How to Form a Professional Corporation in South Dakota


Steve Goldstein
Steve Goldstein
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Form a Professional Corporation in South Dakota

Are you considering starting a professional corporation in South Dakota? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in South Dakota can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in South Dakota, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in South Dakota!

What is a Professional Corporation in South Dakota?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in South Dakota. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in South Dakota.

LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in South Dakota if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in South Dakota

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Articles of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in South Dakota, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

  • Doctors
  • Architects
  • Engineers
  • Accountants
  • Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in South Dakota

After you have decided on the idea to form a professional corporation in South Dakota, deciding the name for your corporation is significant. There is a complete guide on South Dakota LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • No confusion with a government entity name.
  • A unique name is needed with no match
  • Limit of restricted words that need a license.

In South Dakota, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 120 days. To keep the name, you must file a name reservation application with South Dakota Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the South Dakota Registered Agent

The next step in forming a professional corporation is hiring the South Dakota Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in South Dakota. Forming a professional corporation for your service will be easier if you have Registered Agent in South Dakota.

Alternatively, you can serve as your own South Dakota Registered Agent if you have the time. However, you must stay compliant to avoid missing any important documents from South Dakota.

Step 4: File the Articles of Incorporation in South Dakota

After you hire a South Dakota Registered Agent to form a professional corporation, the next step is to file the South Dakota Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

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

Step 5: Write an Operating Agreement in South Dakota

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The South Dakota operating agreement includes information like-

  1. About Business
  2. Members and management
  3. Capital contribution
  4. Profit Distribution
  5. Change of membership
  6. Dissolution

Step 6: Designate the PC Board of Directors in South Dakota

The next step is to appoint the initial board of directors in your PC in South Dakota. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the South Dakota SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, 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 8: 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 9: Request an EIN in South Dakota

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional 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 online EIN 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 the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form 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 professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in South Dakota might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in South Dakota

Before your professional corporation operates in South Dakota, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In South Dakota, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in South Dakota

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the South Dakota classification of taxes for the taxes an LLC in South Dakota has to pay.

Important Information

Maintaining Professional and Business License in South Dakota

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in South Dakota

In South Dakota, you will be required to submit a report each year. The owners’ and Registered Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in South Dakota, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in South Dakota

A professional corporation takes a lot of time to process and pursue. However, with the help of the South Dakota Registered Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in South Dakota.

