While corporations are one of the more complicated business types because they are treated as entities separate from the shareholders, they are a popular business structure, and there are many benefits to starting one.
Corporations fall into the following three categories:
- C corporations. These are owned by shareholders who elect a board of directors to oversee operations. They are taxed as a separate legal entity from anyone else involved and provide the greatest protection between businesses and personal assets.
- S corporations. Any earnings are split among shareholders and are taxed at that level only, not also separately as a business entity.
- Nonprofit corporations. These can apply to be tax-exempt, though employees must still pay taxes on their wages; however, this structure requires significantly more paperwork, and the business must adhere to strict regulations.
If you’re ready to form your South Dakota corporation, we’ve created this resource to help you get started today.
How do I form a Corporation in South Dakota?
Steps to form your South Dakota Corporation
- Name Your Corporation
- Appoint Directors
- Choose an South Dakota Registered Agent
- File the South Dakota Articles of Incorporation
- Create Corporate Bylaws
- Draft a Shareholder Agreement
- Issue Shares of Stock
- Apply for Necessary Business Permits or Licenses
- File for an EIN and Review Tax Requirements
- Submit your Corporation’s first report
The key step to starting a corporation in South Dakota involves filing the Articles of Incorporation with the Secretary of State. But there are several other steps to complete before and after this filing. To simplify the process of forming a corporation in the state of South Dakota, we’ve put together 10 easy steps to form your business:
Step 1: Name Your Corporation
Before you can file any paperwork, you need to decide on a business name. This might seem simple on the surface, but there are many factors to consider during the process and regulations to adhere to.
You also don’t want to overlook the importance of choosing a name for which you can reserve a matching website domain name that has not been taken. Additionally, you can consider any “doing business as” (DBA) names you may want.
Here are some guidelines to help you through the naming process:
- Start by brainstorming a list of potential names. Names on this list should match your business’s purpose, and the more names you have, the better. The next several steps will begin to narrow down your options.
- The final version of any name you choose must include the word “Corporation,” “Incorporated,” “Company,” or “Limited,” or the abbreviation “Corp.,” “Inc.,” “Co.,” or “Ltd.,” or terms or abbreviations of like import in another language.
- Search your prospective business names on the Secretary of State’s website to eliminate any names that are too similar to existing businesses.
- Corporation names also cannot contain language implying they are organized for a purpose other than stated in the Articles of Incorporation.
- The name cannot suggest that it is associated with any government agency or include anything indicating it will be engaged in illegal business.
- Once you’ve narrowed down your list based on the above, the next task is to search for available domain names to ensure you can secure a website domain that matches your business name.
- Make sure the business name you want isn’t already trademarked by someone to avoid future legal issues. The US Patent and Trademark Office has a searchable database for checking to see if any federal trademarks exist on your name. There are also trademarks issued at the state level; these would apply only within South Dakota. See the trademarks page of the Secretary of State website for more information or to apply for a state trademark of your own.
- If you would like to do business under a name different from your official business name (often called a “doing business as” or DBA name), you will need to file a DBA registration with the Secretary of State and pay a $10 filing fee. Note that registering a DBA name will not prevent someone else from using it in South Dakota.
- Once you have settled on a business name, you may choose to reserve the name if you are not ready to register it. Reserving your business name can be done by filing an Application for Reservation of Name with the Secretary of State and paying a $25 filing fee. This will reserve your name for 120 days.
Step 2: Appoint Directors
The board of directors oversees the operations of the business. The initial incorporators — those filing the Articles of Incorporation for the business — often appoint the initial board of directors. Afterward, the board is elected annually by shareholders (those who hold stock in the company — this can include the original incorporators).
In South Dakota, only a single incorporator is required, and only one member on the board is needed, although having more is generally advisable.
Incorporators may be directors and also shareholders. In fact, a single person can start a corporation and hold all associated titles. But the three titles are associated with different roles within the company.
