Articles of Organization

The formation of a South Dakota LLC means that you have to file articles of organization (along with the $125 filing fee) with the Corporations Department of the South Dakota Secretary of State’s office. The articles, which must be signed by at least two persons organizing the LLC, must include:

• The LLC’s name
• The address of the LLC’s registered office
• The name of the LLC’s initial registered agent there
• The names and addresses of the organizers
• The duration of the LLC if it is not to be perpetual
• Whether the LLC will be manager-managed or not; if so, the name and address of each initial manager
• Whether one or more of the LLC members will be liable for its debts and obligations

Your new LLC is officially deemed “organized” after the LLC’s articles of organization and an exact copy are delivered to the Corporations Division of the Secretary of State’s office with the filing fee. The articles must be signed by a manager (of a manager-managed LLC), a member of a member-managed company, an organizer, or an attorney-in-fact. The signed document must also indicate the name and title (i.e., organizational capacity within the LLC) of the signer.

A certificate of organization will be issued and delivered, along with the conformed copy, to the LLC’s representative by the state. The original articles of organization will be filed with the Secretary of State.

Registered Agent and Office

Every South Dakota LLC must maintain both a registered agent and registered office in the state—the person or office designated to receive official state legal and administrative correspondence. An LLC registered agent may be an individual who resides in South Dakota or a business entity authorized to conduct business in the state. The registered agent’s business office must be the same as the corporation’s registered office.

The registered office may be—but doesn’t have to be—the LLC’s place of business.

Operating Agreement

The LLC’s next most critical document is its operating agreement. Having an operating agreement is not officially required by the state, but it’s a very important internal document that sets forth how the LLC will run. The operating agreement should list the LLC’s members, how much each one has invested, how any profits will be distributed, and how much relative weight each member has when voting. It can be amended or repealed as specified in the agreement itself or by state law.

The operating agreement can also include requirements for meetings (notice, quorum, voting rules, etc.) and similar functions, but it doesn’t have to. Often, however, it does include operating constraints and allowances that are already contained in state law and regulations. It also may contain constraints on the members’ authority to change or repeal the operating agreement or any provision thereof.

If any provision of the operating agreement conflicts with the articles of organization, the operating agreement takes precedence when it comes to managers, members, and members’ transferees. However, the articles take priority when dealing with individuals other than managers, members, and transferees who would be at a disadvantage if they relied on the articles.

Membership in the LLC

A South Dakota LLC must have at least one member, who may be a natural person or a business entity. Members may acquire an interest in the LLC either in proportion to their contribution or in some other way that is in accordance with the LLC’s operating agreement.

The contributions of a member to the LLC may consist of cash, property, services rendered, or a binding obligation to contribute cash or property or to perform services in the future.

An LLC member may not resign except in accordance with the operating agreement or articles of organization. A member resignation is wrongful if the member withdraws before the expiration of the LLC, if the member is expelled, or if he enters bankruptcy before the LLC expires—or, if the member is a business entity, if the entity willfully dissolves or terminates its existence before the LLC expires. If a wrongful dissociation causes harm to the LLC, the member is liable for those damages.

A member who wrongfully dissociates from an LLC is liable to the company and the other members for damages caused by the dissociation.

Managers are elected for an indefinite term by a majority of members, unless the operating agreement provides otherwise.

Ongoing Requirements

South Dakota LLCs submit an annual report to the state secretary of state that includes:

• The LLC’s name and the state or country where it was initially organized
• The address of the LLC’s principal office
• The address of the LLC’s registered office in the state
• The name of the LLC’s registered agent at that office
• The names and business addresses of any managers

It’s also a good idea to keep copies of the minutes of the various proceedings and committees meetings of the members and managers.

The LLC’s first annual report, which must be included with the official state articles form, must accompany the articles.

Dissolution

A South Dakota LLC is dissolved when any one of the following events occurs:

• On the occurrence of an event or events specified in the articles of organization or operating agreement
• Agreement to dissolve by the number or percentage of members specified in the operating agreement
• An event that makes it unlawful for the LLC to continue, unless the LLC corrects the illegality within 90 days of notification
• Application by a member or dissociated member and a judicial order
• Expiration of the LLC’s duration
• Administrative dissolution

Taxes

An LLC by its nature offers some particular tax advantages over a corporation’s organizational structure, especially when it comes to taxes. This includes access to more deductions, since the LLC is not required to be a separate tax entity like a corporation. Instead, it is considered a “pass-through” entity for tax purposes, meaning that LLC owners report business profits and losses on their individual tax returns.

South Dakota, however, does not have a state income tax.

