How to Form a Professional Corporation in South Dakota (2024 Guide)

Steve Bennett
Business Formation Expert  |   Fact Checked by Editorial Team
Last updated: 
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Forming a Professional Corporation in South Dakota

If you would like to start and learn how to form a corporation in South Dakota, there are a few things that you should do now. However, in a professional corporation, professionals must create a special organizational structure to establish a professional or service corporation. Among the appropriate professions to organize a professional corporation in South Dakota are accountants, physicians, engineers, architects, and attorneys.

Forming a professional corporation in South Dakota or any business organization needs a certain number of steps. In this article, Webinarcare Editorial Team is going to share those steps. Keep in mind that these are general procedures. Depending on local law, it may be modified. For instance, your professional corporation may be subject to city or county-based rules.

What is a Professional Corporation in South Dakota?

A professional service corporation (PSC), often known as a professional corporation (abbreviated as PC), is a particular type of organization that is permitted by state law to allow owners of specifically licensed professions to practice in the South Dakota. A professional corporation’s owner is answerable for their own negligence or wrongdoing but is not held personally liable for the actions of other owners. The abbreviation PC or P.C. is frequently used to denote professional corporations.

This structure allows professionals to enjoy some of the benefits and protections of a traditional corporation while maintaining their professional status and abiding by the regulations of their respective licensing boards.

LegalZoom is the recommended corporation formation if you are thinking of forming a professional corporation from scratch. However, you can always start an LLC in South Dakota, if you changed your mind.

WEBINARCARE EDITORIAL TEAM

How to Form a Professional Corporation in South Dakota

To form a Professional Corporation in South Dakota for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Articles of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an Annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in South Dakota, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

To provide your service, you must be qualified and have a license. In most cases, you can now form a professional corporation after finishing your studies, passing the exam, and receiving your license. If you work in an industry that does not provide a license or professional certification, you should consider starting an LLC or corporation.

Step 2: Name your Professional Corporation in South Dakota

After you have decided to form a professional corporation in South Dakota, you must choose a name for your corporation. Here are some pointers to consider when naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • Limit of restricted words that need a license.
  • A unique name is needed with no match
  • No confusion with a government entity name.

In South Dakota, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 120 days. You must file a name reservation application in the South Dakota Secretary of State to keep the name.

If not already present, a professional corporation, professional association, service corporation, or professional service corporation must be included in the name. You may register your business under a different legal name if your preferred legal name is unavailable. Once you’ve decided on a name, you can apply for South Dakota DBA (doing business as). This way, you can run a clinic or law firm under your name.

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Step 3: Choose the South Dakota Registered Agent

The next step in forming a professional corporation is hiring a Registered Agent, who accepts legal paperwork for your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in South Dakota. Forming a professional corporation for your service will be easier if you have Registered Agent in South Dakota.

Alternatively, you can serve as your own Registered Agent if you have the time. Usually, in South Dakota, a Registered Agent costs is ranging from $50 – $150. To make it easier, you can hire South Dakota Registered Agent Services for your professional corporation.

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Step 4: File the Articles of Incorporation in South Dakota

After you hire a Registered Agent to form a professional corporation, the next step is to file the South Dakota Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information, should be written. Include the names of all co-owners as well. All owners must demonstrate that they have the necessary licenses to practice the profession in question.

Filing the Articles of Incorporation in South Dakota may be done with two methods, online and by mail. The Articles of Incorporation fee may vary from different state. However, in South Dakota, it costs $150 for online filing, and $165 for filing by mail.. Create an account/Log in to the SOS site, get the online form, fill it, and submit online. For offline filing, Send the form by mail to Secretary of State Office, 500 E Capitol Ave, Pierre, SD 57501.

Step 5: Write an Operating Agreement in South Dakota

An operating agreement in South Dakota is a document that contains all of your company’s organizational details. It is optional to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The operating agreement includes information like-

  • About Business
  • Members and management
  • Capital contribution
  • Profit Distribution
  • Change of membership
  • Dissolution

Step 6: Designate the PC Board of Directors in South Dakota

The next step is to form the first board of directors for your PC in South Dakota. All of the initial directors must provide the owner with their contact information. The owner must keep records and submit them by the South Dakota Secretary of State. As a shareholder and owner, you must ensure that a provision for appointing a new director is included in the By-laws. In South Dakota, you must have Three directors in forming your Professional Corporation.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

Creating comprehensive corporate bylaws requires specific knowledge about the company, its structure, and operations. However, I can provide you with a general outline of what corporate bylaws usually include. It is crucial to consult with South Dakota Business Attorney or a legal expert to ensure that your bylaws comply with the laws and regulations governing your jurisdiction and industry.

