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South Dakota Business License Basics

By: Startup 101
Last Updated: November 15, 2024

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The path from business idea to official registration in South Dakota involves several steps to get the business legally set up.

Many first-time business owners are uncertain about how to proceed with the necessary paperwork. To simplify the process, this guide offers a clear roadmap for registering a business in South Dakota. We explain everything from choosing your company’s legal structure to acquiring the required licenses.

Related: Starting A Business In South Dakota Checklist

Step 1: Business Structure

A business structure (also called a business entity) refers to the legal structure through which a business operates and is recognized by state law. Choosing the right type of business structure impacts various aspects of a business’s operation, such as tax obligations, personal liability protection, ownership transfer options, and fundraising capability. Understanding the differences between the four primary types of business entities can help entrepreneurs select the most suitable one for their particular circumstances.

Related: Comparison of Business Structures

Sole proprietorship: A single individual who owns and manages the entire business without any legal distinction and assumes full responsibility for financial debts and obligations. Pros include simplicity, low costs, and flexibility. Cons involve unlimited personal liability.

Related: How to Start a Sole Proprietorship in South Dakota

General partnership: Similar to a sole proprietorship, this structure has two or more individuals who collaboratively own and operate a business and share profits and losses but face unlimited liability exposure for debts and legal issues arising from business operations. Pros include increased capacity, shared decision-making, and mutual encouragement. Cons include disagreements over management responsibilities and the risk of being held personally responsible for actions taken by another partner.

Corporation: A separate legal identity that is distinct from shareholders or owners, offering personal liability protections and the ability to source investment capital from external sources in addition to debt. Corporations must adhere to strict formalities such as holding annual meetings, maintaining records, appointing a South Dakota registered agent, filing annual reports, etc.

Related: How to Form a South Dakota Corporation

The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the ease of operation of a sole proprietorship. The LLC does not have as many of the corporation’s burdens and has the greatest tax flexibility of the four entities, as income can be taxed as a pass-through entity like the sole proprietor or partnership or may find tax savings by being taxed as a corporation.

Related: How to form a South Dakota LLC 

Step 2: Business Name

After selecting a business structure, choosing and registering a business name is often the next important step for many South Dakota entrepreneurs. This process is particularly relevant for sole proprietors and general partnerships.

For sole proprietors and general partnerships in South Dakota, using their own name(s) for business operations doesn’t require additional registration. However, if they wish to use a different name, they need to register a “Doing Business As” (DBA) name, also known as a fictitious business name.

For example, John Doe decides to start a small engine repair business in Rapid City. If he operates under his full name, “John Doe,” he doesn’t need to register a DBA. However, if he calls his business “Black Hills Small Engine Repair,” he must register this name with the Pennington County Register of Deeds office in Rapid City.

Corporations and Limited Liability Companies (LLC) (and other business entities like the Limited Partnership and Limited Liability Partnership) won’t typically register for a DBA since a unique legal name is created during the entity formation process. However, some will want to register for a DBA if they have another business or brand name they want to operate with.

It’s important to note that before registering a name, business owners should check its availability through the South Dakota Secretary of State business entity database to ensure it’s not already in use by another business in the state.

Step 3: Federal Employer Identification Number 

After selecting a business structure and registering a business name, obtaining a Federal Employer Identification Number (FEIN), also known as an Employer Identification Number (EIN), is often the next registration for many South Dakota businesses.

An EIN is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify businesses for tax purposes. It’s similar to a Social Security number but for businesses.

You’ll need an EIN if:

  • Your business has employees
  • Your business is structured as a corporation, partnership, or multi-member LLC

While sole proprietorships and single-member LLCs without employees can use the owner’s Social Security number for tax purposes, many choose to obtain an EIN anyway.

Obtaining an EIN is a straightforward process that doesn’t cost anything. The quickest method is to apply online through the IRS website, which typically takes just a few minutes. Alternatively, you can apply by mail or fax, though these methods take longer to process.

When you apply, you’ll need to provide basic information about your business, such as its legal name, address, and type of business entity. Once your application is processed, you’ll receive your EIN immediately if you applied online, or within a few weeks if you applied by mail or fax.

How to Apply for a FEIN

Step 4: Professional & Industry Licensing

Before offering certain services in the state, some businesses will need to obtain professional or industry-specific licensing.

