Forming a nonprofit corporation is a noble goal. But if you’re just starting out, the process can feel incredibly confusing. Compared to other entity types like LLCs or even standard corporations, a nonprofit has detailed start-up requirements and complicated maintenance procedures.
In this guide, we’ll walk you through the ins and outs of forming a nonprofit in South Dakota so you can get back to what truly matters: your cause.
What is a Nonprofit Corporation?
A nonprofit and for-profit corporation both have similar “nuts and bolts,” so to speak. Both businesses have a board of directors, CEOs, bylaws, annual board meetings, and the like.
But what makes a nonprofit stand out is its purpose. A business corporation typically organizes for financial gain; a nonprofit exists not to make money but to further a cause or reach a goal. Additionally, a business corporation gains investors by offering stock, which has the incentive of dividends and financial gain. Nonprofit corporations solicit contributions that don’t generate any income for those investors.
Well-known nonprofits include groups like Doctors Without Borders, Alcoholics Anonymous, and even your local YMCA.
It’s important not to confuse “nonprofit” with “no income.” Most nonprofits generate income from donations or day-to-day services. The distinction is that nonprofits use 100% of their income to pay expenses and reinvest in their cause. For example, the YMCA uses member dues and community donations for exercise programs, youth sport development, and maintaining their equipment and facilities. They also pay their employees.
Because of this, nonprofit corporations may apply for and receive a tax-exempt status (typically a 501(c)(3) designation), eliminating the corporation’s responsibility for income taxes at the federal and state levels.
Should you form one?
Before you dive into the rest of this guide, you should do a little soul-searching: should you even form a nonprofit in South Dakota? The goal is a noble one, but it certainly isn’t for everyone. And some concepts simply aren’t right for the nonprofit sector.
Here are some questions to ask:
- Will I be able to convince others to buy into this cause? How hard will it be to attract donors?
- Are there other existing nonprofits with the same goal?
- If so, do they operate in South Dakota? Nationwide? Should I form a local chapter of their nonprofit instead?
- Can I further this cause better or differently than they are?
- Can I hire employees for this cause, or will I rely on volunteers? How will I successfully recruit their help?
If you find yourself stumped by any of those questions, you may want to step back and get some help…or simply do some more thinking before diving in. But if you have answers to most of those questions, then you’re well on your way to starting a South Dakota nonprofit organization.
Starting a South Dakota Nonprofit: Step by Step
Technically, the process for creating a South Dakota nonprofit entity is pretty simple. It’s really just a matter of picking a few people and filing some paperwork (it’s the requirements immediately after forming the nonprofit that get complicated).
1. Pick & Claim a Name
Choosing a name is one of the most crucial decisions for starting your business. You want to pick a name that’s memorable, likable, and most importantly, compliant with South Dakota state law.
South Dakota as pretty simple laws for nonprofit names:
- Your name cannot state or imply that your business operates for a purpose other than what is permitted by law or your Articles of Incorporation
- Your name will be transliterated into English if it is not already written in English characters
- Your name must be “distinguishable upon the records” or the Secretary of State, or distinct from the names of all other entities in the state
If you want more information on South Dakota nonprofit names, check out the Nonprofit Corporations section of the South Dakota Codified Laws.
As a result, you have a lot of leeway to pick a name that will resonate with your target audience, potential donors, and of course, with you. The ideal South Dakota nonprofit name describes what the organization does, sounds good when said out loud, and just “sticks” in the minds of people who see it.
Whenever you pick a potential name, you should check whether it’s available with a Business Name Availability Search. Typically, if you type in your desired name and no exact matches show up, then your name is available to use. This seems like a very basic step, but it’s crucial to streamlining your filings.
Once you nail down an available name that you like, you can reserve it using the Application for Reservation of Name form. This optional filing costs $25 to submit, but once it’s approved, your name will be protected for 120 days. That gives you plenty of time to prepare other business documents without losing your name to another business or nonprofit.
You can learn more through our guide on how to reserve a South Dakota business name.
2. Assemble your initial board
A nonprofit corporation is only as impactful as the people leading it. That’s why your initial board of directors is extremely important; you’ll want to pick a team of people that are just as passionate about your cause as you are.
More importantly, it’s helpful to choose a group with complementary strengths. For example, a medical outreach group might have a board of directors with three doctors, a nurse, a financial expert, a creative visionary, and a lawyer. The right board of directors will help your nonprofit thrive.
South Dakota doesn’t have a bunch of rules about who can serve on the board. The only explicit requirement is that your board must have at least three directors. As long as you have a minimum of three directors, your nonprofit can set out how many extra directors you’ll have (and their qualifications) in your company bylaws. You can also set out how many extra directors you’ll have (and their qualifications) in your company bylaws. You can also dictate how each director is appointed, how long they’ll serve, how they’ll resign, and how you’ll replace them.