Articles of Incorporation

Before it can legitimately commence operations in the state, a new South Dakota corporation must file articles of incorporation with the Corporations Department of the state Secretary of State’s office. The articles must be executed (signed) and delivered by at least one incorporator, who must be a natural person of legal age.

The articles must be accompanied by a filing fee of $125. The following information must be included in the articles of incorporation:

• The name and address of each incorporator
• The number of shares that the corporation is authorized to issue, itemized by class
• The street address of the corporation’s initial registered office
• The name of the corporation’s initial registered agent at that office
• Signed acceptance by the registered agent of appointment as such

South Dakota law also allows (but does not require) optional items to be included in the articles of incorporation for those corporations who wish to formally specify additional information, such as:

• The names and addresses of each incorporator
• The purpose of the corporation
• The number of shares the corporation is authorized to issue.
• The par value of shares or a statement that the shares are to be without a par value
• If applicable, the designation of each class of shares and a statement of the preferences, limitations, and relative rights for each class
• If applicable, the designation of each series and a statement of the variations in the relative rights and preferences between series, and a statement of any authority to be vested in the board of directors to establish and change the relative rights and preferences between series.
• A statement that the corporation will not start conducting business until consideration of at least a thousand dollars has been received for the issuance of shares
• The period of the corporation’s duration, which may be perpetual
• Any preemptive shareholder rights
• Any provisions chosen to be included by the incorporators to regulate the internal affairs of the corporation
• The street address of the registered office
• The name of the corporation’s registered agent there
• The registered agent’s written acceptance of the appointment as such
• The number of initial directors and their names and addresses
• A mailing address to which notices may be mailed until an address has been designated by the corporation in its annual report.

South Dakota also permits optional provisions to be included into the articles of incorporation, such as:

• The names and addresses of the initial directors
• The corporate purpose(s)
• Limitations on a director's or officer's liability for money damages to the corporation or its shareholders in certain situations

Registered Agent and Office

Every South Dakota corporation must have a registered agent in the state—the person or office designated to receive official state correspondence, both administrative and legal. The registered agent is required to sign the articles of incorporation, indicating acceptance of the appointment as registered agent.

The registered agent must be either a South Dakota resident whose business office is the same as the registered office, or a corporation authorized to conduct business in the Mount Rushmore State that has a business office identical to the registered office.

Bylaws

Bylaws lay out the corporation’s basic managerial and legal operating principles that manage their internal affairs. South Dakota corporations must keep a copy of their bylaws at their principal executive office, but are not required to file them with the state. At its initial meeting, the incorporators or the board of directors should adopt corporate bylaws, and then keep them updated as time goes on.

The board of directors of a corporation may adopt, amend, or repeal bylaws, unless the articles reserve this right to the shareholders. Bylaws normally address:

• Shareholders and directors meetings
• The authority, number, and tenure of directors
• Voting procedures
• The duties, responsibilities, and tenure of officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Directors and Officers

A corporation’s board of directors consists of one or more individuals in accordance with the articles of incorporation or bylaws. The number of directors may be increased or decreased by amending the articles of incorporation or the bylaws, but no decrease in the number of directors can have the effect of shortening the term of any incumbent director.

Officers are listed in the initial bylaws or elected by the board of directors, and may appoint other officers in accordance with the bylaws. At least one officer has the responsibility of preparing minutes of director and shareholder meetings, and for maintaining and authenticating corporate records.

It is permissible for an officer to hold more than one office in the corporation unless otherwise prohibited by law or by the corporation’s bylaws.

Required Reports and Continuing Obligations

South Dakota corporations must file a report with the South Dakota Department of Secretary of State each year before the first day of the second month following the anniversary month of its incorporation, except for the year of incorporation. The report must be current as of the close of business on the day prior to the corporation's anniversary date of incorporation. This report must indicate:

• The corporation's name and its state or country of incorporation
• The street address of its registered office
• The name of its registered agent there
• A brief statement of the character of the corporation’s business
• The names and addresses of the corporation’s directors and officers
• A statement of the aggregate number of authorized and issued shares that the corporation is authorized to issue, itemized by classes, par value of shares, shares without par value, and series, if any, within a class
• The stated capital amount of the corporation

Taxes

“S corporation” status is recognized by the South Dakota Secretary of State. A “subchapter S” corporation (frequently referred to as an “S corp”) is treated as a pass-through entity for tax purposes in the same way as a sole proprietorship or partnership. The S corp does not file a tax return on its own behalf; instead, all tax-related data for the S corp is filed as part of the owner’s individual income tax.

South Dakota does not impose a corporate income tax, however, so a subchapter S choice in this state has federal implications for South Dakota corporations, but no state impact.