How to Start a Business in South Dakota

The general public may associate South Dakota mainly with Mount Rushmore, but entrepreneurs have come to associate the state with its friendliness to business. Just a few years ago, CNN Money put the state at the top of its “10 Best States for Starting a Business,” and the non-profit Tax Foundation placed it second on its “State Business Tax Climate Index” in 2021.

That being said, if you want to start a business, South Dakota probably isn’t the worst choice. Read on if you’d like to know more about starting your own business in South Dakota.

Guide – Start a Business in South Dakota

Following the steps below should give you a good overview of the process of starting a company in South Dakota.

Step 1: Create a business plan for your South Dakota company

It goes without saying that planning is an important part of any big venture, especially starting a company. Writing a business plan is a must. Not only can it help attract investors or secure a loan, but it keeps you on track with your vision, goals, and finances. When you’re writing a business plan, consider the following steps:

  • Outline your “SMART” goals.
  • Understand your service or product line and pricing.
  • Put together a market analysis: After all, if there’s no market need, your business is probably going to have problems. Remember that understanding your ideal customer will help you better serve them.
  • Create a competitive analysis: What are your competitors doing, and how are you going to do it differently and/or better?
  • Make a financial outline: What’s your main revenue source, what are your operating costs, and when do you expect to be profitable?
  • Explain how your small business is structured. How will it be organized and managed?
  • Look for tax breaks, grants, and other government resources.

Need help creating a business plan for your South Dakota startup? We put together a comprehensive library of articles and guides on business planning.

Step 2: Choose a business structure in South Dakota

One of your first considerations for your new company will be choosing its business structure. Some of the best-known business entity types are corporation, general partnership, limited liability company (LLC), and sole proprietorship. Let’s take a quick look at the advantages and disadvantages of each type.


Corporations in South Dakota are one business structure option. You must file South Dakota Articles of Incorporation and pay a filing fee to start one. Corporations can shield their owners’ (called “shareholders”) personal assets from liability, so if the business gets into trouble, the shareholders’ personal savings accounts are protected.

However, income for C corporations (the most common type of corporation) is taxed twice — once at the level of the business and again on the personal tax returns of its shareholders. This is referred to as “double taxation.”

Limited Liability Company

General partnerships, sole proprietorships, and LLCs are among the most popular business structures partially because they’re considered “pass-through” entities, meaning their profits are reported only on the owners’ personal income tax returns without first being taxed at the business level.

Though the tax benefits make them similar, they’re definitely not the same. South Dakota LLC owners enjoy limited liability protection on their owners’ personal assets, which is important in the event the business is sued or goes bankrupt. Like a corporation, an LLC is a separate legal business entity from its owners.

LLCs must file Articles of Organization with the state of South Dakota and pay a fee, while sole proprietorships and general partnerships do not.

Sole Proprietorship and General Partnership

Sole proprietorships and general partnerships are the cheapest types of entities to form with the least amount of required government paperwork. They don’t have to craft an LLC operating agreement or create corporate bylaws. They also avoid having to file formation documents with the state. Unfortunately, these structures don’t offer any liability protection on personal assets. That means if your company gets into financial trouble, so do you.

Because it combines liability protection and tax benefits, the LLC is a very popular form of business entity for many new entrepreneurs. We can file the paperwork to form an LLC or corporation for you with our business formation plans.

Step 3: Determine your South Dakota business startup costs

Your company will need to cover its costs, from startup costs to ongoing fixed and variable expenses. As part of your planning, the better you can estimate those costs, the better positioned you can be to get the right financing, set up your budget, and stay on track with managing cash flow.

Every startup’s costs are different, but some of the most common ones include:

  • Entity filing fees and South Dakota annual reports
  • Licenses and permits
  • Leasing or purchasing office space
  • Designing and printing business cards, postcards, brochures, or other print marketing materials
  • Equipment, office supplies, and furniture
  • Technical equipment: smartphones, tablets, point-of-sale devices, and/or computers
  • Bookkeeping and accounting
  • Travel and transportation
  • Developing, designing, hosting, and updating a company website

Curious about “how much it costs to start a business in South Dakota?” Look no further. This helpful guide will walk you through business cost calculation and more.

Business Insurance

Business insurance is another important consideration. From commercial general liability to workers’ compensation insurance, remember that different companies need different kinds of coverage. A qualified South Dakota insurance agent can tell you what coverage you should consider.

Step 4: Create a South Dakota business name

Different business owners take different approaches to naming their company. Whether you’re using your own name, location, services, and/or branding message, there’s no one way to find the right name. Still, the state’s naming rules must be followed.

Pick a unique name

By law, your new company can’t adopt a name already in use. To help ensure your business name choice isn’t already in use by another organization in the state, do a name search on the South Dakota Secretary of State website. We guide you through the search process on our South Dakota business entity search page.

