Why Incorporate in South Dakota: Everything You Need to Know
Incorporating in South Dakota offers a number of benefits like limited liability, perpetual existence, and easy accessibility to investment.4 min read
Why incorporate in South Dakota? Incorporating in South Dakota offers a number of benefits like limited liability, perpetual existence, ease of ownership transfer, and easy accessibility to investment.
A corporation is a distinct business entity with limited liability. In the event of a corporation being sued or not being able to meet its financial obligations, the shareholders of the company cannot be forced to pay from their personal funds or assets. Forming a corporation gives credibility to your business. It also offers several other benefits like tax savings, perpetuity, and easy reach to investors.
Since a corporation is a legal entity, it continues to exist until terminated according to the applicable law. Retirement or death of members does not affect the existence of the company. Corporations make it easier to set up retirement funds, stock option plans, and profit sharing compared to other business structures.
It's also easier to transfer ownership in a South Dakota corporation. Often, the transfer can be done by mere sale of shares.
Steps to Incorporating in South Dakota
The process of forming a corporation is commonly known as incorporation. You must file a corporate charter to form a corporation. Here are the steps required:
1. Corporate Structure
Choose the most appropriate corporate structure for your business.
2. Name Availability
- The name of your corporation must be clearly distinguishable from registered or proposed names of other businesses.
- You can call up the secretary of state's office to find out whether your proposed name is available.
- The name of your corporation must include a term like limited, corporation, company, incorporated, or the abbreviation of these terms, namely, ltd., corp., co., or inc.
- You can reserve your proposed name for a period of 120 days. For this, you must file a name reservation application with South Dakota's secretary of state.
3. Registered Agent
- Before filing your formation documents, you must designate a registered agent to receive service of process and handle other legal communication on behalf of the corporation.
- You can either designate a commercial registered agent or an individual with a business address in South Dakota.
4. Articles of Incorporation
A corporation comes into existence with the filing of articles of incorporation.
The articles must include the following information, among others:
- Name of the corporation.
- Address of the main office of the corporation.
- Capital structure.
- Name and address of each of the founders or incorporators.
- Name and address of the designated registered agent.
The corporation filing fee in South Dakota is $150.
5. Bylaws and Corporate Records
After incorporation, you must draft the bylaws for internal governance of the company. You must also set up a process for maintaining proper books of account and other records.
You must keep the following records at the principal office of the corporation:
- Filed articles of incorporation.
- Corporate bylaws.
- Minutes of the meetings.
- Your Employer Identification Number or EIN.
6. Initial Directors
The initial directors take care of the management until the board of directors is appointed by the general body meeting of the company. If your articles of incorporation do not list the initial directors, they must be appointed by the incorporator.
7. Corporate Purpose
South Dakota allows you to state a generic corporate purpose. It can be as broad as, “engaging in any lawful business.” You need not provide any additional specific purpose in the articles.
8. Organizational Meeting
You must hold an organizational meeting of initial directors or incorporators and prepare minutes of the meeting.
9. Stock Certificates
You should issue share certificates to the members of the corporation.
10. Federal Employer Identification Number (EIN)
You also need to obtain a federal tax identification number from the Internal Revenue Service. You will need this EIN for opening a business bank account and other business functions.
11. South Dakota State Tax Accounts
There is no separate income tax in South Dakota, but you may need to obtain certain tax licenses such as a manufacturer, wholesaler, sales, use, contractors' excise, and motor fuel tax licenses.
12. Business Licenses and Permits
You must obtain all the licenses and permits applicable to your industry.
13. Ongoing Filings
You must file an annual report every year.
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