Setting Up a Business Partnership in South Dakota
Forming a business partnership in South Dakota requires careful planning and specific legal steps to ensure proper establishment under state law. South Dakota offers favorable business conditions with no state income tax and streamlined filing requirements, but partners must still create a comprehensive partnership agreement and register with the Secretary of State.
Without a written partnership agreement, your business will default to South Dakota's Uniform Partnership Act provisions, which may not align with your specific business goals or protect your interests adequately. Taking the time to properly establish your partnership now can prevent costly disputes and legal complications in the future.
Key Considerations
Scenarios
Decisions
Scenarios
Decisions
Scenarios
Decisions
Relevant Documents
Buy-Sell Agreement
A contract that outlines what happens to a partner's share of the business if they die, become disabled, retire, or wish to sell their interest in the partnership.
Partnership Agreement
A comprehensive contract that outlines the rights, responsibilities, and obligations of all partners, including profit sharing, decision-making authority, capital contributions, dispute resolution, and dissolution procedures.
Partnership Capital Contribution Agreement
A document that specifies the initial and ongoing capital contributions of each partner, including cash, property, services, or other assets.
Partnership Operating Procedures
An internal document that details day-to-day operations, management responsibilities, and standard procedures for the partnership business.
Relevant Laws
South Dakota Uniform Partnership Act (SDCL Chapter 48-7A)
This is the primary law governing partnerships in South Dakota. It defines what constitutes a partnership, the rights and duties of partners, and how partnerships are formed and dissolved. Understanding this act is essential when setting up a partnership as it establishes the legal framework for your business relationship.
Partnership Filing Requirements (SDCL 48-7A-1001)
While South Dakota doesn't require formal registration for general partnerships, this section outlines the statement of partnership authority that can be filed with the Secretary of State. Filing this statement can help establish the authority of partners to enter into transactions on behalf of the partnership and provides public notice of the partnership's existence.
Partner's Liability (SDCL 48-7A-306)
This statute addresses the joint and several liability of partners for partnership obligations. In South Dakota, partners are personally liable for the debts and obligations of the partnership, which is a crucial consideration when choosing this business structure over others with liability protection.
Partnership Property (SDCL 48-7A-203 to 48-7A-204)
These provisions govern how property is acquired and held by the partnership. Understanding these laws is important when determining what assets belong to the partnership versus individual partners, and how property rights are handled within the partnership structure.
Partner's Rights and Duties (SDCL 48-7A-401 to 48-7A-404)
These sections outline the rights and responsibilities of partners, including management rights, profit sharing, and fiduciary duties. These provisions are particularly relevant when drafting a partnership agreement, as they establish default rules that apply unless partners agree otherwise.
South Dakota Tax Laws for Partnerships (SDCL Chapter 10-43)
South Dakota doesn't have a state income tax, but partnerships still have tax obligations. This chapter covers tax requirements for partnerships operating in South Dakota, including how partnerships are treated for tax purposes at the state level.
Business Name Registration (SDCL 37-11)
If your partnership will operate under a name other than the surnames of the partners, this law requires you to register a fictitious business name (also called a DBA or 'doing business as') with the Register of Deeds in each county where you conduct business.
Regional Variances
Eastern South Dakota
Sioux Falls has additional business licensing requirements for partnerships. Partners must register with the city's licensing division in addition to state filings. The city also offers specific tax incentives for new business partnerships established in designated development zones.
Brookings has a streamlined partnership registration process through their economic development office. They offer mentorship programs specifically for new partnerships and have local ordinances requiring partnerships to renew their local business licenses annually.
Western South Dakota
Rapid City requires partnerships to obtain additional permits if operating in certain industries like tourism or hospitality. The city also has specific zoning regulations that may affect where partnership businesses can operate, particularly in historic districts.
Sturgis has unique seasonal business partnership regulations related to the annual motorcycle rally. Temporary partnerships formed specifically for rally-related business activities have expedited registration processes but face higher local fees and special insurance requirements.