  1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.
  1. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What are the benefits of forming a Professional Corporation in South Dakota?
South Dakota offers several advantages for forming a Professional Corporation, such as no corporate income tax, no personal income tax, limited liability for shareholders, and a flexible corporate structure.
What is needed to form a Professional Corporation in South Dakota?
In order to form a Professional Corporation in South Dakota, you will need to file Articles of Incorporation with the Secretary of State, appoint directors, issue stock certificates, and obtain liability insurance.
What is the filing fee for forming a Professional Corporation in South Dakota?
The filing fee to form a Professional Corporation in South Dakota is $100.
How long does it take to form a Professional Corporation in South Dakota?
It typically takes 5-7 business days to form a Professional Corporation in South Dakota.
Are there any annual fees for Professional Corporations in South Dakota?
Yes, Professional Corporations in South Dakota must pay an annual franchise tax of $25.
Are there any restrictions on who can form a Professional Corporation in South Dakota?
Yes, Professional Corporations in South Dakota must be formed by licensed professionals such as doctors, lawyers, and accountants.
What is the governing body for Professional Corporations in South Dakota?
The governing body for Professional Corporations in South Dakota is the South Dakota Secretary of State.
Does South Dakota require Professional Corporations to hold annual meetings?
Yes, Professional Corporations in South Dakota must hold an annual meeting of shareholders and board of directors.
Are Professional Corporations in South Dakota required to have bylaws?
Yes, Professional Corporations in South Dakota must have bylaws that outline their corporate governance structure.
Does South Dakota require Professional Corporations to have a registered agent?
Yes, Professional Corporations in South Dakota must have a registered agent located in the state.
Does South Dakota require Professional Corporations to keep records?
Yes, Professional Corporations in South Dakota must keep records of their corporate activities, including financial statements and meeting minutes.
Does South Dakota require Professional Corporations to file annual reports?
Yes, Professional Corporations in South Dakota must file an annual report with the Secretary of State.
Is there a minimum amount of capital required to form a Professional Corporation in South Dakota?
No, there is no minimum amount of capital required to form a Professional Corporation in South Dakota.
Is it possible to form a Professional Corporation in South Dakota without issuing any shares of stock?
Yes, it is possible to form a Professional Corporation in South Dakota without issuing any shares of stock.
Does South Dakota require Professional Corporations to have a board of directors?
Yes, Professional Corporations in South Dakota must have a board of directors consisting of at least three members.
Does South Dakota require Professional Corporations to keep minutes of board of directors meetings?
Yes, Professional Corporations in South Dakota must keep minutes of board of directors meetings and provide copies to the shareholders.
Can shareholders of Professional Corporations in South Dakota vote by proxy?
Yes, shareholders of Professional Corporations in South Dakota can vote by proxy at annual meetings.
Can Professional Corporations in South Dakota issue different classes of stock?
Yes, Professional Corporations in South Dakota can issue different classes of stock, such as common stock and preferred stock.
Does South Dakota require Professional Corporations to have a corporate seal?
No, South Dakota does not require Professional Corporations to have a corporate seal.
Does South Dakota allow Professional Corporations to issue stock to employees?
Yes, Professional Corporations in South Dakota can issue stock to employees as part of a compensation package.
Does South Dakota allow Professional Corporations to issue stock to the public?
Yes, Professional Corporations in South Dakota can issue stock to the public, however, they must comply with federal and state securities laws.
Does South Dakota allow Professional Corporations to merge or consolidate with other corporations?
Yes, Professional Corporations in South Dakota can merge or consolidate with other corporations, however, they must comply with state laws.
Does South Dakota allow Professional Corporations to be dissolved?
Yes, Professional Corporations in South Dakota can be dissolved in accordance with state laws.
Does South Dakota allow Professional Corporations to make charitable contributions?
Yes, Professional Corporations in South Dakota can make charitable contributions in accordance with state law.
Does South Dakota allow Professional Corporations to make political contributions?
Yes, Professional Corporations in South Dakota can make political contributions in accordance with state law.
Does South Dakota require Professional Corporations to make estimated tax payments?
No, South Dakota does not require Professional Corporations to make estimated tax payments.
Does South Dakota require Professional Corporations to file tax returns?
Yes, Professional Corporations in South Dakota must file annual tax returns with the Department of Revenue.
Are there any restrictions on where Professional Corporations in South Dakota can conduct business?
Yes, Professional Corporations in South Dakota must conduct business within the state and may not conduct business in other states without registering as a foreign corporation.
What are the requirements for forming a professional corporation in South Dakota?
In order to form a professional corporation in South Dakota, you must have a licensed professional in the state as an incorporator, provide the company’s name, the purpose of the business, the names and addresses of the incorporators, the name and address of the registered agent, and the duration of the corporation. Additionally, the articles of incorporation must adhere to the South Dakota Codified Laws.
What are the benefits of forming a professional corporation in South Dakota?
Forming a professional corporation in South Dakota may provide limited liability protection to the owners, a simplified taxation process, and other benefits associated with corporate status.
Are there any restrictions on forming a professional corporation in South Dakota?
Yes, South Dakota prohibits certain professions from forming professional corporations, such as physicians, lawyers, accountants and real estate agents.
What fees are associated with forming a professional corporation in South Dakota?
The filing fee associated with forming a professional corporation in South Dakota is $50. Additional fees may be required, depending on the type of services desired.
How long does it take to form a professional corporation in South Dakota?
Generally, it takes about 7-10 business days for the formation of a professional corporation in South Dakota after the filing of the articles of incorporation.
Is there ongoing maintenance for a professional corporation in South Dakota?
Yes, professional corporations in South Dakota must file an annual report with the Secretary of State’s office, pay an annual franchise tax, and hold annual meetings of shareholders.

Also Read

Why South Dakota Professional Corporation is So Important

South Dakota professional corporation provides a shield of limited liability for its owners, protecting their personal assets in the event of lawsuits or debts incurred by the business. This is especially important in professions where there is a higher risk of liability, such as healthcare, law, or accounting. By incorporating as a professional corporation, individuals can safeguard their personal wealth and possessions from being targeted in legal actions brought against the business.

Another key reason why South Dakota professional corporations are so important is the ability to take advantage of tax benefits. Professional corporations are typically taxed at a lower rate than individual sole proprietors or partnerships, which can lead to significant cost savings for the business owners. Additionally, professional corporations allow for greater flexibility in terms of retirement and benefit planning, enabling owners to better plan for their financial future.

Furthermore, forming a professional corporation can increase credibility and prestige in the eyes of clients and consumers. Being affiliated with a professional corporation can signal to potential clients that the business takes its operations seriously and adheres to high ethical and professional standards. This can help attract more clients and improve the reputation of the business in the marketplace.

One often-overlooked benefit of South Dakota professional corporations is the ability to easily transfer ownership or shares in the business. By establishing a clear legal structure and guidelines for ownership, professional corporations simplify the process of bringing in new partners or transferring ownership to family members or other stakeholders. This can ensure the smooth continuity of the business in the event of retirements, deaths, or other changes in ownership.

Additionally, forming a professional corporation can provide a sense of stability and longevity for the business. In the eyes of clients and customers, a professional corporation is often seen as a more established and reputable entity than a sole proprietorship or partnership. This can help instill confidence in the business and build long-term relationships with clients and customers.

In conclusion, South Dakota professional corporations offer a wide range of benefits and protections for individuals practicing in professions where liability is a concern. From limited liability and tax advantages to increased credibility and ease of ownership transfer, professional corporations can provide a strong foundation for individuals looking to build successful and sustainable businesses. With the proper legal guidance and support, forming a professional corporation can be a wise decision for those looking to protect their assets and grow their professional practice.

Conclusion

In forming a professional corporation in South Dakota, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.

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