South Dakota is one of the most affordable states to work and live in. The state attracts entrepreneurs with a great tax system and numerous benefits for both small and large businesses. Home to big names like Raven Industries, Black Hills, Avera Health, and First Premier Bank, South Dakota seems to be the best place in the US to launch a new business venture and invest in new endeavors. So has this taken your interest to start a business in South Dakota?
The Mount Rushmore state has a business-friendly tax climate and allows access to a developed business community that focuses on collaboration and growth. The business environment in South Dakota is less about competition and more about overcoming barriers while the atmosphere gravitates around Midwest hospitality and connection among the participants to the state’s economy.
Why should you start a business in South Dakota?
One of the main reasons entrepreneurs choose South Dakota as their headquarters is the low-cost business environment that allows them to successfully grow their business and reach their milestones. The state does not impose a corporate or individual state income tax and has no business inventory tax, inheritance tax, or personal property tax. In other words, business owners will have more money to invest in their business, the freedom to plan the organization’s growth, and no concerns regarding potential cash flow problems.
The regulations in South Dakota are reasonable and make it easier for entrepreneurs to establish and run their businesses. Tax Foundation ranks South Dakota 2nd in the US in its 2020 State Business Tax Climate Index. Moreover, the state offers various incentive programs for start-up businesses and each industry has its own clear set of regulations. The most developed sector in South Dakota is indeed agriculture but this doesn’t mean that businesses that activate in industries like manufacturing, financial services, and tourism are not doing extremely well!
What type of business entity is best for you?
One of the most important steps you need to take when you want to start a business in South Dakota is to decide on your business structure. There are four main business entities:
- Sole proprietorship – recommended for individuals who want to set up a business. It requires no state filing and is the least expensive option of the four. However, the disadvantage is the fact that the owner is to be held personally accountable for all debts of the company and will pay a self-employment tax on the profit.
- Partnership – subject to the same regulations as a sole proprietorship with the only difference that it consists of two or more people.
- Corporation – a complex business structure separate from the owner, which implies personal asset protection in case of legal disputes. However, it requires the involvement of a board of directors, shareholders, registered agents, and more.
- Limited Liability Company (LLC) – the most popular business entity choice due to its hybrid nature that combines the advantages of a sole proprietorship and a corporation and ditches the burdens associated with both. In other words, an LLC protects the owner’s assets and helps avoid double taxation because the profits are subject to the owner’s tax return.
South Dakota offers a series of advantages for each type of business entity. Corporations can expect to be independent and not affected by the death of a stockholder. Moreover, each owner or shareholder will pay tax on their personal tax returns and have no obligation to pay any income tax.
New limited liability companies benefit from various financing options through programs such as South Dakota WORKS, South Dakota Jobs Grant Program, Reinvestment Payment Program, and South Dakota Microloan Express. A South Dakota LLC grants limited liability protection and allows for various ways of profit distribution.
How to start your business in South Dakota?
Now that you have chosen your business entity and your business plan is already in place, you can go ahead and register your business name. If you want to run a sole proprietorship or partnership and you decide to use your full name, there is no need to file any paper. However, if you want to operate under a fictitious name, you should register your name at the Secretary of State’s office or the Register of Deed’s office in the county where your business is located. The latter option applies to both LLCs and corporations.
The next step is to get an Employer Identification Number (EIN) which is a tax identification number issued by the Internal Revenue Service (IRS). Sole proprietorships do not require an EIN because the owner can use their social security number for identification. After filling for an EIN, you can open a business bank account that needs to be separate from any account used to manage your personal finances.
Depending on the type of business you are planning to open, you should apply for the necessary business licenses and permits. South Dakota does not impose a general business license, but many cities require a business license. Professionals like architects, cosmetologists, and plumbers will need professional licenses to operate. If you are planning to sell products or services or if you are going to hire employees, you also need to register for a sale tax license with the South Dakota Department of Revenue.