How to Transfer LLC Ownership in South Dakota


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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Transfer LLC ownership in South Dakota

Transferring ownership of a Limited Liability Company (LLC) in South Dakota is a relatively simple and straightforward process involving minimal paperwork. Establishing an LLC in South Dakota is less complicated than other business structures like corporations or partnerships, making it easier to transfer ownership. You can partially or fully transfer your LLC ownership by following a few simple steps. However, it is recommended to consult a legal expert to address any potential complexities that may arise in the future.

When setting up an LLC in South Dakota, also referred to as The Mount Rushmore State, it is crucial to follow several essential steps. One of these steps includes creating an Operating Agreement, a document that allows owners to transfer their shares to third parties or other LLC members. In this article, we will provide a comprehensive guide on how to transfer LLC ownership in South Dakota. Be sure to read the entire article to learn more about buying and selling your LLC ownership.

What is an LLC and its Ownership Structure in South Dakota

A Limited Liability Company (LLC) is a popular business structure in the United States, combining the advantages of both corporations and partnerships. In South Dakota, an LLC is characterized by a flexible ownership structure that allows for easier management and limited liability protection for its owners, also known as members.

An LLC in South Dakota is a separate legal entity from its owners, which means the owners are not personally liable for the company’s debts or legal obligations. The ownership structure of an LLC in South Dakota is determined by the percentage of ownership interests held by each member. These ownership interests can be distributed in any way the members see fit and are typically outlined in the Operating Agreement.

There is no maximum limit on the number of members an LLC in South Dakota can have, and the members can be individuals, other LLCs, corporations, or even foreign entities. This flexibility allows for a wide range of business structures, from single-member LLCs to large, multi-member LLCs with complex ownership arrangements.

Understanding the LLC Ownership Transfer in South Dakota

When an LLC member decides to step down from the owner’s position, they must transfer the ownership to someone else. It can be other existing members of the LLC or a third party. Transferring LLC ownership in South Dakota is a common yet complex deed. LLC owners, who want to transfer their ownership, must follow some steps to do the task. Before we dig deeper into the steps and details of transferring LLC ownership, let’s look at the reasons why LLC ownership takes place.

Why Transfer LLC Ownership in South Dakota

There can be several reasons why the transfer of LLC ownership in South Dakota takes place in any organization. Some of the most common reasons include the following-

  1. Death of the LLC owner
  2. Separation or Divorce of the LLC Owners
  3. LLC owners do not wish to continue their association with the organization
  4. LLC owners want to appoint a new member (owner)
  5. LLC owners want to sell the business off to someone else

These are some of the common reasons why an LLC ownership gets transferred in South Dakota. Transferring LLC ownership requires a comprehensive operating agreement. This is an internal document every LLC should have at the time of formation.

The Role of South Dakota Operating Agreement in LLC Ownership Transfer

Creating an Operating Agreement in South Dakota is one of the major steps in forming a limited liability company (LLC). However, many states do not require to have an Operating Agreement. California, New York, Delaware, Maine, Nebraska, and Missouri are the states where an LLC operating agreement is mandatory.

Even when your state does not necessarily need you to file the operating agreement, it is recommended that you should have it to avoid any internal disagreements or issues in the future.

LLCBuddy Editorial Team

An operating agreement is an internal document explaining all the procedures, including ownership transfer, dissolution, LLC operation, members, and other LLC-related processes. Operations, such as dissolution and ownership transfer, occur based on those written regulations.

If there is no South Dakota Operating Agreement or it does not have clear ownership transfer or buy-sell agreement provisions, the transfer takes place based on South Dakota state law.

What to Include in South Dakota Operating Agreement

This official document outlines the company’s structure, the members’ details, the dissolution process, and a lot more. Hence, it is always wise to have one to avoid any confusion in the future, whether your state needs it or not. The LLC operating agreement should have the following points-

If your operating agreement explains all the above points, you must follow it for the ownership transfer.

How Does South Dakota LLC Buy-Sell Agreement Work?

In South Dakota, the buy-sell agreement is a part of your operating agreement. It explains the instructions for buying and selling the LLC ownership. For example, who can be the member of South Dakota LLC, how will buy out and sell of the LLC be determined, whether the members of the LLC in South Dakota will buy the shares of the leaving owner, and how – these are the points you have in the buy-sell agreement.

