How to Start a Business in South Dakota - 7 Steps to Get Started

South Dakota provides a welcoming environment for aspiring entrepreneurs.

With its favorable economic climate, supportive community, and business-friendly regulations, like no personal income tax, the State is a top contender for launching a successful business with minimal investment.

So, if you plan on owning a business in South Dakota, go for it. And here are seven steps to get started -

1. Choose Your Business Idea

Every successful business starts with a good idea. So, dedicate ample time to generate a unique and compelling idea that differentiates your business from the competition.

To come up with a strong idea:

• Evaluate your skills and passions to find a concept that resonates with you.
• Identify a popular niche that offers growth potential.
• Conduct thorough market research and study existing small businesses to uncover any gaps in the market that you can exploit for your benefit.

2. Make a Business Plan

A business plan is important to your success. It outlines the company's goals and strategies for achieving them and provides a roadmap for running the business.

A well-crafted business plan also helps secure financing and investors and is a reference for measuring the company's progress against its objectives.

Ensure your business plan include these elements:

• Executive Summary: Write a concise business overview highlighting its key aspects and value proposition.
• Business Description: Clearly articulate the nature of your business, detailing its purpose, goals, and unique selling points.
• Target Markets: Identify and assess the market(s) in which your company will operate, including potential customer segments and growth opportunities.
• SWOT Analysis: Conduct a thorough analysis of your business by evaluating its Strengths, Weaknesses, Opportunities, and Threats, enabling a comprehensive understanding of its competitive landscape.
• Write Down Your Offer: Describe the offerings of your business, emphasizing their distinctive features, benefits, and competitive advantage.
• Marketing Plan: Outline a well-defined marketing strategy that outlines how your business will reach and engage with its target audience, including key marketing channels, messaging, and promotional activities.
• Financial Plan: Present a comprehensive financial plan that includes projections, budgeting, revenue models, and funding strategies, demonstrating the financial viability and potential profitability of your business.

3. Choose Your Business Name

• Register your business name: Your business name in South Dakota should be unique. Compile a list of potential business names, then use this name search tool on the South Dakota Secretary of State's (SOS) website to ensure the name is available.
• Include specific words: If you choose to structure your business as a limited liability company (LLC), you need to include "Limited Liability Company" or "LLC" in your business name. Corporations must include "Corporation," "Company," "Incorporated," or "Limited" or their abbreviations.
• Check for federal trademarks: To ensure the federal government does not trademark your business name, search the U.S. Patent and Trademark Office's website.
• Register an online domain name and social media handles: If you plan to do business online, you must secure a domain name and social media handles. Choose an online domain name that complements your business name or DBA, and reserve social media handles similar to your domain, legal business name, or DBA.

4. Decide Your Business Structure

In South Dakota, sole proprietorships, general partnerships, limited liability companies, and corporations are the primary business structures.

Sole Proprietorship

If your company has little risk, low overhead, and no employees, a sole proprietorship structure would be best for you.

In an informal business structure, there is no legal distinction between the organization and the business ownership.

So, if your business incurs debt, creditors can come after your personal assets to collect their dues.

However, there are also advantages to this structure, like easy setup without the need for any registration and single tax filing - sole proprietorships are pass-through entities, meaning they're only taxed once at the owner's income level.

Sole proprietorships are not allowed to issue stocks and cannot accept money from investors.

How to Form

• Choose your business name.
• File for DBA (Doing Business As) name.
• Obtain a federal employer identification number (EIN).
• Enlist Taxation Requirements.
• Obtain business permits, licenses, and zone clearance.

Partnership

Partnerships are of three types: general partnership (GP), limited partnership (LP), and limited liability partnership (LLP).

A GP is like a sole proprietorship but with multiple owners. It's an informal, unincorporated business structure taxed similarly to a sole proprietorship. And, like a sole proprietorship, the owners have no liability protection.

An LP includes one general partner and at least one limited partner. The general partner runs the business and is personally responsible for its debts. Limited partners don't participate in day-to-day operations and enjoy limited liability; they're only liable for their invested money.

An LLP, regarding liability protection, is different from other types of partnership as it protects all partners except the one responsible. That means if one partner messes up, only they are liable and not the others. However, regarding tax purposes, an LLP, like other partnerships, is a pass-through entity.

