How to Start an 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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Start an S-corporation in South Dakota

South Dakota, popularly known as The Mount Rushmore State, offers a bunch of benefits for business owners, especially the state capital Pierre has a lot to offer to the rising entrepreneurs in the state. If you want to start a business in South Dakota, you must choose an appropriate corporate structure. You can have a corporation or a sole proprietorship or set up an LLC in South Dakota. There are a few guidelines that you should be aware of when it comes to starting an S-Corporation. In South Dakota, S-Corporation is businesses’ most common corporate structure, especially start-ups. It was developed in order to give companies limited liability protection while preserving the advantages of being a distinct legal organization.

In this article, you will learn about how to start an s-corporation in South Dakota. You will also learn whether an s-corporate business structure suits your business. Please read all the points carefully before starting your business in South Dakota.

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 both corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

If you want an S corp status for your business, you can always form an LLC to protect your personal assets from business debts. It takes some basic steps to have a successful s-corporation in South Dakota. S-Corps do pay corporate income taxes, but they are still treated as disregarded companies for federal tax purposes.

S-corps pay corporate taxes that LLCs do not have to pay. If you want to have an S-corp status, then we would recommend you have an LLC instead. This will protect your personal assets from your business liabilities and you don’t have to pay any corporate taxes.

LLCBuddy Editorial Team

Limitation and Requirements of S-Corp in South Dakota

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

  • Be a domestic corporation.
  • Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
  • Have just one type of stock.
  • Have a maximum of 100 shareholders or members.
  • Have only permitted individuals, certain trusts, and estates as stockholders or members.

If you are qualified for the limitations and requirements, you can apply for an S-Corp in South Dakota.

How to Start an S-Corporation in South Dakota?

To create S-Corp in South Dakota, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement in South Dakota, requesting an EIN, filing a form 2553.

Step 1: Register a Business Name in South Dakota

After you have decided on the idea to start an S-Corp in South Dakota, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up 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 S-corp.

  • Avoid profanities
  • The name should be available, and no other entity should have the same name in South Dakota.
  • Limit of restricted words that need a license in South Dakota, for example, doctors, attorneys, etc.
  • Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hiring the South Dakota Registered Agent

The next step in starting an S-corp in South Dakota is hiring a 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 (such as subpoenas), all notices of lawsuits, and other official government correspondence in South Dakota. Forming an LLC and an S-corp will be easier if you have Registered Agent in South Dakota.

Step 3: File Your South Dakota Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). South Dakota Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. In order for the “Articles of Organization” to be filed, you need to pay a filing fee to the state. In South Dakota, the filing fee is $165 (by mail and $150 online).

In California, along with the Articles of Organization, you must send the Statement of Information to file your company. The statement of information is a mandatory document in California, but other states do not have this document.

Step 4: Creating an Operating Agreement in South Dakota

After you have filed your Articles of Organization in South Dakota, the next step is to create an LLC operating agreement in South Dakota. The South Dakota LLC operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following-

  • Article I: Organization
  • Article II: Management and Voting
  • Article III: Capital Contributions
  • Article IV: Distributions
  • Article V: Membership Changes
  • Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure. For more details about how an operating agreement works, please check Operating Agreement.

Step 5: Request for 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 general partnership. 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- You can apply for EIN online, the most desirable and fastest method for users.
  • Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
  • 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.

If you would like to be assisted in getting an EIN in the Internal Revenue Service, we can get your EIN for you. Our EIN service is quick and hassle-free. For more details about EIN for your business, check why you need EIN.

Step 6: File Form 2553 for Your S-Corp Business in South Dakota

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. 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 send your form 2553 to the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

Advantages of Starting an S-Corporation in South Dakota

Filing an S-Corp in South Dakota has numerous benefits and advantages.

  • Writing Off Losses: With S-corp, owners can deduct business losses from their individual income statements. If the company loses money in the first few years, it may balance its other sources of revenue. Even so, understand the shareholder loss limitations set by the IRS.
  • Pass-Through Taxation: Starting an S-Corp is the widely known advantage in forming this kind of business structure since an s-corp uses a pass-through taxation structure. The company does not pay twice the tax in this kind of taxation. Because of this structure, most start-ups and entrepreneurs in South Dakota apply for an S-Corp LLC.
  • Qualified Business Income Deduction: A qualified business income, or QBI, is the total of all qualified items of income, gain, deduction, and loss from any qualified trade or business, including S-Corp. With this, S corp owners may deduct up to 20% of their eligible earnings under the Tax Cuts and Jobs Act.