Buy Out South Dakota LLC or Partial Transfer: In this case, the members of the LLC generally buy the shares of the owner who is leaving. As the LLC buys the owner’s interests, the shares get divided equally among the remaining South Dakota LLC members. LLC members must approve the transfer, and then the Operating Agreement (OA) will be updated to exclude the departed owner.

If your South Dakota operating agreement does not specify these terms beforehand, you must follow South Dakota state LLC law. In some states, ownership transfer does not simply take place. Instead, they have to dissolve the LLC to continue with the process. So, while you’re forming an South Dakota LLC, make sure to create a buy-sell agreement beforehand.

Sell a South Dakota LLC Or Fully Transfer: Selling an LLC or Fully Transferring the ownership is a bit more complicated than the buy-out process. In this condition, owners have the independent legal right to sell the interest to any third party. They do not need other members’ approval for this. The negotiation between the buyer and the seller involves complexities if there is no operating agreement in the first place. As an owner, you must find a buyer, write the change of ownership letter, set out other formalities, and voila! Your ownership transfer is done. The parties will settle the sale contract, including the LLC price, following South Dakota state laws.

How to Transfer South Dakota LLC Ownership

You need to follow a few simple steps to transfer ownership of your LLC in South Dakota. As mentioned, you must review the operating agreement first to get everything in the same space. Here are the following steps-

Step 1: Review Your South Dakota LLC Operating Agreement

Many states do not need to file the operating agreement. Hence, it is not mandatory for any LLC to have it while forming an LLC. If your LLC has no operating agreement, you must draft one while transferring the LLC ownership. On the other hand, if you already have an operating agreement, you must review it for the ownership transfer conditions and other legal requirements regarding the buy-out and sale of the LLC.

Step 2: Amend the South Dakota Articles of Organization

Changing/transferring ownership might lead to structural change at the managerial level. In that case, the LLCs must comply with the South Dakota Secretary of State. To do so, one must file the South Dakota Articles of Organization amendment. Specifically in Texas, LLCs must submit a Public Information Report annually to the Texas Comptroller of Public Accounts. The managerial changes will be explained there.

As soon as the ownership transfer negotiation is done and the agreement is made with the updated change of ownership, file it with the Secretary of State. For that, you must amend the Articles of Organization and get the Amended Articles of Organization. Make the changes to the existing Articles of Organization, get the amendment form, and submit it to the South Dakota SOS along with other documents and the filing fee. Read how to amend South Dakota Articles of Organization in a simple way.

Step 3: Spread the News

Once the legal formalities are done, and the ownership of your LLC is transferred officially in South Dakota, you must spread the word to the clients, partners, and other concerned people. Also, banks and other financial institutions should be notified about the ownership change. Business entities, vendors, and other officials you work with should also be notified.

Step 4: Obtain a New EIN (optional)

You might need to apply for a new EIN based on the LLC ownership transfer. After officially transferring ownership, you must check with the IRS whether you need a new EIN. There is a formal form to notify IRS about the LLC ownership transfer. Get the form from their website, enter the details, and submit it. You will get notified whether you need to apply for a new EIN.

Reasons to Transfer South Dakota LLC Ownership

There can be many issues that lead to ownership transfer. One of the most common issues is the death of the owner. There can be other issues where transfer of ownership occurs. Here are some issues to consider,

Divorce Or End of Marriage: In some cases, according to the divorce decree, the ownership transfers to the spouse. If the LLC in South Dakota has an operating agreement and the ownership transfer condition is specified, then the LLC must follow the South Dakota operating agreement to proceed.

Death of a Member: This is the most common issue in LLCs. In South Dakota, if a member dies, the ownership, by default, transfers to the legal heirs of the deceased person. However, in this case, the legal heirs (wife/husband/kids) do not get any managerial power or authority. They continue enjoying the benefits, such as a share of the profit and others. But they won’t get any other power in the company. In such situations, other members of the South Dakota LLC often buy out the deceased’s interests.

Dissolution of South Dakota LLC: If any member/owner plans to leave the company, the LLC gets dissolved and reformed with the new policy and operating agreement. The members and managers make this sort of decision at the time of the creation of the operating agreement.

