in South Dakota or a sole proprietorship. However, it is not that difficult as well. There are a few guidelines that you should be aware of when it comes to creating South Dakota corporation. Starting a corporation involves a legal process, that is, the process of incorporation.

In this article, I will share a step-by-step guide to start a corporation in South Dakota. I will also enlighten you on the advantages and disadvantages of having a corporation. Some people consider starting a corporation in South Dakota more than other business structures since it has many advantages over other forms.

What is a Corporation in South Dakota

In definition, a corporation is a formal organization established by stockholders, shareholders, or other people to make a profit. Like individuals, corporations can undertake contracts, own assets, sue and be sued, pay taxes, limit state and federal taxes, and loan funds from banking institutions.

Common Types of Corporations

Before you start with the process of forming a corporation, you should know what type of corporation you will form. There are several different forms of corporations you can take into consideration, depending on your corporation’s objectives and ownership structure.

C-Corporation: C-Corporation is the most known type of incorporation. They have almost all corporate distinguishing characteristics. Profits are distributed to corporate owners who are taxed at an individual level. The corporation is taxed similarly to a business unit.

S-Corporation: An S-Corporation is set up similarly to a C-corporation but has different tax implications and owner limits. S-corps have no more than 100 stockholders and are not taxed separately. These business units must also file paperwork with the Internal Revenue Service (IRS) to obtain their status.

Non-profit Corporation: Nonprofit businesses are frequently used by religious, educational, and charity institutions to run their operations without making a profit. Thus, a nonprofit corporation is exempt from paying taxes. The nonprofit organization’s gifts, contributions, or cash are reinvested in the company to fund its growth, future endeavors, or operations. Read how to start a nonprofit corp in South Dakota to learn about nonprofit corporations.

If you have a small business, it is recommended that you form an LLC instead of a corporation in South Dakota. LLCs have more tax benefits than other structures. Besides, LLCs protect your personal assets. However, it is wise to consult a legal expert before you start setting up your business in South Dakota.
– LLCBuddy Editorial Team

How to Start a Corporation in South Dakota

To start a corporation in South Dakota, you must follow the below steps that, include forming a corporation name, appointing a board of directors, filing for Articles of Incorporation, drafting corporate bylaws, meeting with the board of directors, issuing stocks, creating a shareholders agreement, requesting for an EIN, and getting a license and permit. All these steps are basic ones. It can be changed depending on the type of corporation you form and the nature of your business.

Step 1: Choose a Corporation Name in South Dakota

Naming your business is one of the most crucial activities during the startup phase. Your corporation name serves as the foundation for your brand. Legal procedures should be taken into account when choosing your corporation name. Choose a corporation name that will enable you to develop a strong brand identity without being hampered by irrelevant factors.

If you are forming an LLC, there is a complete guide on South Dakota LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your corporation in South Dakota-

Your business name must contain entity identifiers, such as “Incorporated,” “Limited,” “Corporation,” or “Company,” or an abbreviation, such as “Inc.,” “Co.,” or “Ltd.”
Exclude any words in your business name, such as “Trust,” “Bank,” “Credit Union,” or “Trustee,” or words related to a government agency, such as “FBI,” “State Department,” or “Treasury.”

Step 2: Board of Directors Initial Appointment

To form a corporation in South Dakota, you must appoint an initial board of directors before making them permanent once the corporation is formed. In South Dakota, you may appoint at least Three board of directors. The initial board of directors is in charge of guiding the overall strategy of your business. The structure, responsibilities, and powers given to a board of directors are determined by the bylaws of a company or organization. So, appointing your corporation’s initial board of directors in South Dakota is a big step in forming a corporation.

Step 3: Filing the Articles of Incorporation in South Dakota

After you appoint the initial board of directors in your South Dakota corporation, the next step is to write and file a Articles of Incorporation. In writing, the South Dakota Articles of Incorporation, the corporation name, principal place of business, the purpose of business, South Dakota Registered Agent contact information, and the names and addresses of incorporators and/or initial board members, should be written.

Filing a Articles of Incorporation in South Dakota may be done with two methods, online and by mail. The Articles of Incorporation fee may vary from different states. However, in South Dakota, it costs $150 for online filing, and $165 for filing by mail..