  • Name and Purpose of the Corporation
  • Registered Office and Agent
  • Shareholders
  • Board of Directors
  • Officers
  • Committees
  • Indemnification and Insurance
  • Conflict of Interest
  • Records and Reports
  • Amendments
  • Miscellaneous

Step 8: Hold the First Board of Directors’ Meeting

Gather the board of directors for the first meeting after drafting the corporate bylaws. This meeting will conclude with the appointment of directors to manage the company’s daily operations, approval of the bylaws, selection of the corporation’s financial reporting year, and approval of the stock issue. Minutes should be taken at all board meetings and kept with the company’s records.

Step 9: Request an EIN in South Dakota.

After the operating agreement’s documentation, you should get or request an Employer Identification Number (EIN) in South Dakota. The tax ID for your professional corporation will be an EIN. The Internal Revenue Service can provide an EIN (IRS). It has nine digits and is comparable to a social security number. Nevertheless, EIN is different from SSN. Only business-related tasks, primarily filing general taxes, are performed using it. The form needs to be filled out and submitted online to the IRS.

The application of an EIN in South Dakota can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in several ways. It will give your professional corporation the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

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Step 10: Open a Bank Account and Prepare for Taxes.

You should open a business bank account as soon as you have applied for and received your Employer Identity Number because you will use this account for yourself, your clients, and your staff. Check out the Best Banks in South Dakota for you to decide on which bank you are going to open an account.

Due to your organization’s increased legality and liquidity, having a US business bank account may make conducting business in South Dakota easier. Most banks require an EIN for businesses other than sole proprietorships to open a business bank account. Also, keeping your accounts separate will prevent you from merging your personal and business finances. Also, filing taxes is simpler when you have an EIN. You can expect to pay employee and corporate taxes when you form a professional corporation.

Step 11: Get a Business License in South Dakota

Before your professional corporation operates in South Dakota, you must have South Dakota Business License first. A business license is a formal document issued by a state government agency that allows you to conduct business in the geographic area governed by that agency. The cost of business licenses and permits in South Dakota ranges from $50 – $300. You must check with the local authorities to see if any special licenses or permits are required.

Step 12: File Your Taxes in South Dakota

Finally, you’ve arrived at the final process. Remember to file your taxes when you have obtained a business license and are ready to begin operations. To avoid a large tax bill, you should begin paying taxes quarterly as soon as possible. Each state has different tax requirements. Start examining the South Dakota tax classification for the taxes that an LLC in South Dakota must pay.

Main Characteristics of a Professional Corporation

In forming a Professional Corporation, the main characteristics must be distinguished before forming it. These are the general characteristics of forming a Professional Corporation in South Dakota.

  • Limited Liability Protection: A professional corporation provides its owners, shareholders, or members limited liability protection like a regular corporation. This means the shareholders’ personal assets are generally protected from business debts, obligations, and lawsuits, except in malpractice or professional negligence cases.
  • South Dakota Licensing Requirements: All shareholders must typically be licensed professionals in the same field in a professional corporation. The corporation must also comply with specific state regulations and licensing requirements that govern the profession.
  • Governance and Management: A professional corporation is governed by a board of directors, who the shareholders elect. The board appoints officers to manage the day-to-day operations of the corporation. All directors and officers must be licensed professionals in the same field as the corporation.
  • Taxation: Professional corporations are taxed as C corporations, where the corporation pays taxes on its income, and shareholders pay taxes on dividends received from the corporation. However, some professional corporations may be eligible for S corporation status, allowing pass-through taxation. Income, losses, deductions, and credits flow to the shareholders, who report this information on their income tax returns.
  • Restrictions on Ownership and Transfer of Shares: Professional corporations often restrict the ownership and transfer of shares to ensure that only licensed professionals in the same field can become shareholders. This helps maintain the professional nature of the corporation and adheres to state licensing requirements.
  • Malpractice Liability: While a professional corporation provides limited liability protection for general business debts and obligations, it does not shield shareholders from liability for their own malpractice or professional negligence. Shareholders can still be personally liable for their actions in providing professional services.