How to form

• Select a business name.
• Consider filing a trademark on the business name (optional for GPs)
• Complete the required paperwork: GPs - No need to register with the SOS; LPs - File a Certificate of Limited Partnership with the SOS and pay any required fees; LLPs: Submit a Certificate of Limited Liability Partnership with the State.
• Obtain an EIN

Limited Liability Company (LLC)

LLCs offer small business owners a great combination of benefits: the flexible, flow-through taxation of a sole proprietorship or partnership and the limited liability protection of a corporation.

By structuring your business as an LLC, you can shield yourself and your fellow members from personal liability for any debts or legal issues your organization may face. This protection is a significant selling point for LLCs and a reason why many entrepreneurs choose this structure.

How to form

• Choose a name for your LLC.
• Secure a registered agent.
• Submit your Article of Organization to the South Dakota SOS.
• Create an Operating Agreement.
• Obtain an EIN.
• Establish business accounts.

Corporation

Corporations stand out by providing a legal separation between the business and its owners. Despite the potential for higher costs and increased tax compliance, incorporating brings many advantages.

As a separate legal business entity, a corporation possesses similar legal rights and responsibilities as an individual. It can engage in contracts, own assets, fulfill tax obligations, and even partake in legal disputes through lawsuits.

Two primary forms of corporations exist C corporations and S corporations. C corps are more prevalent, but there's double taxation, where the business pays taxes on its profits, and the owners face taxes once again on any dividends received. Nonetheless, C corps enjoy greater flexibility with multiple stock classes and unlimited shareholders, albeit with the necessity to adhere to stringent corporate formalities.

S corps, unlike C corps, are pass-through entities. So, although S corps have certain limitations, such as a maximum of 100 shareholders and just one class of stock, they bring noteworthy tax advantages for their owners.

How to form

• Select a name for your corporation.
• Appoint directors to oversee the corporation's activities.
• Secure a registered agent based in South Dakota to handle legal and official communications.
• File the South Dakota Articles of Incorporation to establish your corporation formally.
• Develop corporate bylaws to define internal governance and operational guidelines.
• Prepare a shareholder agreement that outlines the rights and responsibilities of shareholders.
• Allocate and issue shares of stock to the shareholders.
• Complete the necessary steps to obtain the required business licenses and permits.

5. Business License and Permits

In South Dakota, it is essential for all taxable businesses, regardless of whether they have a physical presence in the State or operate solely online, to obtain a general business license from the South Dakota Department of Revenue.

This requirement applies if your business engages in sales or facilitates deliveries within South Dakota.

Additionally, depending on the specific goods or services you intend to sell, you may need to acquire special permits for activities like alcohol sales, tobacco products, wholesaling, and motor fuel.

6. Consider Buying Business Insurance

Business insurance is essential to save your company and assets from unexpected disasters.

Consider the following options -

Commercial general liability insurance for businesses

A CGL policy can help shield you from financial claims stemming from injuries, property damage, false advertising, libel, and slander.

Worker's compensation insurance

Worker's compensation insurance holds significant importance as it offers crucial coverage for medical expenses related to work-related injuries and illnesses. Moreover, it provides disability benefits to employees who have sustained injuries.

This insurance policy is strongly recommended for businesses employing workers, as it is a fundamental protective measure. By ensuring the provision of adequate coverage, it plays a pivotal role in keeping employees safe and secure while they carry out their job responsibilities.

Professional liability insurance for professionals

Professional liability insurance safeguards your businesses in the event of allegations of malpractice or gross negligence. You can protect yourself against potential legal claims arising from errors or mistakes made during your work.

Property insurance for businesses

Business property insurance protects a business financially if its property is lost, stolen, or damaged.

Cyber liability insurance

Cyber liability insurance is crucial in safeguarding businesses by providing specialized coverage for various business expenses, business losses, disruptions, and potential penalties arising from data breaches.

7. Open a Business Bank Account

Maintaining a separation between your personal and business finances is important, especially when establishing a formal business legal structure that safeguards your personal liability. By avoiding the mingling of personal and business finances, you can effectively shield your personal assets from potential risks.

Apart from the protective aspect, separating your finances brings a range of practical advantages. It allows for efficient monitoring of your income and expenses, facilitates better cash flow management, and enables effective long-term planning for your business.