The incorporators usually appoint the initial board of directors before filing the Articles of Incorporation. Then, the appointed directors can meet to approve corporate bylaws, determine the share structure, and solidify other matters before filing. That way, the business starts on the right foot with plans clearly in place.
Step 3: Choose a South Dakota Registered Agent
A registered agent is a person or entity that receives service of process and government correspondence on behalf of the corporation. Service of process can include legal documents, such as court summons.
When filing your Articles of Incorporation, you must list a registered agent who is an individual residing in the state or a business entity with an office in the state. You must include a street address for the registered office and not a P.O. box.
While someone in the corporation can serve as the corporation’s registered agent, this is generally not advisable. Having a separate registered agent helps give space between your business and business activities and any legal issues.
Step 4: File the South Dakota Articles of Incorporation
Filing the Articles of Incorporation registers and establishes your business with the state. In this document, you will need to include:
- The name of your business, along with the chosen corporation designator
- The purpose of your business
- The number of authorized shares of stock (this is often determined by the board of directors or the incorporators)
- The street and mailing address of the principal office or location of the business
- Name, physical address, and mailing address of your registered agent
- Name and address of all incorporators
- Signature and title of the person filing the form
Secretary of State Office
Office 500 E Capitol Ave
Pierre, SD 57501
Step 5: Create Corporate Bylaws
The creation of corporate bylaws by the board of directors should happen as soon as possible. The bylaws establish all of the rules and functions of the corporation. South Dakota requires all corporations to adopt bylaws.
Your corporate bylaws may include:
- A clear statement of your business purpose
- A list of founders of the corporation and the rights, responsibilities, and qualifications of each
- A list of the board of directors and the rights, responsibilities, and qualifications of each
- Details of your management structure and the duties of each officer
- The annual meeting scheduling and goals for directors and shareholders
- How ownership and shares are distributed and how the stock is sold or transferred
- How changes are made or voted on
- Procedures for replacing directors
- Details of any committees and their responsibilities
- How conflicts of interest are to be handled
- Rules for amending the bylaws
While you are not required to file your bylaws anywhere, you should keep them safe with any other corporate records. It’s a good idea to set up a corporate records book where you can keep all of your important papers, including bylaws, minutes from meetings, and stock certificates.
Step 6: Draft a Shareholder Agreement
The shareholder or stockholder agreement is a document that outlines the rights and responsibilities of all shareholders in the company. It may include the following:
- Shareholders and their contact information (addresses, phone numbers, etc.)
- Shareholder responsibilities, including rules about officer appointments and any actions that shareholders are allowed to take on behalf of the business
- Shareholder voting rights, including whether a simple majority or higher percentage may be required for certain decisions
- How changes to the original shareholder agreement may be made
- How stock can be sold or transferred
- The financial obligation and time commitment for each shareholder
- A clear outline of how dividends are distributed
- A plan for the distribution of assets should the business close
Again, this agreement can be drafted from a template, but you may want to utilize professional assistance. Your shareholder agreement should be kept with your other important corporate records.
Step 7: Issue Shares of Stock
Once your business is registered, and rules are in place, it is time to issue stock. When you filed the Articles of Incorporation, you stated the number of stock shares authorized. The number of shares you issue should always be less than or equal to this number.
Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders, employees, or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.
Shares of stock are how your company gets funded. The funds you use to get started are called capital. Before issuing stock, you need to determine how much capital is needed. You can then divide this value among the stock shares you will issue to shareholders.
Note that when initially issuing shares, some may be issued as compensation for helping start the business. As a result, the shareholder they are issued to does not contribute monetary capital for them, and this should be accounted for when determining share price.
Each share is only issued once, but after issuance, shares can be traded and sold. All issued shares must be documented in the company’s annual report. Companies issuing public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. Also check with the South Dakota Division of Securities Regulation to see what might be required at the state level.
Step 8: Apply for Necessary Business Permits or Licenses
The next step is to consider if your business might require any special permits or licenses. The Small Business Administration (SBA) website has a list of licenses that you might need on the federal level, depending on your business activities.
