South Dakota Single-Member LLC Operating Agreement
Create a South Dakota single-member LLC operating agreement with state-specific guidance on default distribution rules, charging order protection, and annual reporting.
Introduction
A single-member LLC operating agreement is the internal document where you, as the sole owner of a South Dakota LLC, set the rules for how your business runs, how profits are handled, and what happens if you bring on a partner or close the business later. South Dakota does not require an operating agreement to be in writing, and even allows an oral or implied one, but writing your own terms down is what lets you replace the state's default rule, which splits any distributions equally among members rather than by ownership share. South Dakota also gives LLC owners an unusually strong, explicit charging-order shield that names single-member LLCs directly.
Key Things to Know
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South Dakota does not require an LLC operating agreement to be in writing at all. SDCL Section 47-34A-103(a) allows it to be oral or implied, with no list of provisions that must be written to take effect, unlike many other states.
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Without an operating agreement, South Dakota law splits any distributions made before dissolution EQUALLY among members, not based on each member's capital contribution (SDCL Section 47-34A-405(a)).
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South Dakota's charging order statute names single-member LLCs directly: it is the exclusive remedy a judgment creditor can use against a member's LLC interest, and foreclosure on that interest is expressly barred (SDCL Section 47-34A-504(e), (g)).
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South Dakota has no state corporate or personal income tax, so LLC profits are not taxed at the state level, but every LLC must file an Annual Report with the Secretary of State, a $55 fee (SDCL Sections 47-34A-211, 47-34A-212(b)).
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A South Dakota LLC is member-managed by default unless the Articles of Organization designate it manager-managed (SDCL Sections 47-34A-101, 47-34A-203(a)(6)).
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The duty of loyalty and the obligation of good faith and fair dealing can be narrowed but not eliminated, and the duty of care can be reduced, as long as the change is not "manifestly unreasonable" (SDCL Section 47-34A-103(b)-(c)).
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The operating agreement itself is not filed with the state. You form the LLC by filing Articles of Organization, a $150 filing fee, with the South Dakota Secretary of State (SDCL Section 47-34A-212(a)).
Key decisions before you file
Before you file a LLC Operating Agreement in South Dakota, a few decisions shape the document: which option to choose and what each one means. The LLC Operating Agreement guide walks through them.
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South Dakota Requirements for LLC Operating Agreement
The Operating Agreement governs relations among the Members and between the Members and the Company, and may contain provisions relating to the Company's business, management, and affairs, so long as they are not inconsistent with law. Under SDCL 47-34A-103(a), the Operating Agreement need not be in writing to be valid; South Dakota allows an oral or implied operating agreement. A person who becomes a Member is deemed to assent to the Operating Agreement.
To the extent this Operating Agreement does not otherwise provide, the South Dakota Limited Liability Company Act (SDCL Chapter 47-34A) governs relations among the Members, Managers, and the Company (SDCL 47-34A-103(a)).
A South Dakota LLC is member-managed by default unless its Articles of Organization affirmatively designate it as manager-managed (SDCL 47-34A-101(11), (13); SDCL 47-34A-203(a)(6)). In a member-managed company, each Member has equal management rights and, except as otherwise agreed, ordinary-course matters are decided by a majority of the Members (SDCL 47-34A-404.1(a)). This Operating Agreement should restate, not attempt to override, the election already made in the Articles of Organization.
Unless the Operating Agreement provides otherwise, any distributions made by the Company before its dissolution and winding up must be shared EQUALLY among the Members, regardless of the relative size of each Member's capital contribution (SDCL 47-34A-405(a)). South Dakota does not use a contribution-proportional default; Members who want distributions tied to ownership percentage or capital contribution must say so explicitly in this Agreement.
Unless the Operating Agreement provides otherwise, distributions made before dissolution are shared EQUALLY among the Members (SDCL 47-34A-405(a)), and no Member may demand a distribution in kind (SDCL 47-34A-405(b)). A distribution may not be made if, after giving effect to it, the Company would be unable to pay its debts as they become due in the ordinary course of business, or the Company's total assets would be less than its total liabilities (SDCL 47-34A-406(a)). A Member or Manager who approves a distribution in violation of this rule can be personally liable to the Company for the excess (SDCL 47-34A-407).
In a member-managed Company, each Member has equal rights in management, and any matter relating to the Company's business may be decided by a majority of the Members, except as otherwise provided in this Agreement (SDCL 47-34A-404.1(a)). In a manager-managed Company, each Manager has equal management rights, and ordinary-course matters may be decided exclusively by the Manager, or by a majority of Managers if there is more than one (SDCL 47-34A-404.1(b)).
