South Dakota LLC Operating Agreement

An operating agreement might be a valuable tool for an entrepreneur who plans to establish an LLC. The document contains information about your limited liability company. The main reason for creating the operating agreement is the delineation of the LLC’s liability and personal liability of the corporation’s members. This document is designed to reduce risks and protect the personal finances of the company’s members.

This paper contains detailed information about your business management, your company’s structure, and a set of rules that each member needs to follow. For instance, the operating agreement can include details about how new members will be accepted in the LLC. It can also regulate the process of excluding members from the limited liability company.

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In South Dakota, the agreement sets the company’s business policy and acts in the interests of both business owners and all other employees. This legal document is approved by all LLC members and aims to create the company’s internal structure.

In South Dakota, companies are not required to create an operating agreement to do business. However, its absence may entail unnecessary risks for the company owners’ or members’ personal and financial assets. This happens when lawsuits are filed against the organization in which its members work for and invest in. The agreement eliminates the LLC owners’ or members’ personal liability in such a situation.

If the document is completed and filed with the State, then only the business will be legally responsible, not the employees. Besides, the Operating Agreement provides members with a number of tax options that are not available to companies that lack this legal form.

Members or owners should read the document carefully to clearly understand its language and conditions. If they have any questions about the document, the members or owners can consult with an attorney for assistance.

Like in any other legal document, when filling this paper, you must reflect:

  • Name and address of your entity
  • Name and address of the owner(s)
  • Explain what is the purpose of LLC’s creation
  • Date when it was created
  • Management aspects and so on.

Note that each member of the LLC must have a notarized copy of the operating agreement for record-keeping. Also, the LLC members’ signatures mean that they agree with everything listed in the document and are ready to comply with their obligations and bear responsibility.

To create an operating agreement, you can use online platforms or do it manually. If you prefer to draw up an online operating agreement, we recommend using our form-building software to save time. It will significantly facilitate the process of creating the paper and help to avoid mistakes.

South Dakota LLC Laws and Definition

As mentioned in the previous section, members of the companies with operating agreements have a lower risk of losing enormous amounts of money and overall total capital. Each owner who invests has a certain level of responsibility. No one will force you to overpay or be responsible for your partners. The company’s losses do not apply to all owners, as their liability is differentiated—a characteristic of large corporations and medium-sized business associations.

According to the law, any new member cannot be entitled to any retroactive allocation of income, losses, or expense deductions of the company. The company can make pro-rata allocations of income, losses, or expense deductions to a newcomer for that portion of the tax year in which the Member was admitted per Section 706(d) of the Internal Revenue Code and regulations thereunder.

You also need to remember that the Act gives members and managers contractual freedom to vary the rules. Section 47-34A-103 provides that an LLC agreement may “identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable”; and “specify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.”

You might need a plan for filling out the form and creating an LLC company. Below are detailed instructions.

Steps to Forming an LLC in South Dakota

Make sure that your business name is available for use in advance. For this purpose, you need to visit the State of South Dakota database and check the uniqueness of your name. The State will reject any business name similar to that of an already registered entity. Once the name is confirmed, you can move to the next steps.

1. Choose a Registered Agent

In South Dakota, if a limited liability company wants to create an operating agreement, it needs to find a Registered Agent who will represent the company’s interests. This person acts as a contact in the event of litigation against the LLC. Besides, RA usually handles general correspondence on behalf of the organization and is responsible for communication with all those who have legal challenges to the business.

If you are a resident of South Dakota or own a business that is authorized to operate in the state, you have a right to become a Registered Agent of the company.

2. Complete the Application

You need to download one of the following applications relevant to you. The  Domestic LLC Articles of Organization relates to organizations formed within South Dakota. On the other hand, the Foreign LLC Certificate of Authority is for companies initially formed outside South Dakota.

You can fill the form either by hand (it should be printed in advance) or online. Remember that the documents must be submitted in duplicate.

3. Pay the Registration Fee

Next, pay a registration fee of $150 to $750 depending on whether the company is local or foreign. To complete the application, be sure to attach a check with the required amount of money written to the Secretary of State. Remember to pay an additional $15 for postal services.

Send your complete filing package by official mail of the Secretary of State Office.

4. Operating Agreement

The operating agreement establishes domestic policies for the company and the people who work in it. It also distinguishes the rights, duties, and financial interests of the LLC’s members. As the form is optional, there is no need to fill it with the State. However, a copy of this document must be given to each employee of the corporation.

5. Get an Employer Identification Number

The Employer Identification Number is used by the Internal Revenue Service to get tax reporting from the organizations. You can receive an EIN by mail using Form SS-4 or by visiting the IRS Website and filling the application form there.

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Published: Apr 13, 2022