In summary, a professional corporation is a specialized corporate structure designed for licensed professionals, offering limited liability protection and a formal governance structure while adhering to state licensing requirements and regulations.

Maintain Professional and Business License in South Dakota

You must maintain or renew your professional license regularly now that you have established your professional corporation. Even if your company is well-established, it is only meaningful if you have a valid operating license. And it makes no difference if your professional license is still valid for a year or two, but your business license has already expired.

Make time at least once a year to check the status of your licenses. You won’t miss anything important this way. You can address any issues that arise.

Filing Annual Report in South Dakota

In South Dakota, you must submit a report. The owners’ and Registered Agent’s names and contact details are listed in the Annual Report. Also, it should include all of your yearly financial activity. You must submit the report every 1 year (first day of the anniversary month) in the South Dakota Secretary of State.

FAQs

Where can I form a professional corporation in South Dakota?
You can form a professional corporation in South Dakota at the South Dakota Secretary of State’s Office.
Are all professions allowed to form professional corporations in South Dakota?
No. Only certain professions are allowed to form professional corporations in South Dakota.
Can licensed professionals from different fields form a professional corporation together?
No. Only licensed professionals from the same field can form a professional corporation together in South Dakota.
Do I need to hire a lawyer to form a professional corporation in South Dakota?
No. It’s not legally required for you to hire a lawyer for the formation of a professional corporation, but it’s recommended.
What are the advantages of forming a professional corporation in South Dakota?
Some advantages of a professional corporation include tax provisions, limited liability protection for shareholders, and centralization of management.
Can a professional corporation operate outside of South Dakota?
Yes. A professional corporation can operate in other U.S states as long as it meets the state’s qualifying regulations.
How much does it cost to form a professional corporation in South Dakota?
The formation fee for a professional corporation in South Dakota is $150.
How long does it take for my South Dakota professional corporation to be formed?
The South Dakota Secretary of State’s office reviews the Articles of Incorporation in 10-15 business days after the submission of the required documents.
Do I have to list every specific service offered by my professional corporation in the Articles of Incorporation?
No. It’s not necessary to list every specific service, only a broad description of the professional field is enough for the Name & Purpose Statement.
Is there a residency requirement for shareholders in a South Dakota professional corporation?
No. A South Dakota professional corporation doesn’t have a residency requirement for shareholders.
Can South Dakota professional corporations have multiple types of shareholders?
No. Shareholders who qualify under the profession rules have different rights within the professional corporation.
Do shareholders need to be licensed to practice in South Dakota?
Yes. Shareholders must be licensed to practice in South Dakota.
How many shareholders are required to form a South Dakota professional corporation?
Two or more licensed professionals are required to form a South Dakota professional corporation.
Can non-licensed individuals own shares in professional corporation in South Dakota?
No. In South Dakota, only licensed professionals can own shares of a professional corporation.
Are South Dakota professional corporations subject to federal income tax?
Yes. A professional corporation in South Dakota is obligated to file federal and state income tax returns.
Is a South Dakota professional corporation required to pay state corporate tax?
Yes, if a professional corporation has South Dakota sourced income, then taxation applies.
Are shareholders in a South Dakota professional corporation personally liable for the business’s debts?
No. Shareholders in a South Dakota professional corporation usually have limited liability protection.
Can I convert my sole proprietorship into a professional corporation in South Dakota?
Yes, you can convert from a sole proprietorship into a professional corporation in South Dakota if all qualification requirements are fulfilled.
Are banks able to provide financing to South Dakota professional corporations?
Yes, if a professional corporation meets the specific bank qualifications, they can obtain financing.
Can South Dakota professional corporation change their profession after they’ve been formed?
No. South Dakota professional corporation can’t change their profession only their qualified stockholders under limited qualifications.
What industries require professional corporations to form in South Dakota?
Some professions that legally require a professional corporation in South Dakota to operate include dentists, attorneys, architects, and certified public accountants.
What is the difference between Limited Liability Corporations (LLCs) and Professional Corporations in South Dakota?
LLCs and Professional Corporations differ in respect to liability, income taxes, management, ownership, and transferring of shares since they belong to different entities.
Can a stockholder of a South Dakota professional corporation become an employee of the same corporation?
Yes. A stockholder can become an employee of the South Dakota professional corporation as long as they maintain licensure in their related field.
Do South Dakota professional corporations need to renew licenses?
The South Dakota Professional Corporations are required to file their annual report before the first day of second month since anniversary date.
Who can become directors of a South Dakota professional corporation?
The professional corporation Bylaws outline the particulars of how and who can become directors.
Is there a fee required to renew a South Dakota professional corporation before the annual report deadline?
