Under South Dakota law, certain professionals are permitted to form what is called a South Dakota professional corporation (PC). If you are a licensed professional looking to form a business in South Dakota, a South Dakota PC could be a great entity type for you and your business.
Don’t know where to begin? Use this guide to learn more about how to start a professional corporation in South Dakota, and see how ZenBusiness can help you stay compliant with state law and grow your business.
Professional corporations are business entities much like standard corporations that operate for profit. However, professional corporations are specific types of corporations that may only be owned and operated by certain licensed professionals.
Under South Dakota law, only those licensed in the following professions may form a professional corporation:
These professions also have the option of forming a professional limited liability company (PLLC) under South Dakota law. So which option — PC or PLLC — is right for your South Dakota business entity?
As with most decisions you must make for your business, there will be advantages and disadvantages to each option. For example, one advantage of forming a South Dakota professional corporation is that owners of the PC, referred to as “shareholders,” will generally not be held personally liable for the acts or debts of the corporation or the wrongs of other individual shareholders. However, a South Dakota PC will have more formalities to adhere to and can be more difficult to form.
PLLCs, on the other hand, have less formalities and are generally easier to form than PCs. However, PLLC owners are not afforded the same high-level liability protections that are afforded to owners of a South Dakota PC.
Ultimately, choosing the right entity type will come down to the particular needs and goals of your business.
Choosing a name for your South Dakota PC is an exciting step in the business formation process. However, make sure that you know and understand the process and requirements for doing so before you make any final naming decisions.
Under South Dakota law all professional corporations must include one of the following words, phrases, or abbreviations in its name:
However, it is important to note that South Dakota has separate statutes with slightly different naming requirements for each type of profession. Thus, the naming options above may be limited depending on the specific type of professional service you intend to provide. Make sure to check the statutory naming requirements for your particular profession before selecting your business name.
Even after you verify that your preferred business name meets the above legal requirements, there are a few additional steps you should take. First, make sure to verify that there are not any other South Dakota businesses that are already using the same name or a name similar to the one you intend to use.
Unfortunately, you will not be able to move forward with a name that is similar to or already being used by another South Dakota business entity. Thus, if your preferred name is taken, you will want to think about potential alternatives.
To see whether your preferred PC name is still available, the South Dakota Secretary of State Business Name Availability has a search feature. To learn more about this feature, we’ve created a guide to South Dakota’s business name searches.
Once you determine that your preferred name is still available, don’t wait around and give another business the opportunity to take your name while you get your next steps in order.
Now you’re ready to appoint a registered agent. A registered agent is the person or entity that you will designate to accept service of process on behalf of the PC. The purpose of the registered agent is to ensure that your business receives important legal notices and documentation on behalf of your PC.
Having a registered agent for your professional corporation is required under South Dakota law. Thus, make sure you designate someone whom you can rely on to accept important documents and notices on behalf of your business.
Wondering who to designate as registered agent for your South Dakota professional corporation? ZenBusiness can help. Use our registered agent services to secure a reliable and trustworthy registered agent for your South Dakota PC.
The next step is to complete the Articles of Incorporation for your South Dakota professional corporation.
The PC Articles of Incorporation must include:
You will want to include each of these pieces of information in the Articles of Incorporation for your South Dakota professional corporation. These are the only required items of information. However, there are certain additional items that may be included in the Articles of Incorporation but are not required.
Examples of optional information that you may include in your South Dakota PC Articles of Incorporation include:
Additionally, those practicing the following professions must also file a certified copy of the Articles of Incorporation with the examining board of their respective professions:
The professional corporation’s existence formally begins with the filing of the Articles of Incorporation. Thus, it is important that this is done correctly and that all requirements are satisfied.
South Dakota law requires all corporations, including professional corporations, to establish and maintain permanent corporate records of the business. Such corporate records include:
A PC must maintain these records in written form or in another form capable of being converted into written form within a reasonable time.
Additionally, a South Dakota professional corporation must keep a copy of the following records at all times in the PC’s principal office:
Not only are these types of records required by law, but they can help ensure that your business continues to run smoothly in the future. Thus, make sure to comply with all legal requirements and keep as accurate and complete records as possible.
According to South Dakota law, all corporations must have a board of directors. Thus, the next steps will be to designate an initial board of directors for your South Dakota PC.
This board of directors will be tasked with managing the business and affairs of the PC. However, the powers of the board may be limited as set forth in the Articles of Incorporation or other authorized agreement.