Tribal Jurisdictions
Partnerships operating within the Pine Ridge Reservation must register with both the state and the Oglala Sioux Tribe. Tribal business licenses are required, and partnerships may need to comply with Tribal Employment Rights Ordinance (TERO) requirements if hiring employees.
Partnerships on the Cheyenne River Reservation must obtain approval from the tribal council for certain business activities. The tribe offers specific incentives for partnerships that include tribal members and that focus on sustainable development within the reservation.
Suggested Compliance Checklist
Research Partnership Types in South Dakota
1 days after startingBefore forming your partnership, research the different types available in South Dakota (general partnership, limited partnership, limited liability partnership). Each has different liability protections, tax implications, and filing requirements. Consider consulting with a business attorney to determine which structure best suits your business goals and risk tolerance.
Draft Partnership Agreement
7 days after startingCreate a comprehensive partnership agreement that outlines ownership percentages, profit and loss allocations, management responsibilities, dispute resolution procedures, and exit strategies. While not legally required in South Dakota for general partnerships, this document is crucial for preventing future conflicts and establishing clear expectations among partners.
Draft Buy-Sell Agreement
14 days after startingCreate a buy-sell agreement that establishes procedures for handling a partner's departure, death, disability, or retirement. This document should include valuation methods for the business, payment terms, and funding mechanisms (such as life insurance policies). This agreement protects remaining partners and ensures business continuity during ownership transitions.
Draft Partnership Capital Contribution Agreement
14 days after startingDocument each partner's initial and ongoing capital contributions to the business. Specify the type of contributions (cash, property, services), valuation methods for non-cash contributions, and how these contributions affect ownership percentages and profit distributions.
Draft Partnership Operating Procedures
21 days after startingEstablish day-to-day operating procedures for the partnership, including decision-making processes, meeting schedules, record-keeping requirements, and partner responsibilities. While similar to portions of the partnership agreement, this document provides more detailed guidance for routine operations.
Apply for Employer Identification Number (EIN)
30 days after startingApply for an EIN from the IRS, which is required for partnerships even if you don't have employees. This number is necessary for tax filings, opening business bank accounts, and hiring employees. Apply online through the IRS website for immediate processing.
File Certificate of Partnership (for LPs or LLPs)
30 days after startingIf forming a limited partnership (LP) or limited liability partnership (LLP), file a Certificate of Partnership with the South Dakota Secretary of State. General partnerships are not required to file this document, but may choose to do so. The filing fee is $125 for LPs and $100 for LLPs as of 2023.
File Fictitious Business Name Statement
35 days after startingIf operating under a name different from the partners' legal names, file a fictitious business name statement (also called a DBA - 'doing business as') with the Register of Deeds in the county where your business is located. Publication requirements may apply depending on the county.
Apply for Business Licenses
45 days after startingResearch and apply for all necessary business licenses and permits at the state, county, and city levels. Requirements vary based on your business location and industry. Contact your local city/county government offices and the South Dakota Department of Revenue for specific requirements.
Apply for Sales Tax Permit
45 days after startingIf your partnership will sell taxable goods or services in South Dakota, register for a sales tax permit with the South Dakota Department of Revenue. South Dakota has a broad sales tax that applies to most goods and services, including many digital products and services.
Open Business Bank Account
50 days after startingOpen a separate business bank account for the partnership using your EIN. Bring your EIN confirmation, partnership agreement, and any filed partnership certificates. Complete the bank's business account resolution form, which authorizes specific partners to conduct banking activities.
Register for Employer Taxes (if hiring employees)
60 days after startingIf planning to hire employees, register with the South Dakota Department of Labor and Regulation for unemployment insurance and with the IRS for federal employment taxes. South Dakota does not have state income tax, so you won't need to register for state income tax withholding.
Obtain Workers' Compensation Insurance (if required)
60 days after startingIf hiring employees, determine if you need workers' compensation insurance. In South Dakota, workers' compensation insurance is generally required for businesses with employees, though certain exceptions exist. Contact the South Dakota Department of Labor and Regulation for specific requirements.