There is no annual fee for the first year of renewal but the South Dakota professional corporation needs to regularly update some its registrar annually.
Can I dissolve a South Dakota professional corporation?
Yes, the professional corporation will have to file Form pfl014 to officially let the Secretary of State’s attorney know they’re disbanding.
Can directors of a South Dakota professional corporation activity participate in hiring personnel?
Yes. If you are a shareholder, you are likely going to act as executive, administrative or professional when applicable.
Are there double matters for South Dakota professional corporation when reporting annual taxes?
No. South Dakota professional corporations are just required to file a “federal consolidated tax returns,” which covers underneath incorporated bodies and ownership engagement.
What is a professional corporation?
A professional corporation (PC) is a legal structure that allows certain licensed professionals to practice their profession while limiting their personal liability.
Which professionals can form a PC in South Dakota?
In South Dakota, professionals such as doctors, lawyers, dentists, architects, engineers, and accountants can form a PC.
How do I form a PC in South Dakota?
To form a PC in South Dakota, you must file Articles of Incorporation with the South Dakota Secretary of State and meet certain requirements of the profession you are practicing.
What are the advantages of forming a PC?
The main advantage of forming a PC is limiting personal liability. Additionally, a PC can offer tax benefits and enhance credibility with clients.
Are there any disadvantages of forming a PC?
Some of the disadvantages of forming a PC are increased administrative and legal requirements, higher formation and maintenance costs, and limited transferability of ownership.
Can a PC be formed by only one person in South Dakota?
Yes, a PC can be formed by one person in South Dakota.
Can a PC practice in multiple states?
Yes, a PC can practice in multiple states through the process of foreign qualification or registering in each state individually.
Does a PC require a board of directors?
Yes, a PC is required to have a board of directors in South Dakota.
Can a non-professional be a shareholder in a PC?
No, only licensed professionals can be shareholders in a PC in South Dakota.
What is the cost to form a PC in South Dakota?
The cost to form a PC in South Dakota is $150 for the filing fee plus any additional fees from the chosen registered agent.
Is a name reservation necessary before filing articles of incorporation for a PC in South Dakota?
No, a name reservation is not required before filing articles of incorporation for a PC in South Dakota.
What documents are needed to form a PC in South Dakota?
To form a PC in South Dakota, you will need Articles of Incorporation signed by all incorporators, a certificate of good standing from the professional licensure board, and a registered agent.
Can a PC change its name in South Dakota?
Yes, a PC can change its name in South Dakota by filing Articles of Amendment with the South Dakota Secretary of State.
Is an annual report required for a PC in South Dakota?
Yes, an annual report is required for a PC in South Dakota and must be filed with the South Dakota Secretary of State.
How often does a PC in South Dakota need to hold meetings?
A PC in South Dakota is required to hold one annual shareholders meeting and one annual directors meeting each year.
Can an individual hold multiple professional licenses and use them in a single firm formation?
Yes, an individual can hold multiple professional licenses and use them in a single professional corporation formation in South Dakota.
Are PCs required to have a specific amount of insurance?
There is no legal requirement for PCs to have a specific amount of insurance, but many professionals choose to carry malpractice insurance to limit their personal liability.
What is the process to dissolve a PC in South Dakota?
To dissolve a PC in South Dakota, you must file Articles of Dissolution with the South Dakota Secretary of State and pay any outstanding taxes or debts.
Who is liable for the debts of a PC in South Dakota?
Shareholders of a PC are typically not personally liable for the debts of the corporation, but there are exceptions in cases of misconduct or other legal violations.
How long does it take to form a PC in South Dakota?
The processing time for forming a PC in South Dakota can vary, but is typically between 2-3 business days.
What is a registered agent for a South Dakota PC?
A registered agent for a South Dakota PC is a person or business who agrees to accept legal documents on behalf of the corporation.
Can a South Dakota PC have a foreign-incorporated entity as a shareholder?
Yes, a South Dakota PC can have a foreign-incorporated entity as a shareholder.
Are there any complicated legal tax procedures involved in setting up a South Dakota PC?
While there are some legal and tax procedures involved in setting up a South Dakota PC, they are typically not overly complicated with the help of a professional.
How can I get more information on forming a professional corporation in South Dakota?
You can obtain more information on forming a professional corporation in South Dakota by contacting the South Dakota Secretary of State or consulting with a legal professional experienced in business formation.
Do PCs in South Dakota have the same tax filing obligations as traditional corporations?
Yes, PCs in South Dakota have the same tax filing obligations as traditional corporations, including income tax returns and employment tax filings.
Are all professions that require licensure eligible to form professional corporations in South Dakota?
No, eligibility to form a professional corporation in South Dakota is limited to specific professions and generally only to those professions that have special professional regulations.
Can a PC in South Dakota issue stock?
Yes, a PC in South Dakota can issue stock, but only to licensed professionals who are shareholders.
Are South Dakota PCs subject to the same types of government regulations as traditional corporations?
Yes, South Dakota PCs are subject to the same types of government regulations as traditional corporations, but there may be additional regulations based on the profession being serviced.