This will help prevent legal issues, confusion among customers, and wasted time and money.

Business Name Reservation

South Dakota also gives business owners the ability to reserve a name for 120 days before filing the paperwork to start an entity like an LLC or corporation. This isn’t required, but it can keep another company from taking your desired name before you have a chance to file the paperwork with the state.

Online Presence

Once you’ve identified an available name that represents your brand, check for available domain names that you can use for your email and website. Our domain name registration service can help you secure the online name that will suit your business. 

The naming process is also a good time to reserve accounts or handles on social networks that may be part of your marketing strategy.

Step 5: Register your South Dakota business and open a business bank account

After you’ve chosen your business structure and (if required for your entity type) filed the formation paperwork with the South Dakota Secretary of State, you can apply for a federal employer identification number (EIN) with the Internal Revenue Service. Having this tax ID number is required for many businesses (not just those with employees) and will allow you to open a business bank account

Business Bank Account

You can open a company bank account yourself or have a business partner do it by using a banking resolution. Dedicated business bank accounts will keep the company’s finances separate from the personal funds of you and the other owners. This not only helps keep you organized at tax time, but it could help preserve your company’s limited liability status if you have an entity like an LLC or corporation.

Business Licenses

You’ll need to determine what permits and/or licenses the law requires for your business to operate. Permits and licenses vary by industry, and they can be needed at the federal, state, and/or local levels.

There’s no central authority to tell you every license and permit your business requires, so you’ll have to do some research or have someone like us do the research for you with a business license report.

Need more information about licenses and permits in South Dakota? Read all about licenses for different industries and how to apply for them in our South Dakota business licenses guide.

Step 6: Market your business in South Dakota

To make potential customers aware of your products and services, you need to market your company. It’s also a way to make the case for why someone should choose you over the competition. Start by making a solid marketing plan.

A website is essential for most businesses, with pages that showcase your offerings, tell customers your business’s story, and offer a way for them to get in touch.

Google My Business, Yelp, and other online directories are other ways you can put your business out there. Optimize those listings and your website, too, so potential customers are more likely to find your business in online searches.

Advertising is also important. Print media and regional radio and TV broadcasters can be powerful ways to spread the word about your company. Business cards, brochures, and postcards can also help.

If you’re not sure where to start, try consulting a South Dakota marketing firm.

Benefits of Opening a Business in South Dakota

The tax situation is perhaps the top draw for businesses to South Dakota. At the state level, there’s no corporate income tax, personal income tax, personal property tax, business inventory tax, or inheritance or estate taxes.

Even without the tax advantages, doing business in South Dakota is especially affordable. The state placed second in the cost of doing business category in CNBC’s “America’s Top States for Business in 2019” list. 

Examples of Good Businesses to Start in South Dakota

While South Dakota has plenty of fertile soil for farming and wide-open spaces for ranching, only you can determine what kind of business you want to start and run. Consider your own skills, the opportunities in the area, and what businesses have traditionally been successful in the state.

Here are some business ideas to get you thinking:

  • Bed and breakfast
  • Tourism agency
  • Cattle ranch
  • Graphic design service
  • Daycare
  • Agricultural processing plant

Looking for more ideas? Check out our list of the best businesses to start in South Dakota.

Bottom Line

Does a very business-friendly climate against a backdrop of beautiful Midwest scenery sound like a good setting for your dream business? If so, South Dakota may be the right place for you. But setting up a business in any state has challenges, which is why we’re here. Contact us today to see how our services can help you start, run, and grow your business.

Top South Dakota Cities to Form Businesses

Sioux Falls: Largest city in South Dakota with a diversified economy. Strong sectors include health services, finance, retail, and manufacturing. Home to major healthcare employers like Sanford Health and Avera Health, and significant financial services operations.

Rapid City: Economy bolstered by tourism due to proximity to attractions like Mount Rushmore. Expanding in technology and manufacturing, supported by the South Dakota School of Mines & Technology. Additional strengths in healthcare, education, and retail.

Aberdeen: Driven by healthcare, manufacturing, and education. Home to Northern State University, enhancing educational and business partnerships. Offers incentives and support for business development.

Brookings: Vibrant community with strong education, manufacturing, and research sectors. Hosts South Dakota State University, which drives innovation in agriculture, engineering, and biosciences. Attractive for tech startups and research-focused enterprises.

Watertown: Known for manufacturing and retail. Becoming a center for distribution and logistics due to strategic location. Economy includes a mix of traditional manufacturing and emerging service industries.

These cities offer diverse economic strengths, strategic locations, and supportive environments for a variety of business ventures in South Dakota.

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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Written by Team ZenBusiness

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