Establish Recordkeeping Systems
65 days after startingSet up systems for maintaining required business records, including financial transactions, meeting minutes, tax documents, and licenses. South Dakota partnerships must maintain certain records for tax purposes and to demonstrate compliance with various regulations.
Schedule Annual Compliance Calendar
70 days after startingCreate a compliance calendar that includes deadlines for annual reports (for LPs and LLPs), tax filings, license renewals, and other recurring compliance obligations. Federal partnership tax returns (Form 1065) are typically due on March 15 each year, and South Dakota annual reports for LPs and LLPs are due by the first day of the anniversary month of formation.
| Task | Description | Document | Days after starting |
|---|---|---|---|
| Research Partnership Types in South Dakota | Before forming your partnership, research the different types available in South Dakota (general partnership, limited partnership, limited liability partnership). Each has different liability protections, tax implications, and filing requirements. Consider consulting with a business attorney to determine which structure best suits your business goals and risk tolerance. | - | 1 |
| Draft Partnership Agreement | Create a comprehensive partnership agreement that outlines ownership percentages, profit and loss allocations, management responsibilities, dispute resolution procedures, and exit strategies. While not legally required in South Dakota for general partnerships, this document is crucial for preventing future conflicts and establishing clear expectations among partners. | Partnership Agreement | 7 |
| Draft Buy-Sell Agreement | Create a buy-sell agreement that establishes procedures for handling a partner's departure, death, disability, or retirement. This document should include valuation methods for the business, payment terms, and funding mechanisms (such as life insurance policies). This agreement protects remaining partners and ensures business continuity during ownership transitions. | Buy-Sell Agreement | 14 |
| Draft Partnership Capital Contribution Agreement | Document each partner's initial and ongoing capital contributions to the business. Specify the type of contributions (cash, property, services), valuation methods for non-cash contributions, and how these contributions affect ownership percentages and profit distributions. | Partnership Capital Contribution Agreement | 14 |
| Draft Partnership Operating Procedures | Establish day-to-day operating procedures for the partnership, including decision-making processes, meeting schedules, record-keeping requirements, and partner responsibilities. While similar to portions of the partnership agreement, this document provides more detailed guidance for routine operations. | Partnership Operating Procedures | 21 |
| Apply for Employer Identification Number (EIN) | Apply for an EIN from the IRS, which is required for partnerships even if you don't have employees. This number is necessary for tax filings, opening business bank accounts, and hiring employees. Apply online through the IRS website for immediate processing. | Employer Identification Number (EIN) Application | 30 |
| File Certificate of Partnership (for LPs or LLPs) | If forming a limited partnership (LP) or limited liability partnership (LLP), file a Certificate of Partnership with the South Dakota Secretary of State. General partnerships are not required to file this document, but may choose to do so. The filing fee is $125 for LPs and $100 for LLPs as of 2023. | Certificate of Partnership | 30 |
| File Fictitious Business Name Statement | If operating under a name different from the partners' legal names, file a fictitious business name statement (also called a DBA - 'doing business as') with the Register of Deeds in the county where your business is located. Publication requirements may apply depending on the county. | Fictitious Business Name Statement | 35 |
| Apply for Business Licenses | Research and apply for all necessary business licenses and permits at the state, county, and city levels. Requirements vary based on your business location and industry. Contact your local city/county government offices and the South Dakota Department of Revenue for specific requirements. | Business License Application | 45 |
| Apply for Sales Tax Permit | If your partnership will sell taxable goods or services in South Dakota, register for a sales tax permit with the South Dakota Department of Revenue. South Dakota has a broad sales tax that applies to most goods and services, including many digital products and services. | Sales Tax Permit Application | 45 |
| Open Business Bank Account | Open a separate business bank account for the partnership using your EIN. Bring your EIN confirmation, partnership agreement, and any filed partnership certificates. Complete the bank's business account resolution form, which authorizes specific partners to conduct banking activities. | Business Bank Account Resolution | 50 |
| Register for Employer Taxes (if hiring employees) | If planning to hire employees, register with the South Dakota Department of Labor and Regulation for unemployment insurance and with the IRS for federal employment taxes. South Dakota does not have state income tax, so you won't need to register for state income tax withholding. | - | 60 |