FAQs

What is an S-Corp?
An S-Corp is a legal entity that is recognized by the Internal Revenue Service (IRS) and allows for pass-through taxation of business profits. It offers owners limited liability protection and other benefits of a traditional corporation, but is typically more attractive to small businesses because it is not subject to double taxation.
How do I form an S-Corp in South Dakota?
To form an S-Corp in South Dakota, you must file articles of incorporation with the South Dakota Secretary of State, adopt a corporate bylaws, hold an organizational meeting, and obtain a federal tax identification number. You will also need to file an S-Corp election with the IRS.
Is there a fee to form an S-Corp in South Dakota?
Yes, there is a $150 filing fee to form an S-Corp in South Dakota.
What are the advantages of forming an S-Corp in South Dakota?
Forming an S-Corp in South Dakota offers limited liability protection, pass-through taxation, and the ability to raise money by selling shares of the business. Additionally, South Dakota does not have any corporate income, franchise, or personal income taxes, so there are no taxes on corporate profits.
Is there a minimum number of shareholders required to form an S-Corp in South Dakota?
No, there is no minimum number of shareholders required to form an S-Corp in South Dakota.
Is there a residency requirement to form an S-Corp in South Dakota?
No, there is no residency requirement to form an S-Corp in South Dakota.
Does South Dakota require an S-Corp to hold annual meetings?
Yes, South Dakota requires S-Corps to hold annual meetings of shareholders and directors.
Are there any filing requirements for an S-Corp in South Dakota?
Yes, an S-Corp in South Dakota must file an annual report with the South Dakota Secretary of State. Additionally, the S-Corp must file IRS Form 1120S each year.
Can I form an S-Corp in South Dakota online?
Yes, you can form an S-Corp in South Dakota online by submitting the Articles of Incorporation to the South Dakota Secretary of State.
Does South Dakota require S-Corps to have a registered agent?
Yes, South Dakota requires S-Corps to have a registered agent who is either an individual or a business entity located in the state. The registered agent must be available to accept legal documents and official correspondence on behalf of the S-Corp.
What is the process for dissolving an S-Corp in South Dakota?
To dissolve an S-Corp in South Dakota, you must file articles of dissolution with the South Dakota Secretary of State, notify creditors, distribute remaining assets to shareholders, and file IRS Form 966.
What are the advantages of starting an S-Corp in South Dakota?
South Dakota offers several advantages to forming an S-Corp, such as no state corporate income tax, no franchise tax, and no personal income tax. Additionally, South Dakota has some of the most flexible corporate governance laws of any state.
What are the steps to form an S-Corp in South Dakota?
The steps to form an S-Corp in South Dakota include
How much does it cost to form an S-Corp in South Dakota?
The cost of forming an S-Corp in South Dakota depends on the type of services you hire. Generally, you can expect to pay between $50-$500 for the filing of the Articles of Incorporation and other required documents. Additionally, you may need to pay for additional services like legal advice or accounting services.
Is there a minimum capital requirement for forming an S-Corp in South Dakota?
No, there is no minimum capital requirement for forming an S-Corp in South Dakota. However, you should keep in mind that your S-Corp may need capital to fund its operations.
What is the filing deadline for an S-Corp in South Dakota?
The filing deadline for an S-Corp in South Dakota is typically within 30 days of the date of incorporation.
Does South Dakota require S-Corps to be registered with the South Dakota Secretary of State?
Yes, all S-Corps in South Dakota must be registered with the South Dakota Secretary of State.
Does South Dakota require S-Corps to file an annual report?
Yes, all S-Corps in South Dakota must file an Annual Report with the South Dakota Secretary of State each year.
Does South Dakota require S-Corps to hold annual meetings?
Yes, all S-Corps in South Dakota must hold an annual meeting of the directors and shareholders each year.
Does South Dakota allow S-Corps to adopt a fiscal year other than a calendar year?
Yes, S-Corps in South Dakota may adopt a fiscal year other than a calendar year. The S-Corp should file a request for a fiscal year change with the South Dakota Secretary of State.
What are the tax benefits of forming an S-Corp in South Dakota?
The tax benefits of forming an S-Corp in South Dakota include no state corporate income tax, no franchise tax, and no personal income tax. Additionally, South Dakota’s corporate governance laws are flexible and allow for a variety of tax-planning strategies.
Does South Dakota require S-Corps to pay minimum taxes?
No, South Dakota does not require S-Corps to pay minimum taxes. However, S-Corps must still file a tax return and pay taxes on any income earned.
Does South Dakota require S-Corps to file federal taxes?
Yes, all S-Corps in South Dakota must file a federal tax return and pay taxes on any income earned.
Does South Dakota allow S-Corps to be dissolved?
Yes, S-Corps in South Dakota can be dissolved by filing a Certificate of Dissolution with the South Dakota Secretary of State.
Does South Dakota require S-Corps to issue stock?
Yes, all S-Corps in South Dakota must issue stock to its owners and shareholders.
Does South Dakota have any restrictions on who can own stock in an S-Corp?
No, South Dakota does not have any restrictions on who can own stock in an S-Corp. However, it is important to note that S-Corps are subject to certain federal and state regulations.
Does South Dakota require S-Corps to keep records?
Yes, all S-Corps in South Dakota must keep records of their activities and finances, including minutes of meetings and financial records.
Does South Dakota require S-Corps to have a board of directors?
Yes, all S-Corps in South Dakota must have a board of directors. The board of directors is responsible for the overall management of the S-Corp.
Does South Dakota require S-Corps to have officers?
Yes, all S-Corps in South Dakota must have officers. The officers are responsible for carrying out the board of directors’ decisions and managing the daily operations of the S-Corp.
Does South Dakota have any restrictions on the number of shareholders an S-Corp can have?
No, South Dakota does not have any restrictions on the number of shareholders an S-Corp can have. However, there are certain federal and state regulations that must be followed.
Does South Dakota require S-Corps to file tax returns?
Yes, all S-Corps in South Dakota must file a tax return and pay taxes on any income earned.
Does South Dakota require S-Corps to pay estimated taxes?
Yes, S-Corps in South Dakota must pay estimated taxes on a quarterly basis.