Online Filing: Create an account/Log in to the SOS site, get the online form, fill it, and submit online
Offline filing: Send the form by mail to Secretary of State Office, 500 E Capitol Ave, Pierre, SD 57501

Step 4: Draft Corporate Bylaws

Now you are done filing a Articles of Incorporation in South Dakota, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made-

The responsibilities are given to each officer.
How will judgments in business be made?
Where and when are the annual shareholder meetings?
The minimum number of shareholders required for decision-making.
Location and timing of dividend payments.

Step 5: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 6: Issuing Stock in a Corporation

After starting your South Dakota corporation, one of the first official corporate actions is issuing stock to the shareholders. Keep track of the number of shares issued to each shareholder and the purchase price. A corporation in South Dakota is managed by its shareholders, who contribute to the business in exchange for ownership shares.

Step 7: Draft and Finalize a Shareholders Agreement

Even though drafting and finalizing a shareholders agreement is unnecessary, I suggest you still comply since it will benefit your corporation and its shareholders. A small business’s shareholders enter into a shareholder agreement contract. It establishes how ownership will be handled in unexpected situations, like a shareholder passes away, retires, becomes disabled, or quits the corporation. Early on in the life of your South Dakota corporation, signing a shareholders’ agreement can help maintain corporate continuity and prevent future disputes.

Step 8: Request an EIN in South Dakota

After everything is in place, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your South Dakota corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in South Dakota can be through the following:

Apply Online- The EIN online application is the preferred method for customers to apply for and obtain an EIN.
Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
Apply by Mail- The EIN application For m SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 9: Get Licenses and Permits for your Corporation in South Dakota

Before your corporation operates in South Dakota, you must have a business license. A business license is a document issued by a government agency that permits you to operate your business in the geographic region that that agency governs. To legally operate your corporation, you’ll need a business license. Numerous corporate licenses need to be filed and renewed regularly. Check out how to get business licenses and permits in South Dakota to know more.

You must also register a DBA name if you intend to conduct business using a name other than your corporation’s legal name. The DBA name is sometimes known as “doing business as” or a “fictitious business name.” Depending on your location, you may need to register the DBA with your state, city, and county. You can skip this step if your business solely uses your legal company name.

Important Information

Paying your Taxes in South Dakota

Even if you have established your corporation in South Dakota, pay your taxes and keep everything up to date so you won’t pay any penalty. Unlike an LLC, there is a corporate tax that every corporation in South Dakota has to pay. On the other hand, they must pay income taxes based on their business income. Some other types of taxes in South Dakota are sales tax, franchise tax (not applicable to all the states), and other state taxes.

Cost of Forming a Corporation in South Dakota

A filing and annual fee must be paid to form a corporation in South Dakota. Without it, your corporation won’t operate. The initial filing fee for a corporation may vary depending on the state. However, in South Dakota, it costs $150 for online filing, and $165 for filing by mail.. The corporation in South Dakota also has to file an annual report (though it might not be mandatory, it is recommended to file one). Ensure you comply with all the necessary fees and costs so your corporation will run successfully and smoothly. If, in the future, you make any changes to your corporation, you must file the South Dakota Amendment. It costs $60 to file an amendment in South Dakota.

Advantages of Starting a Corporation in South Dakota

Limited Liability: The biggest advantage of setting up a South Dakota corporation is that the shareholders are not personally responsible for the debts of the company. As a result, when you incorporate as a corporation, personal assets like homes, vehicles, and other possessions are prohibited. One of the main benefits of setting up a corporation over a general partnership or sole proprietorship business structure is that neither the business nor the owners are held legally responsible for the obligations of the business, even if it means giving up their personal assets.

Limitless Corporation: The fact that a corporation’s existence is independent of its owners is another significant benefit of incorporation. In other words, a corporation has an endless life and will continue operating normally even if the owner dies or decides to sell their ownership.

Advantages in Tax: The deduction of health insurance premium payments made on behalf of an owner-employee is one of the many financial benefits to which corporations are entitled. Corporations also save on self-employment taxes since their revenue is not subject to workers’ compensation, Social Security, or medical taxes. Tax rates on corporate profits are lower than those on individual income.

