How To Start a Business in South Dakota in 8 Easy Steps (2025)

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The Mount Rushmore State’s relatively small population means it’s a state that’s ripe with competitive business opportunities. With no state income tax, no corporate income tax, a low cost of living, minimal regulations, and a strategic central location, South Dakota consistently ranks as one of America’s most business-friendly states. 

Whether you choose to establish your business in the urban centers of Sioux Falls or Rapid City, or prefer to get your start in smaller communities across the state, here are your 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 your business idea:

• Who is your customer? A business thrives insofar as it understands its target customer. Will you sell to other businesses (B2B) or straight to consumers (B2C)? Will you sell online, through a traditional brick-and-mortar establishment, or a combination of both? Survey prospective customers, study your potential competition, analyze marketplaces that sell similar products or services (like Amazon or Wayfair), and research industry trends.
• What is your projected profitability? Ensure your business generates more revenue than it spends, at least in the long run. Pay attention to elements that impact your bottom lines, like pricing, packaging,distribution, bundling models, and subscription options. How much do you need to sell to break even? How long will it take for your business to generate a healthy profit margin?

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. The Secretary of State’s office determines distinguishability based on specific criteria—minor variations like plurals, articles, or business entity designations typically aren’t enough to make a name distinguishable. 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 (“doing business as”) to use 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, and it’s just as important to keep that name as consistent as possible across all of your touchpoints. Purchase a domain name and reserve similar 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:

• Executive summary and mission statement
• Detailed company description
• Market analysis
• Organizational structure
• List of products or services
• Customer segmentation report
• Marketing plan
• Logistics and operations plan
• Financial plan

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

4. Choose a business structure and get started

Before formally starting a business in South Dakota, decide on your business structure. There are four primary business entity types available in South Dakota: sole proprietorships, general partnerships, limited liability companies, and corporations. Each entity offers certain advantages and disadvantages regarding tax treatment and liability protection. 

Note that tax distinctions between entity types concern federal taxes, not state taxes. That’s because South Dakota doesn’t levy corporate or personal income tax on business owners. 

Here’s how the different types of business 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, although still less than corporations. 
• 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. 

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:

• Corporations. To set up a corporation in South Dakota, file Articles of Incorporation online, for free, or by paper (mail or in person), for a $15 fee. Corporations must also file annual reports with the Secretary of State office, which you can do online, free of charge, or by paper (mail or in person), for $15.
• LLCs. To set up an LLC in South Dakota, file Articles of Organization online, for free, or by paper (mail or in person), for a $15 fee. LLCs must file annual reports, which you can do online, free of charge, or by paper (mail or in person) for $15.

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’ personal accounts.

South Dakota registered agent requirements

Every business entity registered in South Dakota must designate and maintain a registered agent in the state. This crucial requirement ensures your business has a reliable point of contact for receiving legal documents, tax notices, and other official communications. Learn more about registered agents below. 

What is a registered agent?

The registered agent you designate can be an individual or professional service that employs registered agents. The main function of your registered agent is to receive service of process (i.e., legal documents that are “served,” like a court summons or lawsuit), state correspondence, and compliance notices on behalf of your business. The agent must be available during normal business hours to accept these documents in person.

Registered agent requirements

A South Dakota registered agent must:

• Have a physical street address in South Dakota (P.O. boxes are not accepted)
• Be at least 18 years old (if an individual, not a company)
• Be available during regular business hours (9 a.m. to 5 p.m., Monday through Friday)
• Consent to serve as your registered agent

Who can you designate as your registered agent?

• Yourself. You can serve as your own registered agent if you have a physical address in South Dakota and are available during business hours.
• Business member. Another member, manager, or employee of your business with a South Dakota address.
• Third-party individual. A friend, family member, or colleague with a South Dakota address.
• Registered agent service. Professional registered agent services in South Dakota typically charge $100 to $300 annually. They provide address privacy and reliability for receiving important documents.

Consequences of non-compliance

The state must have a reliable way to contact your business for legal and administrative matters. Failing to maintain a registered agent can result in your business falling out of good standing with the state. This could lead to fines and even administrative dissolution of your entity. 

