How To Start a Business in South Dakota in 8 Easy Steps

Start a Business: South Dakota

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The Mount Rushmore State’s small population means it’s rife with competitive opportunity. South Dakota has a business-friendly climate, a low cost of living, and major tax incentives. Whether you choose to hang your shingle east or west of the Missouri River, here are eight steps to successfully starting a business in South Dakota.

1. Choose a business idea

You first need a business idea for your South Dakota venture. It’s one of the most important decisions you’ll make as an entrepreneur. You could develop a new or innovative product or identify and market a service your community lacks. Here are two key considerations when contemplating an idea for your project:

2. Name your business

Once you’ve got an idea for your South Dakota business, choose a business name. A good name communicates what your company does but is also catchy and memorable to customers. Here are a few things to keep in mind when choosing a South Dakota business name:

  • Be original. The name of your South Dakota business must differ from any other business registered in the state. Search existing registered businesses through the South Dakota Secretary of State office to see if your preferred name is available.
  • Reserve your name. You can reserve your South Dakota business name for 120 days. The filing fee for this application is $25.
  • Include and exclude specific words. If you choose to form an LLC in South Dakota, your business name must contain the term “Limited Liability Company,” “Limited Company,” “LLC,” or “LC.” A corporation name must include the words “Corporation,” “Company,” “Incorporated,” “Limited,” or an abbreviation thereof. No business name can contain words that would confuse it with federal or state agencies.
  • Adopt a DBA. Think of a DBA, or “doing business as,” as an alias or assumed name for your business.If you want to operate under a name different than the one you officially registered with the state, file for a DBA for a $10 fee. Your DBA must comply with all South Dakota business naming rules.
  • Secure a domain name and social media handles. A unique name is crucial for doing business online. Purchase a domain name (URL) and reserve social media usernames that align with your business name (or DBA) to make it easier for customers to find you online.

3. Create a business plan

Like a roadmap on a road trip, a solid business plan is crucial for creating a successful business. Your plan should reflect your overall business goals and give stakeholders—and potential investors—a clear sense of how you intend to operate in the near and long term. Here are the critical elements of a good business plan:

You can draft your plan using a free template tailored to meet your business’s specific needs, or write your own from scratch, consulting plan examples for inspiration.

4. Choose a business structure and get started

Before formally launching your South Dakota business, decide on a business structure. There are four primary formats available in South Dakota: sole proprietorships, general partnerships, limited liability companies, and corporations. Each offers certain advantages and disadvantages regarding tax treatment and liability protection. Note that tax distinctions between entity types concern federal taxes because South Dakota doesn’t levy corporate or personal income tax on business owners). Here’s how the different structures differ:

  • Sole proprietorship. Sole proprietorships, the default business designation in the US, are run by an individual. Sole proprietorships enjoy “pass-through” tax status, meaning they’re only taxed once at the owner’s personal income level. However, sole proprietors are not considered legally distinct from the business, meaning the proprietor is personally liable for most debts and legal damages it incurs. A sole proprietorship is an excellent choice if your company has little risk, low overhead, and no employees.
  • General partnership. General partnerships are formed by two or more owners, known as “partners.” Like sole proprietorships, partnerships are pass-through entities at the federal level. They are not considered legally separate from business ownership, meaning there’s no personal asset protection for partners against creditors and lawsuits.
  • LLC. Limited liability companies (LLCs) combine the tax benefits of sole proprietorships and general partnerships with the personal liability shield of corporations. In other words, LLC owners (or “members”) enjoy pass-through taxation while still shielding their personal assets from creditors and lawsuits. LLCs are considered formal business structures and tend to entail more costs and paperwork than sole proprietorships and partnerships, though still less than corporations. Note that South Dakota LLCs are not subject to many state business taxes.
  • Corporation. Corporations can issue stocks to shareholders, who then own a stake in the business, making it easier to raise funds and garner investments. Corporations are considered separate entities from their ownership, which protects owners’ personal assets in case the company fails or is hit with a lawsuit. However, because of this added layer of liability protection, South Dakota corporations are subject to corporate taxes at the federal level, meaning business income is taxed at the corporate level and at the personal-income levels of owners and shareholders. As with LLCs, South Dakota corporation owners are not subject to corporate and personal income tax at the state level.