A Member (in a member-managed Company) owes a duty of loyalty and a duty of care as defined in SDCL 47-34A-409(b)-(c), and must discharge those duties consistent with the obligation of good faith and fair dealing (SDCL 47-34A-409(d)). This Agreement may not eliminate the duty of loyalty or the obligation of good faith and fair dealing, but may narrow the duty of loyalty if the result is not manifestly unreasonable. This Agreement may reduce the duty of care, and may alter other fiduciary duties, including eliminating particular aspects of them, if not manifestly unreasonable (SDCL 47-34A-103(b)-(c)).
The Operating Agreement must specify the conditions under which members may transfer their membership interests and the rights of transferees. By default, transferees do not automatically become members.
A person becomes a Member upon formation as agreed with the Company's organizer (SDCL 47-34A-401(a)-(b)). After formation, a person becomes a Member only: as provided in this Operating Agreement; as the result of a transfer under Article 9 of the Act; with the consent of all of the Members; or, if the Company has ceased to have any members, within 90 days after the last member's dissociation under the conditions stated in SDCL 47-34A-401(c).
A Member is dissociated from the Company upon events including: the Company's receipt of notice of the Member's express will to withdraw; an event the Operating Agreement identifies as causing dissociation; transfer of all of a Member's distributional interest; or the Member's expulsion under this Agreement or by unanimous vote of the other Members on specified grounds (SDCL 47-34A-601). Unless this Agreement provides otherwise, a Member may dissociate at any time, but doing so may be wrongful and expose the Member to damages if it breaches this Agreement (SDCL 47-34A-602). On dissociation, the Member's right to participate in management ends and the Member is treated as a transferee of their own interest (SDCL 47-34A-603).
Absent a different rule in this Agreement, the Company dissolves and must wind up on the occurrence of: an event specified in this Agreement; the consent of the number or percentage of Members this Agreement specifies; an event making it unlawful to continue substantially all of the Company's business; or a judicial decree of dissolution on application of a Member (SDCL 47-34A-801(a)). In winding up, Company assets are first applied to discharge obligations to creditors (including Members who are creditors); each Member is then entitled to a return of any capital contribution not previously returned, with any remainder shared EQUALLY among the Members (SDCL 47-34A-806).
The Company must give Members and Managers, and their agents and attorneys, access to its records at the Company's principal office for proper purposes during ordinary business hours (SDCL 47-34A-408(a)). The Company must furnish a Manager, without demand, information reasonably required for the Manager's duties, and must furnish other information on demand unless the request is unreasonable or improper (SDCL 47-34A-408(b)). The same two-tier standard applies to Members with respect to their rights and duties under this Agreement or the Act (SDCL 47-34A-408(c)).
The Company shall reimburse a Member or Manager for payments made, and indemnify a Member or Manager for liabilities incurred, in the ordinary course of the Company's business or for the preservation of its business or property (SDCL 47-34A-403(a)). The Company may purchase and maintain insurance on behalf of a Member or Manager even for conduct this Agreement could not otherwise excuse from liability to the Company (SDCL 47-34A-403(e)).
Frequently Asked Questions
It's the internal document where a South Dakota LLC's sole owner sets the rules for running the business and handling profits. South Dakota does not require it to be written or even signed, but putting your own terms in writing is what replaces the state's default rules and gives you proof the LLC is a real, separately run business.
Not by legal requirement. South Dakota Codified Laws Section 47-34A-103(a) allows an operating agreement to be oral or implied, with no written-form carve-outs for specific terms. But without a written one, every default rule in the South Dakota LLC Act fills the gap automatically, including an equal-share distribution rule you may not want.
South Dakota's default rules fill the gap. Any distribution made before dissolution must be shared EQUALLY among members, not based on how much each member contributed, unless your agreement says otherwise (SDCL Section 47-34A-405(a)). That matters most once you bring on a second member and haven't defined your own split.
South Dakota's statute already gives strong protection on its own: a charging order is the exclusive remedy against a member's LLC interest, foreclosure is expressly barred, and the law names single-member LLCs directly as covered (SDCL Section 47-34A-504(e), (g)). An operating agreement supports this by keeping the LLC run as a genuine, separate business.
South Dakota has no state corporate or personal income tax, so LLC profits are not taxed at the state level. You do need to file an Annual Report with the Secretary of State every year, a $55 filing fee, to keep the LLC in good standing (SDCL Sections 47-34A-211, 47-34A-212(b)).
No. You file Articles of Organization, a $150 filing fee, with the South Dakota Secretary of State to form the LLC (SDCL Section 47-34A-212(a)), but the operating agreement itself is an internal document. You keep it with your own business records; it is never submitted to the state.
Partially. You cannot eliminate the duty of loyalty or the obligation of good faith and fair dealing, though you can narrow the duty of loyalty if the change is not manifestly unreasonable. You can reduce the duty of care and alter other fiduciary duties under that same standard (SDCL Section 47-34A-103(b), (c)).