FAQs

How do I form a corporation in South Dakota?

The process of forming a corporation in South Dakota involves filing Articles of Incorporation with the Secretary of State and paying the applicable filing fees. Additionally, you may need to obtain a state business license and register with the Department of Revenue.

What are the filing fees to form a corporation in South Dakota?

The filing fee for Articles of Incorporation is $100. Additionally, you may need to pay fees for obtaining a state business license and registering with the Department of Revenue.

What is the corporate income tax rate in South Dakota?

The corporate income tax rate in South Dakota is 4.5%.

What is the minimum capital requirement for forming a corporation in South Dakota?

There is no minimum capital requirement for forming a corporation in South Dakota.

Does South Dakota offer corporate tax incentives?

Yes, South Dakota offers a variety of corporate tax incentives for businesses, including tax credits and deductions for certain types of businesses.

Does South Dakota require corporations to hold annual meetings?

Yes, South Dakota requires corporations to hold annual meetings of shareholders, directors, and officers.

What types of corporate governance are allowed in South Dakota?

South Dakota allows corporations to choose between board-managed and shareholder-managed governance structures.

How is a corporation dissolved in South Dakota?

A corporation in South Dakota is dissolved by filing Articles of Dissolution with the Secretary of State and paying the applicable filing fees.

What are the filing fees for dissolution of a corporation in South Dakota?

The filing fee for Articles of Dissolution is $10.

What are the benefits of forming a corporation in South Dakota?

South Dakota offers several distinct benefits in terms of taxation, corporate law, and privacy. South Dakota has no corporate income tax, no shareholder income tax, and no franchise tax. It also has flexible corporate law, including no minimum capital requirements and no statutory limit on the number of shareholders a corporation can have. In addition, South Dakota provides greater corporate privacy than most other states and bans the public disclosure of certain corporate records.

Is there a minimum capital requirement to form a corporation in South Dakota?

No, there is no minimum capital requirement to form a corporation in South Dakota.

Is there a statutory limit on the number of shareholders a corporation can have in South Dakota?

No, there is no statutory limit on the number of shareholders a corporation can have in South Dakota.

Does South Dakota provide greater corporate privacy than most other states?

Yes, South Dakota provides greater corporate privacy than most other states, and bans the public disclosure of certain corporate records.

What are the filing fees for incorporating in South Dakota?

The filing fee for incorporating in South Dakota is $150.

What is the process for forming a corporation in South Dakota?

The process for forming a corporation in South Dakota involves filing the Articles of Incorporation with the Secretary of State, obtaining a federal employer identification number, obtaining any necessary licenses or permits, and drafting corporate bylaws.

Is a registered agent required to form a corporation in South Dakota?

Yes, a registered agent is required to form a corporation in South Dakota. The registered agent is responsible for receiving important legal documents, such as service of process, on behalf of the corporation.

Does South Dakota have any special requirements for corporate names?

Yes, South Dakota requires that corporate names be distinguishable from other registered business entities in the state, and that they include a corporate designator such as “Corporation” or “Incorporated.”

What is the duration of a corporation in South Dakota?

The duration of a corporation in South Dakota is perpetual, unless the Articles of Incorporation provide otherwise.

Are corporate records required to be maintained in South Dakota?

Yes, corporate records must be maintained in South Dakota, including minutes of shareholders’ and directors’ meetings, annual reports, and financial statements.

Are shareholders’ meetings required to be held in South Dakota?

Yes, shareholders’ meetings must be held in South Dakota at least once a year.

Does South Dakota have any special requirements for directors?

Yes, South Dakota requires that directors be at least 18 years old, and be a resident of the state or a corporation authorized to do business in the state.

What is the liability of directors and officers in South Dakota?

Directors and officers are protected from personal liability in South Dakota, unless they are found to have acted with gross negligence or in bad faith.

Does South Dakota allow for close corporations?

Yes, South Dakota allows for close corporations, which are corporations with a limited number of shareholders who are actively involved in the management of the corporation.

Does South Dakota allow for the formation of nonprofit corporations?

Yes, South Dakota allows for the formation of nonprofit corporations, which are corporations organized for charitable, educational, religious, scientific, or other public purposes.