On the South Dakota Governor’s Office of Economic Development website, you can find a list of possible licenses you may need to consider at the state, county, and city levels. Don’t forget to apply for a tax license with the Department of Revenue if you will be collecting sales tax.
Step 9: File for an EIN and Review Tax Requirements
Corporations are generally regarded as unique entities separate from the people involved. As such, you will need to acquire an Employer Identification Number (EIN). This number acts like the corporation’s Social Security number for tax purposes.
To apply for an EIN, you need to visit the IRS website and fill out the online form. It only takes a few minutes and is free. Afterward, you will receive your EIN. Keep track of this number, as you will need it for future documentation and filing your business’s tax returns.
Remember that corporations must pay their own taxes separate from any taxes paid on shareholder earnings. This must be done at the federal and possibly state levels by submitting the appropriate returns each year. You may also be responsible for sales tax, employee withholdings, and other local taxes.
Step 10: Submit Your Corporation’s First Report
Corporations in South Dakota are required to file an annual report. Information required in the report includes:
- Business name and state ID
- Street and mailing address of the principal office
- Street and mailing address of the registered agent
- Name and street address of all principal officers
How much does it cost to start a corporation in South Dakota?
The exact cost of starting a corporation in South Dakota will vary depending on the size and type of business and where it is located. You will need to pay the $150 fee for filing the Articles of Incorporation at a minimum ($165 if you file by paper). Additional fees may include:
- $50 for expedited processing
- Registered agent service fees
- $25 to reserve a name
- Fees assessed for amendments or other business filings
- Fees associated with licenses or permits
- $50 annual report fee (at a minimum)
ZenBusiness can help reduce the headaches associated with getting your corporation off the ground by assisting with many of the required steps for a low annual fee.
What are the benefits of a corporation in South Dakota?
Many benefits come with starting a corporation in South Dakota. As a business type, the benefits of a corporation include:
- Protection of personal assets
- Legal recognition as a separate entity in and outside the U.S.
- The ability to issue stock (which can help with funding and capital)
However, there are disadvantages you should also be aware of to make an informed decision. The disadvantages are the tax structure (profits are taxed at the corporation and personal income tax levels), and there is a lot more red tape and paperwork involved than other structures, such as limited liability companies (LLCs).
How is a South Dakota corporation taxed?
How your corporation will be taxed depends on its designation as a C corporation, an S corporation, or a nonprofit.
C corporations in South Dakota are treated as separate entities, but there is no state corporate income tax or gross receipts tax. Additionally, shareholders don’t have to pay income tax on earnings and dividends.
S corporations are pass-through entities. All profits are passed through to the owners; however, they don’t pay taxes on their personal income in South Dakota.
Nonprofit corporations are exempt from paying federal and state taxes, provided they stay within the rules for nonprofit activity. However, anyone drawing a salary from a nonprofit corporation will pay federal income tax on that salary.
Visit the South Dakota Department of Revenue website for more information about additional taxes your corporation may be responsible for, including sales and use tax.
South Dakota Corporation FAQs
Does running a corporation in South Dakota involve more paperwork than running other types of businesses?
Because corporations are more complex in structure, they often come with more paperwork than a simpler business model, such as a limited liability company (LLC). This includes licensing requirements, shareholder agreements, and reports.
What is the difference between an LLC and a corporation in South Dakota?
LLC stands for limited liability company. This type of business structure is a pass-through entity for tax purposes, and it is useful in keeping the owners’ assets separate from business assets. However, LLCs do not have a board of directors and do not issue shares.
- 3. How do I change my corporation’s name in South Dakota?
How many people are needed to form a corporation in South Dakota?
A single person can form a corporation in South Dakota.
Can I form my South Dakota corporation online?
You can form a South Dakota corporation online by visiting the South Dakota Secretary of State website.
How do I dissolve my South Dakota corporation?
To dissolve your corporation, you will need to file the Articles of Dissolution and pay a $10 filing fee.
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