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Why South Dakota S Corporation is So Important

So, what makes the South Dakota S Corporation so important? Firstly, it provides the ideal balance between the limited liability protection of a corporation and the tax advantages of a partnership. By electing S Corporation status, business owners can protect their personal assets from company debts and liabilities, while also benefiting from pass-through taxation. This means that profits and losses are passed directly to the shareholders, who report them on their personal tax returns, thereby avoiding the double taxation that occurs with traditional C Corporations.

Secondly, the South Dakota S Corporation allows for greater flexibility in terms of ownership and corporate structure. Unlike a traditional corporation, which must adhere to strict ownership requirements and organizational formalities, an S Corporation can have up to 100 shareholders and can issue different classes of stock with varying rights and privileges. This flexibility not only makes it easier to attract investors and raise capital but also allows for more creative and tailored ownership arrangements that suit the specific needs and goals of the business.

Furthermore, opting for S Corporation status in South Dakota can also result in significant tax savings for shareholders. Since income is taxed at the individual level rather than at the corporate level, shareholders can potentially take advantage of deductions, credits, and other tax breaks that might not be available to corporate entities. In addition, shareholders may be able to pay themselves a reasonable salary and receive the rest of their income in the form of dividends, which can be taxed at a lower rate. This can lead to substantial savings on self-employment taxes, Medicare taxes, and other related expenses.

Another key advantage of the South Dakota S Corporation is its enhanced credibility and legitimacy in the eyes of customers, suppliers, and potential partners. By operating as an S Corporation, businesses can convey a sense of professionalism, stability, and reliability that may not be associated with sole proprietorships or partnerships. This can be especially important when competing for contracts, securing financing, or attracting high-quality employees who may prefer to work for a more established and reputable entity.

Overall, the South Dakota S Corporation offers a compelling combination of liability protection, tax benefits, flexibility, and credibility that make it an attractive option for entrepreneurs looking to start or expand their business ventures. By carefully considering the advantages and potential drawbacks of this business entity structure, business owners can make an informed decision that aligns with their objectives and sets them up for long-term success. It is therefore crucial for aspiring entrepreneurs to consult with legal and financial advisors to determine whether the S Corporation is the right choice for their specific circumstances and goals.

Conclusion

In conclusion, starting an S-corp in South Dakota is a strategic choice for entrepreneurs seeking the benefits of limited liability and favorable tax treatment. One can successfully establish an S-corp by following the outlined steps, including selecting a unique name, filing the Articles of Incorporation, obtaining necessary licenses, and adhering to state-specific regulations. Ultimately, this corporate structure offers a strong foundation for business growth and protection, making it a worthwhile consideration for those looking to launch a venture in South Dakota.

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