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.
Determine whether a South Dakota professional corporation structure is the right entity for you
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:
- Physician’s assistants
- Health care
- Public accounting
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.
Choose a name for your South Dakota professional corporation
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:
- Professional association
- Professional company
- Professional corporation
- Prof. Co.
- Prof. Corp.
- Prof. Ltd.
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.
Check whether your preferred name is available
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.
Reserve a name and domain
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.
Select a South Dakota registered agent
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.
Complete your South Dakota Articles of Incorporation
The next step is to complete the Articles of Incorporation for your South Dakota professional corporation.
The PC Articles of Incorporation must include:
- A corporate name
- The number of shares the corporation is authorized to issue
- The street address of the PC’s principal office
- The name and address of the entity’s registered agent
- The name and address of each incorporator
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:
- The names and addresses of individuals who are to serve as the initial directors of the PC
- Provisions not inconsistent with South Dakota law regarding the purpose of the corporation, management of the business, a par value for authorized shares or classes of shares, or the powers of the corporation, its board of directors, and shareholders
- Provisions eliminating or limiting the personal liability of a director or shareholders in certain circumstances
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:
- Public accounting
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.
Establish a corporate record in South Dakota
South Dakota law requires all corporations, including professional corporations, to establish and maintain permanent corporate records of the business. Such corporate records include:
- Minutes of all shareholder and board of director meetings
- Record of all actions taken by the shareholders or board of directors without a meeting
- Record of all actions taken by a committee of the board of directors in place of the board on behalf of the corporation
- Accounting records
- List of the names and addresses of all shareholders
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:
- Its Articles of Incorporation and any amendments currently in effect
- Its bylaws and any amendments currently in effect
- Any resolutions adopted by the board of directors
- The minutes of all shareholders’ meetings for the past three years
- Records of all actions taken by shareholders without a meeting for the past three years
- All written communications to shareholders generally within the past three years
- All financial statements furnished to shareholders for the past three years
- A list of names and business addresses of the PC’s current directors and officers
- The PC’s most recent annual report delivered to the Office of the Secretary of State
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.
Designate a South Dakota professional corporation board of directors
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.
Create South Dakota corporate bylaws
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:
- Frequency of board of director meetings
- Management structure details
- Responsibilities of the board of directors
- Shareholder voting procedures
- The number of directors that will be elected
- Dispute resolution procedures
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.
Hold your first board meeting
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:
- Review and ratify the bylaws
- Issue shares of stock
- Designate officers to manage day-to-day operations and affairs of the PC
- Discuss desired tax status for the corporation
- Discuss and elect a permanent board of directors
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.
Handle your South Dakota tax obligations
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.
Obtain South Dakota business licenses and permits
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.
Acquire insurance for your South Dakota professional corporation
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:
- General business insurance
- Professional malpractice insurance
- Other types of industry-specific insurance
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.
Open a business bank account
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.
Need help running and managing your South Dakota business?
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.
South Dakota PC FAQs
- What are the filing fees for a South Dakota professional corporation?
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.
- Do I need a lawyer to form a South Dakota professional corporation?
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.
- Does South Dakota have other professional entity types?
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.
- Can professionals from different fields form a South Dakota professional corporation together?
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.
- Will I be taxed as an S corporation or C corporation in South Dakota?
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.