Now you are ready to draft corporate bylaws for the PC. The bylaws for the professional corporation will more clearly define the rules, regulations, and processes for management of the overall business and its affairs.
Bylaws for a professional corporation will usually address topics such as:
The only limitation is that the bylaws must not be inconsistent with South Dakota law or the Articles of Incorporation of the PC.
Bylaws are required by South Dakota law. But more than that, they can provide a great deal of clarity and definition for the internal processes and procedures for your South Dakota PC.
Once you designate your board of directors and draft your initial bylaws, you are ready to hold your first board meeting.
At this first meeting of the board of directors, you will want to accomplish the following:
Each PC is different and will have unique goals it may want to accomplish. Regardless of precisely what is discussed, make sure to keep accurate minutes for this and all future board meetings to ensure an accurate corporate record from the start.
The first step to meeting your South Dakota tax obligations is to obtain an employer identification number (EIN). This number acts as an identifier for your business when you file your taxes. ZenBusiness can help you get started by securing your EIN from the IRS.
At the federal level, your PC will be taxed as a C corporation by default. This essentially means that the PC will be taxed twice — once at the corporate level and once at the individual level on the shareholders’ individual tax returns.
However, you can elect to have your PC taxed as an S corporation instead. While S corporations do have more restrictions, if you qualify, your PC will benefit from pass-through taxation, which means that income will not be taxed at the business level. Rather, income of the PC will only be taxed at the individual shareholder level.
Additionally, don’t forget that your South Dakota PC will also be subject to state and local tax obligations. Thus, make sure to speak with a qualified tax professional, as failure to understand and comply with all tax obligations can result in serious consequences.
As South Dakota professional corporations may only be formed by licensed professionals, it is crucial to ensure that you are appropriately licensed to provide such professional services.
Additionally, while there is no general business license or permit required in South Dakota, there may be some licenses or permits required for your particular business type. These might include local business licenses or industry-specific regulatory or professional licenses.
Unfortunately, there is no central authority where you can verify all licenses or permits you will need for your South Dakota PC. Remember that many requirements vary by industry and even at the federal, state, and local levels. Thus, it is ultimately your responsibility to obtain all licenses and permits needed to operate your South Dakota professional corporation. However, ZenBusiness can help you get started by providing you with a business license report listing the licenses and permits your business may need to operate based on your activities, industry, and location.
Obtaining insurance is an important step for nearly all businesses in South Dakota and nationwide.
Most businesses in South Dakota with employees must carry workers’ compensation insurance to help cover employees who are injured in the course of their employment. Other types of insurance that may not be required under South Dakota law, but that you may nevertheless want to consider obtaining for your business, include:
By carrying insurance for your South Dakota PC, you can better protect your business from the unexpected and resulting potential legal liability and financial losses.
To benefit from the liability protections that come with forming a South Dakota PC, you will want to open a business bank account. This business account should be opened in the name of the PC and be completely separate from any personal bank accounts you or any other owners may have.
If you commingle personal and business funds, this can lead to potential legal disputes and liability for your business in the future. Thus, it is strongly advised to keep all business and personal accounts separate and distinct at all times.
Starting and running a business on your own is hard work. But it doesn’t have to be with the help of ZenBusiness. Take a look at the many services we provide and see what tedious items we can take off your plate. That way, you can focus on what you do best — running your business.
There are a number of fees to be aware of as you form your South Dakota professional corporation. These fees will vary depending on the specific filing, whether you need something expedited, and a number of other factors. These fees vary and are subject to change, so make sure to check periodically with the South Dakota Secretary of State for the most up-to-date fee information.
No, you do not need a lawyer to help you form a South Dakota professional corporation. However, if you have legal questions or are in need of legal advice or consultation, you should always seek the opinion of a licensed legal professional.
Yes, South Dakota also allows the formation of professional limited liability companies (PLLCs). However, PLLCs and PCs differ in a few key ways. Thus, speak with a trusted legal advisor to determine whether a PC or a PLLC is right for your business.
In certain situations, professionals from different fields may be able to form a South Dakota professional corporation together. However, pursuant to section 47-11F-3 of South Dakota law, this is limited to those who desire to form a PC with the purpose of rendering two or more health care-related professional services and those ancillary thereto, so long as at least one shareholder is licensed in each profession.
By default, a South Dakota professional corporation will be taxed as a C corporation. However, if you qualify, you may elect to be taxed as an S corporation instead.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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