LLC vs S-Corp 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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LLC vs. S Corp in South Dakota

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in South Dakota. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in South Dakota. Before you start South Dakota LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with South Dakota LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in South Dakota.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in South Dakota?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in South Dakota gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in South Dakota?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in South Dakota?

In South Dakota, forming a business is crucial since you need to be adequate in your decision, especially when you think if South Dakota LLC or an S-Corporation in South Dakota is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in South Dakota doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.

LLCBuddy Editorial Team

Tax Difference Between South Dakota LLC and S-Corp in South Dakota

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in South Dakota is suitable for your business.

Federal Taxes: There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in South Dakota. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in South Dakota are the same in terms of pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners are required to pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in South Dakota are mandated to have double taxation. It means that they must pay federal taxes at the entity level.

Self-Employment Taxes: Most LLC owners choose S-corporation taxation in South Dakota to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes.

Consider the scenario where you are the only owner of an LLC in South Dakota with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a South Dakota S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

South Dakota State Taxes: At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in South Dakota, it costs $50 that can be paid to the TN Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $165 (by mail and $150 online).

On the other hand, you also need to pay taxes if you form an S-Corporation in South Dakota; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the TN Secretary of State to pay this.

How do South Dakota LLCs and S-Corporations Handle Liability Protection?

In South Dakota, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in South Dakota. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in South Dakota.

  • Insurance business
  • Domestic and International sales corporations
  • Partnerships
  • Corporations
  • Unauthorized Immigrants
  • Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your South Dakota LLC or South Dakota S-Corp.

Which is Easier to File in South Dakota: LLCs or S-Corporations?

Filing an LLC or S-Corporation in South Dakota takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by South Dakota Registered Agent. However, in order to establish an LLC in South Dakota, you must submit a Articles of Organization to the South Dakota Secretary of State. Your Articles of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the South Dakota S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in South Dakota because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in South Dakota, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In South Dakota, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

FAQs

What are the benefits of forming an LLC in South Dakota?
Benefits of forming an LLC in South Dakota include
What are the benefits of forming an S-Corp in South Dakota?
Benefits of forming an S-Corp in South Dakota include
What are the filing requirements for an LLC in South Dakota?
The filing requirements for an LLC in South Dakota include
What are the filing requirements for an S-Corp in South Dakota?
The filing requirements for an S-Corp in South Dakota include
What are the annual requirements for an LLC in South Dakota?
The annual requirements for an LLC in South Dakota include filing an annual report with the Secretary of State and paying the associated fee.
What are the annual requirements for an S-Corp in South Dakota?
The annual requirements for an S-Corp in South Dakota include filing an annual report with the Secretary of State and paying the associated fee, filing an 1120S federal tax return, and making estimated tax payments throughout the year.
Does South Dakota have an LLC law?
Yes, South Dakota has an LLC law that governs the formation, organization, and other aspects of LLCs in the state.
Does South Dakota have an S-Corp law?
Yes, South Dakota has an S-Corp law that governs the formation, organization, and other aspects of S-Corps in the state.
What type of business entity is an LLC in South Dakota?
An LLC in South Dakota is a pass-through entity, which means that profits and losses are passed through to the owners.
What type of business entity is an S-Corp in South Dakota?
An S-Corp in South Dakota is a separate legal entity that is formed under the laws of the state.
How is an LLC in South Dakota taxed?
An LLC in South Dakota is taxed as a pass-through entity, meaning that the profits and losses of the business are passed through to the owners and reported on their personal income tax returns.
How is an S-Corp in South Dakota taxed?
An S-Corp in South Dakota is subject to a separate tax filing requirement and is taxed at both the corporate and individual level.
What are the advantages of forming an LLC in South Dakota?
The advantages of forming an LLC in South Dakota include limited personal liability, pass-through taxation, flexible management structure, and no state-level income tax.
What are the advantages of forming an S-Corp in South Dakota?
The advantages of forming an S-Corp in South Dakota include limited personal liability, pass-through taxation, potential tax savings, and no state-level income taxes.
Does South Dakota allow for multi-member LLCs?
Yes, South Dakota allows for multi-member LLCs and requires that all members sign the Certificate of Organization.
Does South Dakota allow for multi-member S-Corps?
Yes, South Dakota allows for multi-member S-Corps and requires that all members sign the Certificate of Incorporation.
What is the minimum capital requirement for an LLC in South Dakota?
There is no minimum capital requirement for an LLC in South Dakota.
What is the minimum capital requirement for an S-Corp in South Dakota?
There is no minimum capital requirement for an S-Corp in South Dakota.
Are there any special requirements for forming an LLC in South Dakota?
Yes, South Dakota requires that the LLC have a registered agent in the state and that all members sign the Certificate of Organization.
Are there any special requirements for forming an S-Corp in South Dakota?
Yes, South Dakota requires that the S-Corp have a registered agent in the state, that all members sign the Certificate of Incorporation, and that an S-Corp election form be filed with the IRS.
What is the process of forming an LLC in South Dakota?
The process of forming an LLC in South Dakota includes filing a Certificate of Organization with the Secretary of State, paying a $150 filing fee, and publishing a notice of formation.
What is the process of forming an S-Corp in South Dakota?
The process of forming an S-Corp in South Dakota includes filing a Certificate of Incorporation with the Secretary of State, paying a $150 filing fee, filing an S-Corp election form with the IRS, and publishing a notice of formation.
Are there any fees associated with forming an LLC in South Dakota?
Yes, there is a $150 filing fee associated with forming an LLC in South Dakota.
Are there any fees associated with forming an S-Corp in South Dakota?
Yes, there is a $150 filing fee associated with forming an S-Corp in South Dakota.
What is the annual fee for an LLC in South Dakota?
The annual fee for an LLC in South Dakota is $50.
What is the annual fee for an S-Corp in South Dakota?
The annual fee for an S-Corp in South Dakota is $50.
Are there any other costs associated with forming an LLC in South Dakota?
Yes, there may be additional costs associated with forming an LLC in South Dakota such as legal and professional fees.
Are there any other costs associated with forming an S-Corp in South Dakota?
Yes, there may be additional costs associated with forming an S-Corp in South Dakota such as legal and professional fees.
Who is responsible for filing taxes for an LLC in South Dakota?
The owners of the LLC are responsible for filing taxes for an LLC in South Dakota.
Who is responsible for filing taxes for an S-Corp in South Dakota?
The S-Corp is responsible for filing taxes for an S-Corp in South Dakota.