3. Appoint a registered agent
Every South Dakota entity—nonprofits, corporations, and LLCs alike—must appoint a registered agent. This individual accepts “service of process” from the state on your behalf. Basically, if the state ever needs to notify you regarding a lawsuit or an upcoming annual report due date, they’ll contact your registered agent. The agent forwards that notice to you.
South Dakota has pretty lenient criteria for a nonprofit’s registered agent, as found in The South Dakota Model Registered Agents Act:
- Every entity that files with the Secretary of State (both domestic and foreign) must appoint a commercial or noncommercial registered agent
- Both commercial and noncommercial registered agents can be individual residents of the state or business entities with authority to operate in the state
- A commercial registered agent is no different from a noncommercial agent except for the fact that commercial agents register to be included in the statewide index
- An agent must be continuously maintained
So you might ask, “Can I serve as my nonprofit’s registered agent?” Technically, you can. But we don’t recommend it. That puts your personal details (and often private details like your address and primary email) on the public record. You’ll also be busy running your nonprofit and pursuing your goals; you won’t want to tie yourself down to a registered address (especially for a tedious thing like service of process). We recommend appointing an individual you trust.
Or, if you prefer, you can hire a registered agent service instead. For a small annual fee, these services will act as your agent. That frees you up to focus on running your nonprofit.
4. File your Articles of Incorporation
Up until now, your nonprofit has just been an idea; it’s not recognized by the state government. Technically, businesses don’t “exist” until they file the appropriate paperwork. For South Dakota nonprofits, that means filing the Articles of Incorporation.
This four-page document requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- Your nonprofit’s name
- The purpose of the nonprofit
- The nonprofit’s period of existence (i.e., whether or not it will be perpetual)
- Whether or not the corporation will have members
- Address for the principal office of the business
- Name and address of your noncommercial registered agent OR the commercial registered agent’s CRA# OR the position/address of the appointed officer within the company
- Name and address of each incorporator
- Name and address of each initial director
- Terms for your different classes of members, if applicable
- A statement for how directors will be appointed, if applicable
- Provisions for the internal affairs of the nonprofit
- Name and signature of each authorized officer
All told, this is a pretty simple form to complete; all you really have to do is fill out the requested information, and you’ll be set to go. And if you’ve made it this far into the guide, you probably already have this information on hand. If you prefer, you can file this form online. Either way, you’ll need to have $30 on hand to pay the filing fee.
Processing speed: instant for online filing, 3-5 business days for paper
Expedited processing: $50 (mailed-in filings only)
Congratulations! Your nonprofit is now a recognized entity in South Dakota!
Prepare for & Hold Your First Board Meeting
After your Articles of Incorporation form is complete, it’s time to truly get your nonprofit’s activities underway. And that means it’s time for the first board meeting.
No two board meetings will look exactly the same; after all, every nonprofit has different tasks to accomplish. South Dakota does expect you to have regular meetings, but the exact terms—the where, the when, the how—will be dictated by your bylaws.
For example, your bylaws might require your president and CFO to report on the recent accomplishments and financial standing of the nonprofit at each meeting. Other nonprofits will take a different approach. For more information on these meetings, please consult the South Dakota Codified Laws.
Your very first board meeting, however, will look a bit different. Here’s what you’ll need to accomplish:
- Draft and approve the nonprofit’s bylaws: The bylaws dictate exactly how your nonprofit will be run. This includes a detailed rundown of your corporate purpose, how your board will be selected and replaced, how you’ll raise funds, how you’ll hire employees or solicit volunteers, and much more (including a provision for how to amend the bylaws). To save time, you may choose to write a draft before the meeting and revise it when your full board is present. The important thing is that the board approves the final bylaws, making them the governing document for your nonprofit.
- Draft and approve a conflict of interest policy: Occasionally, one of your nonprofit’s contributors will have personal affairs that intersect with the activities of your nonprofit. A conflict of interest policy dictates exactly what happens in those situations, protecting both the nonprofit and the individual contributor.
- Appoint someone to take minutes at each meeting: Every South Dakota nonprofit corporation must establish and maintain a corporate record. That’s why every board should appoint someone to take minutes, or a summary of every board meeting, documenting what was said and what decisions were made.
- Finalize responsibilities for each board member: If one board member will be responsible for fundraising while another raises awareness for the cause, you should assign those roles at the initial board meeting.
- Appoint officers for the nonprofit (if needed): Some corporations choose to have their officers, such as the CEO or CFO, be members of the board. Others appoint non-board members to fill these roles, creating a division between the governance and day-to-day operations. Either choice is fine, but these vital roles should be filled.
This initial meeting will be a very full, technical day (or even series of days!), but nailing down these aspects will help you establish a nonprofit that’s compliant with South Dakota state law and efficiently run.
Take Care of Taxes
Taxes as a nonprofit are a tricky beast; frankly, we recommend getting advice from a tax lawyer, accountant, or similar consultant to make sure you cover all your bases! But let’s take a quick look at the basics for nonprofit taxes.