FAQs

What is a South Dakota LLC?
A South Dakota LLC is a type of business entity that is organized under the laws of the state of South Dakota. It provides limited liability protection for the owners and is relatively simple to form and operate.
What are the benefits of forming a South Dakota LLC?
South Dakota LLCs provide business owners with several advantages, including limited liability protection, tax benefits, and flexible management.
What is required to form a South Dakota LLC?
To form a South Dakota LLC, you must file a Certificate of Organization with the South Dakota Secretary of State and pay a filing fee. You must also create an operating agreement and appoint a registered agent.
What is a registered agent in South Dakota?
A registered agent is a person or business entity designated to receive official documents and other legal notifications on behalf of the South Dakota LLC.
What is an operating agreement for a South Dakota LLC?
An operating agreement is a legal document that outlines the rules and regulations for operating the South Dakota LLC. It is a binding contract between the members and describes the ownership structure, management, and other matters related to the business.
What are the fees for forming a South Dakota LLC?
The filing fee for forming a South Dakota LLC is $150. Additionally, a $5 fee is required for the registered agent.
What is the process for transferring ownership of a South Dakota LLC?
The process for transferring ownership of a South Dakota LLC involves the current owner transferring their interest in the LLC to the new owner. This is typically done through a written agreement and must be recorded with the South Dakota Secretary of State.
What documents are required to transfer ownership of a South Dakota LLC?
The documents required to transfer ownership of a South Dakota LLC include a written agreement between the current and new owner and a Certificate of Assignment, which must be filed with the South Dakota Secretary of State.
How long does it take to transfer ownership of a South Dakota LLC?
The process for transferring ownership of a South Dakota LLC typically takes around 2-3 weeks, depending on the complexity of the transfer.
Is a South Dakota LLC transfer taxable?
Generally, the transfer of ownership in a South Dakota LLC is not taxable. However, other taxes may apply depending on the situation.
How does a South Dakota LLC transfer affect the operating agreement?
The transfer of ownership in a South Dakota LLC may affect the operating agreement, as the new owner may have different rights and responsibilities under the agreement. As such, the operating agreement should be reviewed and amended as necessary.
Does a South Dakota LLC transfer require approval from other members?
Generally, a South Dakota LLC transfer does not require approval from other members. However, the operating agreement may include provisions that require approval.
What steps must be taken to ensure the transfer of ownership in a South Dakota LLC is valid?
To ensure the transfer of ownership in a South Dakota LLC is valid, the current owner must sign a written agreement transferring their interest in the LLC to the new owner. This must then be filed with the South Dakota Secretary of State.
Does a South Dakota LLC transfer need to be recorded with the Secretary of State?
Yes, a South Dakota LLC transfer must be recorded with the South Dakota Secretary of State in order to be valid.
Can a South Dakota LLC transfer be done electronically?
Yes, a South Dakota LLC transfer can be completed electronically. The documents can be filed online with the South Dakota Secretary of State.
Can a South Dakota LLC transfer be done without a lawyer?
Yes, a South Dakota LLC transfer can be done without the assistance of a lawyer. However, it is important to make sure all documents are properly completed and filed in order for the transfer to be valid.
How can I find out more about transferring ownership of a South Dakota LLC?
You can find more information about transferring ownership of a South Dakota LLC by visiting the website of the South Dakota Secretary of State or consulting with a business attorney.
What is a Certificate of Assignment?
A Certificate of Assignment is a document that must be filed with the South Dakota Secretary of State in order to transfer ownership of a South Dakota LLC.
What information is required on a Certificate of Assignment?
The Certificate of Assignment requires the name of the LLC, the name of the current and new owner, the date of the transfer, and the effective date of the transfer.
Is a South Dakota LLC transfer public record?
Yes, the transfer of ownership in a South Dakota LLC is a public record and can be accessed through the South Dakota Secretary of State website.
What is the cost to transfer ownership of a South Dakota LLC?
The cost to transfer ownership of a South Dakota LLC is $50.
Does a South Dakota LLC transfer require a new operating agreement?
Generally, a South Dakota LLC transfer does not require a new operating agreement. However, the existing operating agreement may need to be amended to reflect the new ownership structure.
What happens if the transfer of ownership in a South Dakota LLC is not recorded?
If the transfer of ownership in a South Dakota LLC is not recorded with the South Dakota Secretary of State, the transfer may be considered invalid.
What is the difference between a transfer of ownership and a change in management?
A transfer of ownership involves the transfer of ownership interests in the South Dakota LLC between two parties, while a change in management involves replacing the existing manager of the LLC with a new manager.
Can a South Dakota LLC transfer ownership to a foreign entity?
Yes, a South Dakota LLC can transfer ownership to a foreign entity. However, additional documents may be required in order to complete the transfer.
What are the tax implications of transferring ownership of a South Dakota LLC?
Generally, the transfer of ownership in a South Dakota LLC is not taxable. However, other taxes may apply depending on the situation.
Is there a time limit for transferring ownership of a South Dakota LLC?
No, there is no time limit for transferring ownership of a South Dakota LLC. However, the transfer must be recorded with the South Dakota Secretary of State in order for it to be valid.
What are the steps for transferring South Dakota LLC ownership?
The process for transferring South Dakota LLC ownership involves filing an Articles of Amendment with the Secretary of State and paying the associated filing fee. The Articles of Amendment must be signed by the current members of the LLC and must include the new members’ names and addresses. Additionally, the new members are required to provide a written consent to their acceptance of the membership in the LLC.
How do I transfer South Dakota LLC ownership to a new member?
To transfer South Dakota LLC ownership to a new member, the current members must file an Articles of Amendment with the Secretary of State and pay the associated filing fee. The Articles of Amendment must be signed by the current members and must include the new members’ names and addresses. Additionally, the new members are required to provide a written consent to their acceptance of the membership in the LLC.
Is there a fee to transfer South Dakota LLC ownership?
Yes, there is a fee associated with transferring South Dakota LLC ownership. The exact fee varies depending on the number of members in the LLC.
How long does it take to transfer South Dakota LLC ownership?
The processing time for transferring South Dakota LLC ownership is typically 5-7 business days.
Are there any special requirements to transfer South Dakota LLC ownership?
Yes, there are special requirements to transfer South Dakota LLC ownership. The Articles of Amendment must be signed by the current members of the LLC and must include the new members’ names and addresses. Additionally, the new members are required to provide a written consent to their acceptance of the membership in the LLC.
Do I need to notify anyone of the South Dakota LLC ownership transfer?
Yes, you must notify the Secretary of State of the South Dakota LLC ownership transfer. The notification is done by filing an Articles of Amendment with the Secretary of State and paying the associated filing fee.
Is there any other paperwork that needs to be completed when transferring South Dakota LLC ownership?
Yes, the new members must provide a written consent to their acceptance of the membership in the LLC.