5. Obtain business licenses and permits

With your business structure established, you now need to address licensing requirements to operate legally in South Dakota. A general business license is not required, but 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 (BOP) as a small business insurance package deal. The specifics vary, but BOPs often include general liability insurance, commercial property insurance, and workers’ compensation.
• Home-based business insurance. If you operate from home, your homeowner’s insurance likely doesn’t cover business activities. A dedicated home business policy can protect your equipment and liability concerns.

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. 

Fortunately, there are business funding options to help you cover startup costs. For example, Shopify Capital lets you repay through a percentage of your store’s daily sales.

South Dakota tax advantages

South Dakota offers some of the most business-friendly tax advantages in the United States, making it an attractive location for entrepreneurs.

• No state income tax. South Dakota does not impose individual income tax, meaning business owners of pass-through entities (sole proprietorships, partnerships, LLCs) keep more of their profits.
• No corporate income tax. Unlike most states, South Dakota does not levy a corporate income tax, significantly reducing the tax burden for C corporations.
• No business inventory tax. Businesses don’t pay taxes on their inventory, reducing costs for retail and manufacturing operations.
• No inheritance tax. South Dakota doesn’t impose inheritance or estate taxes, making it easier for family businesses to transition between generations.
• Low overall tax burden. The state has one of the lowest overall tax burdens in the country, with competitive property tax rates and a straightforward 4.2% state sales tax. South Dakota municipalities may also impose taxes up to 2%.
• Tax incentives for businesses promoting job growth. South Dakota offers additional targeted tax breaks for businesses through programs like the Revolving Economic Development and Initiative (REDI) Fund.
• Simplified tax compliance. The streamlined tax structure means less paperwork and lower compliance costs for business owners, allowing you to focus more on growing your business than managing tax obligations.

8. Market your business

Marketing means cultivating customer interest and figuring out what works to convert them into loyal patrons. You can use a variety of approaches—both online and offline—to engage your community and build brand awareness. 

A solid marketing plan for your South Dakota small business can include the following:

• Market research. Identify and leverage your target market to get 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. 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 customer relationships with customers to keep them returning and spreading the word to friends, family, and colleagues.

Local marketing strategies for South Dakota businesses

South Dakota’s unique geography, demographics, and community values require tailored marketing approaches that consider local characteristics.

Here are a few suggestions for how to market locally in South Dakota: 

• Community involvement and sponsorships. South Dakota communities place high value on local engagement. Sponsoring local sports teams, county fairs, rodeos, and community events builds goodwill and brand recognition. This tactic is particularly effective in smaller communities throughout the state.
• Regional targeting. Marketing strategies should acknowledge the distinct differences between eastern South Dakota (including Sioux Falls and surrounding areas) and western South Dakota (including Rapid City and the Black Hills). Each region has different demographics, economic drivers, and customer behaviors you’ll want to familiarize yourself with and adapt your marketing strategies to to meet those needs.
• Seasonal adjustments. Tourism peaks during summer months, especially for popular summer events like the Sturgis Motorcycle Rally, while agricultural businesses follow farming seasons. Adjust your marketing calendar to account for these fluctuations and target seasonal visitors when appropriate.
• Local media partnerships. Local radio stations, newspapers, and regional TV channels remain influential in South Dakota, particularly outside of major urban areas. Consider these traditional advertising channels alongside digital marketing for a comprehensive approach.
• Cross-border marketing. Many South Dakota businesses draw customers from neighboring states (Minnesota, Iowa, Nebraska, North Dakota, Wyoming, and Montana). Consider extending marketing efforts to nearby communities in these states, especially if you’re located near a border.
• Outdoor advertising. With long driving distances between communities and high traffic during tourist season, billboards and other outdoor advertising along major highways can be particularly effective, especially on routes to popular attractions like Mount Rushmore or Wall Drug.

With the state’s tax advantages, engaged local communities, and low cost of living, starting a business in South Dakota is easier than ever for entrepreneurs like you.