| Obtain Workers' Compensation Insurance (if required) | If hiring employees, determine if you need workers' compensation insurance. In South Dakota, workers' compensation insurance is generally required for businesses with employees, though certain exceptions exist. Contact the South Dakota Department of Labor and Regulation for specific requirements. | - | 60 |
| Establish Recordkeeping Systems | Set up systems for maintaining required business records, including financial transactions, meeting minutes, tax documents, and licenses. South Dakota partnerships must maintain certain records for tax purposes and to demonstrate compliance with various regulations. | - | 65 |
| Schedule Annual Compliance Calendar | Create a compliance calendar that includes deadlines for annual reports (for LPs and LLPs), tax filings, license renewals, and other recurring compliance obligations. Federal partnership tax returns (Form 1065) are typically due on March 15 each year, and South Dakota annual reports for LPs and LLPs are due by the first day of the anniversary month of formation. | - | 70 |
Frequently Asked Questions
South Dakota recognizes several types of partnerships: General Partnerships (GPs), Limited Partnerships (LPs), and Limited Liability Partnerships (LLPs). General Partnerships are the simplest form where all partners share management and liability. Limited Partnerships have general partners who manage the business and limited partners who are typically investors with limited liability. LLPs provide liability protection for all partners while maintaining partnership tax benefits.
For a General Partnership, no formal filing is required with the state—it can be formed by oral or written agreement. However, it's strongly recommended to have a written partnership agreement. Limited Partnerships and Limited Liability Partnerships must file with the South Dakota Secretary of State. LPs file a Certificate of Limited Partnership, while LLPs file a Statement of Qualification. All partnerships should obtain necessary business licenses and permits.
A comprehensive partnership agreement should include: each partner's capital contributions; profit and loss allocation; partners' authority and decision-making processes; management responsibilities; procedures for admitting new partners; buyout provisions; dispute resolution methods; and dissolution procedures. While not legally required for General Partnerships, a written agreement is essential to prevent misunderstandings and provide clear guidance for handling various business situations.
Partnerships in South Dakota are pass-through entities for tax purposes. This means the partnership itself doesn't pay income taxes; instead, profits and losses 'pass through' to the partners, who report them on their individual tax returns. South Dakota has no state income tax, which is advantageous for partners. However, partners must still pay federal self-employment taxes on their share of partnership income. Partnerships must file an annual federal information return (Form 1065).
In General Partnerships, all partners have unlimited personal liability for partnership debts and obligations. In Limited Partnerships, general partners have unlimited liability while limited partners' liability is restricted to their investment. In Limited Liability Partnerships, partners are protected from personal liability for partnership debts and for negligence of other partners, though they remain liable for their own negligence and misconduct. Consider your risk tolerance when choosing a partnership structure.
Partnerships in South Dakota must maintain compliance with several requirements. LPs and LLPs must file annual reports with the Secretary of State and pay the required fee. All partnerships must maintain accurate financial records, file appropriate tax returns, renew business licenses and permits as needed, and update partnership information if there are changes in partners or business location. Failure to comply with these requirements can result in penalties or even dissolution of the partnership.
To dissolve a partnership in South Dakota, follow these steps: Review your partnership agreement for dissolution procedures; vote on dissolution according to your agreement terms; file a Statement of Dissolution with the Secretary of State (for LPs and LLPs); notify all creditors, customers, and business associates; settle all debts and distribute remaining assets according to ownership percentages or agreement terms; cancel business licenses and permits; and file final tax returns. It's advisable to consult with an attorney to ensure proper dissolution.
Yes, South Dakota law allows partnerships to convert to other business entities, such as LLCs or corporations. The conversion process typically involves preparing a plan of conversion, obtaining partner approval according to your partnership agreement, filing conversion documents with the Secretary of State, and paying the required fees. This process allows you to change your business structure without dissolving the original entity and forming a new one. Consult with a business attorney to navigate this process correctly.