Also Read

Why South Dakota LLC Ownership Transfer is So Important

The process of ownership transfer refers to the buying and selling of membership interests in an LLC. It allows members to bring in new partners, sell their ownership stake, or transfer their ownership to family members or other stakeholders. Without a clear and well-documented ownership transfer process, a business could face disputes, slowdowns, or even legal issues if a member wishes to leave or join the company.

One of the main reasons why South Dakota LLC ownership transfer is so important is due to its impact on the company’s governance structure and decision-making process. When a new member joins an LLC, they become a part-owner and have a say in major business decisions. Without a proper transfer process in place, the existing members may find themselves in disagreements with the new member over key strategic initiatives or financial matters. Establishing clear protocols for ownership transfer can help streamline this process and avoid potential conflicts among members.

Furthermore, having a well-defined ownership transfer process can also protect the LLC’s assets and ensure that the business continues to operate smoothly in the event of a member’s departure or death. Without proper documentation in place, the remaining members may face difficulties in determining who has a legal claim to the departing member’s ownership stake or how to handle the deceased member’s interest. By clearly outlining the steps for ownership transfer, the LLC can safeguard its assets and ensure that the business can continue to thrive in changing circumstances.

In addition to protecting the company’s governance structure and assets, a well-executed ownership transfer process can also have tax implications for both the departing member and the remaining members. The IRS requires that ownership transfers be documented and reported accurately to ensure compliance with tax laws. Failing to properly document ownership transfers can result in penalties, interest, or even an audit by tax authorities. By having a detailed ownership transfer process in place, the LLC can ensure that all tax implications are accounted for and that the company remains in good standing with the IRS.

Overall, the importance of South Dakota LLC ownership transfer cannot be understated. By establishing clear protocols and documentation for ownership transfers, businesses can protect their governance structure, assets, and tax compliance. Addressing ownership transfer early on can save time, money, and potential conflicts down the road, allowing the company to focus on its growth and success. Whether you are a new or existing LLC owner, investing the time and effort into developing a solid ownership transfer process is essential for the long-term success of your business.

Conclusion

Transferring LLC ownership in South Dakota does not need a lot of paperwork or steps. You must update the formation papers with the new ownership information, file the amendment to the formation document, tell people about it, and comply with the state. LLCs can hire professional services to do the tasks. This will ease the work.

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