Obtain a federal employer identification number (EIN)

Once you’ve determined your South Dakota business’s legal business entity structure, apply for a federal employer identification number (EIN) through the Internal Revenue Service (IRS) website, free of charge. This nine-digit number is assigned to businesses by the IRS for tax purposes. (Think of it like a Social Security number for companies.) Having an EIN can also help secure credit accounts and cards for business expenses.

Incorporating in South Dakota

To officially set up your business in South Dakota, you may have to file organizational documents with the Secretary of State’s office, particularly if you’re forming an LLC or a corporation. Here’s how to incorporate in South Dakota:

You may also want to open a business bank account. While this isn’t required, the IRS recommends that all small businesses maintain business bank accounts separate from their owners.

5. Obtain business licenses and permits

All taxable South Dakota businesses must obtain a tax license issued by the South Dakota Department of Revenue, even if you don’t have any physical locations in the state. That is to say, if you make sales or facilitate deliveries from within South Dakota, even if your business is entirely online, you must obtain this tax license. You may also be required to obtain special permits to sell particular goods or services in the state, such as alcohol, tobacco products, wholesaling, and motor fuel. You can get these licenses through the Department of Revenue’s website.

6. Examine business insurance options in South Dakota

Unforeseen losses can spell disaster for small businesses. While some business structures like corporations and LLCs offer personal asset protection, you may still want to purchase insurance to cover your products, vehicles, and other property. Types of business insurance you may need or want to consider include:

  • Workers’ compensation insurance. Workers’ comp covers injuries workers might incur on the job. South Dakota is one of the few states not to require businesses to carry this insurance, but it’s still a prudent investment for any operation with employees.
  • General liability insurance. General liability insurance covers broader financial liabilities, like those resulting from property damage or legal fees. If you want to rent an office or storefront in South Dakota, your lease may require purchasing general liability insurance.
  • Product liability insurance. Product liability insurance protects your business against legal claims of bodily injury or property damage related to the products you sell, manufacture, or repair.
  • Professional liability insurance. Professional liability insurance shields from financial losses from malpractice claims, which can be brought against businesses that provide advice or high-competency services, like law firms or health care practices.
  • Business owner’s policy. Think of a business owner’s policy, or BOP, as a small business insurance package deal. The specifics vary, but BOPs often include general liability insurance, commercial property insurance, and workers’ compensation.

The federal Small Business Administration also maintains a list of insurance policies your new South Dakota business may need.

7. Understand financial considerations

On top of buying insurance, you’ll have to make other investments to get your South Dakota business off the ground. These costs might include renting a brick-and-mortar retail space, getting a professionally designed business website, or paying for advertising, equipment, or bookkeeping software. You may want to hire lawyers, accountants, or other professionals to support your endeavors. You’ll also be responsible for special taxes like unemployment insurance and state and federal taxes. Thankfully, there are business funding options to help you cover startup costs, like Shopify Capital, which lets you repay through a percentage of your store’s daily sales. 

8. Market your business

Marketing means cultivating customer interest and figuring out what works to convert them into loyal patrons. A solid marketing plan for your South Dakota small business can include the following:

  • Market research. Market research is key to identifying and leveraging your target market, giving you a sense of how to compete and stand out in your business ecosystem.
  • Advertising. Get the word out through paid ads, online or in print. Do this yourself or hire an agency to design and place ads on your behalf.
  • Social media. Today, every business needs to maintain social media accounts across multiple platforms—including Facebook, Instagram, YouTube, and TikTok. Consistently publish content that aligns with your brand identity and work to increase customer engagement.
  • Public relations. Identify and cultivate relationships with media outlets—both in South Dakota and across the US—to help organically increase your visibility.
  • Customer retention. Build genuine relationships with customers to keep them returning and spreading the word to friends, family, and colleagues.

Starting a business in South Dakota FAQ

How much does it cost to start a business in South Dakota?

It costs up to $15 to set up your business entity with the Secretary of State’s office in South Dakota, plus $10 to reserve a business name or file a DBA.

Does South Dakota have a general business license?

South Dakota requires a tax license for all entities conducting business in the state. You can obtain a business license through the Department of Revenue.

What do you need to start an LLC in South Dakota?

You need to file Articles of Organization to start an LLC in South Dakota (plus a $15 fee if filing by mail or in person).

Is South Dakota a good place to start a business?

South Dakota is a great place to start a business. On top of relatively low business costs (i.e., materials, rent, equipment, and contractor fees), the state does not charge business owners corporate or income tax.

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