Professional licensing in South Dakota is overseen by various boards and commissions, many of which are under the umbrella of the South Dakota Department of Labor & Regulation. Some common professions requiring licenses include:

  • Architects (South Dakota Board of Technical Professions)
  • Plumbers (South Dakota Plumbing Commission)
  • Barbers (South Dakota Cosmetology Commission)
  • Real Estate Agents (South Dakota Real Estate Commission)
  • Accountants (South Dakota Board of Accountancy)
  • Nurses (South Dakota Board of Nursing)
  • Attorneys (State Bar of South Dakota)
  • Teachers (South Dakota Department of Education)
  • Electricians (South Dakota Electrical Commission)

Industry-specific licenses may also be required for businesses such as:

  • Contractors (South Dakota Department of Labor & Regulation)
  • Food establishments (South Dakota Department of Health)
  • Daycares (South Dakota Department of Social Services)
  • Insurance agents (South Dakota Division of Insurance)

Each profession has its own licensing requirements, fees, and renewal processes. Detailed information on licensed professions and industries is available from the South Dakota Department of Labor & Regulation website.

Step 5: State Business Tax Registration

Most businesses operating in South Dakota must register with the South Dakota Department of Revenue to collect and remit various state taxes. This registration is necessary for businesses that:

A sole proprietorship or single-member LLC that doesn’t sell a taxable product or service and does not have employees won’t typically register.

The primary taxes businesses typically need to register for include:

  • Sales and Use Tax
  • Contractor’s Excise Tax (for construction services)
  • Employee Withholding Tax

To register, businesses can use the South Dakota Department of Revenue’s online tax application system. This system allows for registration of multiple tax types in one application.

Step 6: Resale Certificate

A South Dakota Certificate of Exemption, also known as a resale certificate, is a valuable tool for businesses that purchase goods for resale. This certificate allows these businesses to buy inventory without paying sales tax at the time of purchase. Businesses with a resale certificate will collect sales tax from the end consumer when the product is sold.

Who needs a resale certificate:

  • Retailers
  • Wholesalers
  • Manufacturers who sell their finished products
  • Service providers who resell products as part of their services

To obtain a resale certificate, businesses must register for the Sales Tax License with the South Dakota Department of Revenue, when applying for state business taxes.

Step 7: Business Licenses

There isn’t a state business license in South Dakota, but many cities and towns require local business licenses. These licenses help local governments regulate businesses operating within their jurisdictions. Here’s an overview of common local business licenses in South Dakota:

  • General Business License: Some cities in South Dakota require a general business license for all businesses operating within city limits. For example, the City of Rapid City requires a general business license issued by the Finance Office.
  • Contractor License: Many cities in South Dakota require contractors to obtain local licenses. For instance, the City of Sioux Falls requires contractors to obtain a license from the Building Services Department.
  • Food-based Business License: Food establishments often need specific local licenses. In Sioux Falls, food service establishments must obtain a license from the Sioux Falls Health Department.
  • Alcohol Licenses: Many cities require specific licenses for businesses selling alcohol. For example, the City of Aberdeen issues alcohol licenses through the Finance Office.

It’s important to note that licensing requirements can vary significantly between cities in South Dakota. Business owners should always check with their local city or town government to understand the specific licensing requirements for their area and type of business.

Step 8: Local Building & Zoning Permits

Before finalizing a property purchase or lease for your business in South Dakota, it’s important to understand local building and zoning requirements. These regulations ensure that businesses operate in appropriate areas and that buildings meet safety standards. Here are some common requirements you may encounter:

Zoning Permits: Zoning permits confirm that your intended business use is allowed in the chosen location. This is particularly relevant for home-based businesses in residential areas. Check with your local planning or zoning department to verify that your business activities are permitted in your desired location.

Building Permits: If you plan to construct a new building or make significant modifications to an existing structure, you’ll likely need a building permit. These permits ensure that construction meets local building codes and safety standards. Building permits are typically obtained from the local building department or city engineering office.

Certificate of Occupancy: Many municipalities in South Dakota require a certificate of occupancy before a business can operate in a building. This document certifies that the building is safe for occupancy and complies with all relevant codes. You’ll usually need to apply for this certificate after completing any required inspections.

Sign Permits: If you plan to install business signage, you may need a separate permit as local regulations often control size, placement, and lighting. The local planning or zoning department usually handles these permits.

Each South Dakota city or county has specific requirements and processes for these permits. It’s advisable to contact your local government offices early in your planning process to understand all necessary permits and inspections for your particular business and location.

Take the guesswork out of figuring out what licenses and permits are required to start your business with license research packages from Bizee and LegalZoom.

For only $99, you can save a lot of time and know your business complies with local, state, and federal requirements.


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