A LLC is a type of business entity that combines the tax advantage features of a partnership with the limited liability characteristics of a corporation. The LLC model is generally used by small and medium sized companies that have a small number of owners (called “members”). The South Dakota Business Corporation Act provides the legal structure that a LLC must reside in.
LLC’s are generally required to have operating agreements. These agreements outline the rights and obligations of the members of the LLC. Under South Dakota law, an operating agreement may not:
- eliminate the duty of loyalty members have towards the LLC,
- eliminate the obligation of good faith and fair dealing members have toward each other and the LLC;
- vary the right to expel a member or vary the method to close the business of the LLC; or
- impermissibly restrict the rights of certain people associated with the LLC.
An operating agreement is a legal document and each LLC should have a knowledgeable lawyer draft an agreement that is tailored to the specific needs of the LLC.
As discussed above, most LLCs will want to have an operating agreement on record. The LLC will also have to file paperwork with South Dakota that identifies the LLC’s:
- business name,
- business address, and
- registered agent’s name and address.
South Dakota provides LLCs with the same benefits that most other states do. Notably the members of the LLC are allowed to file income taxes on a personal level and not on a corporate level, thus eliminating double taxation. Members are also given certain personal liability protections from the debts and obligations of the LLC.
Selecting to operate a business as a LLC creates several challenges. LLCs are subject to greater paperwork and filing requirements than are partnerships or sole proprietorships. LLCs with more than one member will find that the management of the LLC can be daunting as well.
The formation and operation of a LLC can be confusing. Contact a local South Dakota business lawyer to discuss any legal issues you encounter.