Also Read

How to Save Money While Forming South Dakota Professional Corporation

First and foremost, it is essential to carefully consider the type of professional corporation you wish to establish. South Dakota allows for two types: the regular professional corporation and the close professional corporation. The choice between these two structures can carry varying taxation and liability implications. Consequently, seeking guidance from a knowledgeable legal professional who understands the specific requirements of your field can be indispensable. While a lawyer’s services come at a cost, their expertise in helping you make the right decision from the beginning can save you from potential headaches and expenses in the future.

Furthermore, acquiring a good understanding of the paperwork required during the formation process is crucial. South Dakota has specific requirements for drafting bylaws, list of shareholders, stock certificates, and other key documents. Rather than impulsively opting for an expensive attorney to draft these materials, professionals can explore various resources available online. Several reliable websites offer template-guided approaches to creating these documents, allowing individuals to save money by utilizing cost-effective and efficient solutions. While going this route, professionals must ensure that the templates they use comply with South Dakota regulations and adapt them accordingly.

Building a network and utilizing professional aid in the local business community can also significantly contribute to cost-saving strategies. By attending free or low-cost events such as seminars, workshops, or networking sessions, professionals can interact with individuals who have already navigated the process of forming a professional corporation in South Dakota. Valuable advice from those with prior experiences can provide insights and shortcuts, ultimately assisting in minimizing expenses. Moreover, joining local business or industry associations can grant professionals access to resources, discounts, and support networks specifically tailored to their field. Through collaboration, professionals can find affordable services like tax advice, accounting services, or even discounted office space and equipment.

Another valuable advice to save money during professional corporation formation is to be cautious with unnecessary expenses. While it may be tempting to indulge in purchasing costly equipment or commuting significant funds towards extravagant office spaces from the get-go, it is wise to adopt a prudent approach. Professionals can opt for a staggered growth plan, avoiding extensive initial expenses until the business is more established and finances are more stable. By practicing fiscal responsibility and seeking potential cost-saving alternatives such as used equipment or shared office spaces, substantial savings can be achieved with goodwill to propel the business’s growth.

In conclusion, forming a professional corporation in South Dakota need not always be an exorbitantly costly affair. By making informed decisions, diligently researching the processes and requirements, and leveraging available resources within the business community, professionals can significantly save on expenses during the formation phase. The success of a professional corporation ultimately relies not only on technical knowledge and competence but also on resourcefulness and sound financial decisions.

Conclusion

In conclusion, forming a professional corporation in South Dakota is a strategic decision for licensed professionals who seek to combine their expertise and services under a single corporate entity. This business structure offers limited liability protection, a formal governance structure, and compliance with state licensing requirements. However, it also comes with certain restrictions on ownership, transfer of shares, and personal liability for professional malpractice. By carefully considering the advantages and disadvantages of a professional corporation, professionals can determine whether this structure aligns with their business goals, regulatory requirements, and risk management needs, ultimately contributing to a more organized, secure, and compliant professional practice.

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