Does South Dakota allow for the formation of foreign corporations?

Yes, South Dakota allows for the formation of foreign corporations, which are corporations formed in another state or country and registered to do business in South Dakota.

Does South Dakota allow for the formation of professional corporations?

Yes, South Dakota allows for the formation of professional corporations, which are corporations formed to provide professional services, such as law, medicine, accounting, or engineering.

Does South Dakota allow for mergers and acquisitions of corporations?

Yes, South Dakota allows for mergers and acquisitions of corporations, which involve the combining of two or more corporations into a single entity.

Does South Dakota allow for the conversion of a corporation into a limited liability company (LLC)?

Yes, South Dakota allows for the conversion of a corporation into a limited liability company (LLC).

Does South Dakota allow for the dissolution of a corporation?

Yes, South Dakota allows for the dissolution of a corporation, which involves the termination of the corporation’s legal existence.

Does South Dakota allow for the transfer of a corporation’s assets?

Yes, South Dakota allows for the transfer of a corporation’s assets, which involve the transfer of ownership of the corporation’s assets from one entity to another.

Does South Dakota allow for the sale of a corporation’s stock?

Yes, South Dakota allows for the sale of a corporation’s stock, which involves the sale of the corporation’s ownership interests to another entity.

What are the annual reporting requirements for corporations in South Dakota?

Corporations in South Dakota must file an annual report with the Secretary of State every year. The annual report must include information such as the corporation’s name and address, the names and addresses of its officers and directors, and any changes to the corporation’s structure.

Does South Dakota have any other requirements for corporations?

Yes, South Dakota has other requirements for corporations, such as the filing of a biennial report and the payment of franchise taxes.

Why South Dakota Corporation is So Important

One of the primary reasons why South Dakota Corporations are crucial is their ability to generate revenue for the state. By operating businesses within the state, these corporations contribute significantly to the economy through taxes and other financial contributions. This revenue helps fund essential services like education, healthcare, infrastructure, and public safety, ultimately benefiting the entire community.

Furthermore, South Dakota corporations are instrumental in creating job opportunities for residents of the state. By establishing businesses and expanding operations, these corporations provide employment to a diverse workforce, helping to reduce unemployment rates and improve the overall quality of life for South Dakotans. Additionally, many corporations offer competitive salaries, benefits, and opportunities for advancement, making them attractive employers for local talent.

In addition to their economic impact, South Dakota corporations also play a critical role in driving innovation. Through research and development initiatives, partnerships with universities, and investments in emerging technologies, these corporations help to push the boundaries of what is possible. This commitment to innovation not only benefits the corporations themselves but also contributes to advancements in various industries, spurring growth and progress on a larger scale.

Moreover, South Dakota corporations often engage in corporate social responsibility initiatives that have a positive impact on the community. From supporting local charities and nonprofits to promoting environmental sustainability and ethical business practices, these corporations show a commitment to making a difference beyond their bottom line. By giving back to the community and taking a stand on important social issues, they demonstrate that they are invested in the well-being of their employees, customers, and the region as a whole.

Lastly, South Dakota corporations also play a crucial role in attracting investment and talent to the state. By cultivating a business-friendly environment, offering incentives for startups and established companies, and fostering a culture of entrepreneurship and innovation, these corporations help to position South Dakota as a desirable destination for business leaders and professionals. This results in increased economic activity, job opportunities, and overall prosperity for the state.

In conclusion, the South Dakota Corporation is an indispensable driving force in the state’s economy and society. Through their contributions to revenue generation, job creation, innovation, corporate social responsibility, and investment attraction, these corporations help to fuel growth and progress in South Dakota. As such, it is essential to recognize and support the critical role that they play and to continue to foster an environment where they can thrive and make a meaningful impact.

Conclusion

When determining which corporate form is best for you, be selective. You must know which business structure is bet-fitted for your product/service in South Dakota. Consult a legal professional before you take the first step while setting up your business. Finding the ideal ratio of corporate advantages and legal protection that meets your unique needs is very important. In forming a corporation in South Dakota, you need to ensure that every detail is well-formed so that your corporation will be successful. And if you have any questions, share them in the comment section below.