Also Read

Why South Dakota LLC Vs S Corp is So Important

One of the primary reasons why South Dakota LLC vs S Corp is so important is because it determines the way in which the business will be taxed. With an S Corporation, income is passed through to the owners and taxed at the individual level, potentially leading to tax savings compared to traditional corporations. On the other hand, an LLC offers more flexibility in terms of how income is taxed, allowing owners to choose between being taxed as a sole proprietorship, partnership, or corporation. This choice can have significant implications for the tax burden placed on the business and its owners.

Similarly, the manner in which liability protection is provided can vary between a South Dakota LLC and S Corporation. Both entities shield the personal assets of the owners from business debts and liabilities, but an S Corporation may offer greater protection in some cases. This is because the corporate structure of an S Corporation often provides a higher degree of separation between the business and its owners, reducing the likelihood that personal assets will be at risk in the event of legal action against the company.

Furthermore, the management structure of a South Dakota LLC vs an S Corp should also be taken into consideration when deciding between the two. An S Corporation is required to have a board of directors, officers, and annual shareholder meetings, adding a level of formality and complexity to the governance of the business. On the other hand, an LLC generally has a more flexible management structure, allowing for a simpler and more streamlined approach to running the company.

Another significant difference between a South Dakota LLC and an S Corporation is the way in which ownership can be structured. While an S Corporation is limited to 100 shareholders who must be US citizens or residents, an LLC has no such restrictions on the number or type of owners. This can be a critical factor for businesses that may wish to attract outside investors or have a more diverse ownership structure.

Ultimately, the decision between a South Dakota LLC and an S Corporation is a complex one that requires careful consideration of the unique needs and goals of a business. Each entity offers distinct advantages and disadvantages in terms of taxation, liability protection, management structure, and ownership flexibility. By understanding the differences between these two options, business owners can make an informed decision that is best suited to their individual circumstances and future growth plans.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in South Dakota, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a South Dakota LLC and S-Corp in South Dakota, read our other business guides.

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