First, apply for tax-exempt status on the federal level
If you don’t file for tax-exempt status, you’ll technically be liable for corporate income taxes. And that’s the last thing a non-profit wants. That’s why you’ll need to start out by filing Form 1023 or Form 1024, which are the applications for charitable, religious, or educational groups and other nonprofits respectively. After that application is completed, you’ll play the waiting game. The IRS can take up to 180 days to approve or reject your application, so we highly recommend completing the application correctly the first time.
Once your application is approved, you’ll receive a letter of tax-exempt status from the IRS. This gives you exemption from federal income taxes, and you won’t have to worry about state taxes since South Dakota doesn’t have an income tax. However, if you’d like an exemption from the state sales taxes, you’ll have to apply for it. You can find more information about which entities can apply for this exemption, how to obtain and use an exemption certificate, and more, check out the Department of Revenue.
Obtain an EIN
An EIN, or an Employer Identification Number, is an important identifier to get; it acts a bit like a Social Security Number, but for a business entity. Unfortunately, you aren’t assigned one automatically.
Thankfully, it’s free to apply for an EIN online with the IRS. Even if you don’t plan to have employees right away, it’s a good idea to have this number from the get-go. Miscellaneous forms, such as license applications or even bank accounts, may request this number.
Account for employment & miscellaneous taxes
No two businesses are alike, so each nonprofit will have slightly different taxes. That said, South Dakota nonprofits with employees will need to account for withholding taxes on the federal level, unemployment insurance taxes on the federal and state levels, and more.
There are also miscellaneous industry-specific taxes in South Dakota, such as fees for laundromats, alcohol, and more. In most cases, these taxes won’t apply to your nonprofit, but it’s still a good idea to double-check with the South Dakota Department of Revenue just to be sure you’ve covered all your responsibilities.
That’s the basic gist of nonprofit taxes in South Dakota. We still recommend consulting with a tax professional, as they’ll be able to give you specialized advice for your unique situation.
Register for Licenses and Permits
Licenses and permits are especially important for nonprofits. And there are three major categories of potential permits and licenses: fundraising, lobbying, and licensing. Let’s walk through South Dakota’s requirements for each of those three areas.
1. Fundraising
A lot of states require you to register in order to solicit charitable contributions. However, South Dakota is one of the few states that does not require this registration. You’re free to begin fundraising as soon as you’ve established your business.
2. Lobbying
If your nonprofit will be lobbying for its cause in a formal capacity, then you’ll need to ensure that each person lobbying has the appropriate registration. This registration can be completed with the Secretary of State. A lobbyist pays a registration fee for each “employer” they represent (i.e., lobby for), but the total registration fee for each year cannot exceed $65.
After registration, lobbyists are required to maintain their registration by renewing each year they lobby and file regular reports of their activities and expenditures. For more information on South Dakota’s lobbyist procedures, please consult the Lobbyists chapter of the South Dakota Codified Laws.
3. General licensing
Nonprofits are tax-exempt, but they aren’t exempt from licensure requirements, whether that’s for an industry-specific license or a state general business license. So you’ll need to get the licenses that apply to your unique organization.
South Dakota, unlike some states, doesn’t have a general business license that every entity in the state needs to get. So most license requirements come at the industry level instead. South Dakota upholds all federally regulated industry licenses, and the Licensing and Registering Your Business Guide is a great place to check out the state-level license requirements. It’s up to you to learn if there are any state-level license requirements. It’s up to you to learn if there are any licenses for your industry, so be sure to complete this step!
Whenever you apply for a license or permit, we recommend inquiring about the requirements for renewing your licenses. That way, you’ll know exactly how often you’ll need to renew your licenses (if applicable).
Meet Insurance Requirements
We highly recommend that every business entity maintain at least some sort of general liability policy — even nonprofit entities. There’s always a chance that something can go wrong (no matter how careful you are).
A natural disaster can happen, a break-in might cost you some important equipment, or an accident during day-to-day operations might cause a broken bone and damaged property. A general liability policy will protect your business if something like that happens.
South Dakota state law also recommends that you get a workers’ compensation insurance policy if you have employees. It technically isn’t a legal requirement, but we highly recommend it. This policy can help you avoid major hassles down the road. You can learn more about this policy with the Department of Labor and Regulation.
Top Resources for South Dakota Nonprofits
Nonprofit work isn’t always easy, but you never have to go it alone! There are dozens, if not hundreds of nonprofit resources available to South Dakota organizations.
On the national level, there’s the National Council of Nonprofits. They exist to advocate for and strengthen nonprofits throughout the country by providing nearly comprehensive resources, teaming up with each state’s nonprofit network, and keeping you aware of the trends in policy and public opinion. It’s also a great place to peruse the latest reports and data about charitable giving and advocacy in the U.S.
On the state level, you can always turn to the South Dakota Community Foundation. In their own words, the Foundation “can help nonprofits apply for and receive grants, or set up an agency endowment fund to grow their endowment.” The Foundation can help you sort through the red tape of grant applications, increase your donor base, and much more.