We all wish for financial freedom, flexible working hours and living our own dreams, but often reality looks different. Running your own business is, for many, one of those dreams. But it often does not come true. There are many reasons for this. You yourself may doubt your ability, or the people around you may advise against it. Many small businesses shut down within a year or get swallowed up by bigger companies. While all these reasons might be enough for you to postpone your decision, or actually decide to continue working for someone else, looking at them the right way can also make you change your mind and go your own way.
Let’s say you live in South Dakota and are considering starting your own business. Doubting your ability is natural, especially if you’ve never run a business before. But take a moment and think about all the hours you’ve spent working for someone else, pushing someone else’s company forward. Those are the exact same skills you will need, you will just be doing it for yourself.
If someone tells you that you can’t do something, take that as an incentive, a motivation to prove them wrong. Next, small businesses do close, but so do large companies. Market conditions, bad management and many other factors can contribute to that. But failing is not the end, it is just a new beginning, and if your company gets swallowed up by a bigger one, then it means you’ve done something right an have attracted interest from a larger company to make an effort to put a bid in for your work. In that case, make sure not to sell yourself short.
While this guide is not a guarantee for success, it will give you directions and lay out steps that should be taken in order to start a business in the state of South Dakota and reach that financial freedom, those flexible working hours and the chance to finally live your dreams.
There are several aspects to consider when it comes to starting your own business, including registering your company with the relevant authorities. The first step consists of a set of questions you should ask yourself. Yes, we said that doubts can affect your ultimate decision, but ask yourself what skills you have, what experience you have, if you enjoy your current job if you think you’d be capable of running your own company. All these are valid questions, but if you do have doubts, and the answer to some of those questions is negative, that does not necessarily mean you should turn your back on the idea. No, it might mean that you have to work harder to eliminate all your doubts. Once you are sure of your decision, look into the market conditions, and what makes you enjoy work. Having the option of doing what you love, creating something from scratch and watching it grow, makes the long hours that much easier.
The next step is to take an analytic look at the market conditions. See what the supply-demand relation is in the market segment you think would be best for you. If it is an oversupplied market, you might consider taking a smaller step to your ultimate goal and picking a niche market to serve. Such markets have a lower level of competition but a healthy demand for a service or a product. This allows you many things: to build your company or brand name, to gather valuable experience as an entrepreneur and to start generating a steady income for your business.
There are various points that have to be evaluated and looked into in detail when it comes to market research, such as financial predictions. All these can be time-consuming, and if you’d like the best results, it might be better to consult a professional business advisor.
In the end, the results of your research will form the backbone of your business plan, a roadmap to establishing your business. This has to include everything you researched on market conditions, the product you plan on working with, the projected revenue, income, costs among other things. This business plan is not only your roadmap, but your ticket to additional funding, if you require it. No financial institution or bank would agree to provide financial help unless you present them with a well-developed business plan.
It will also make it easier for you to go through the steps needed to register your business with the South Dakota authorities.
Having a financial advisor or any consultant work with you on your business plan even before you start the legal registration process can be helpful, as there are a number of options when it comes to your business’ structure. Each of these legal structures has their own advantages and disadvantages, but in each case the level of liability protection is different. You might also have to consider potential need to transfer ownership, tax requirements and capital needs.
The first option would be the sole proprietorship, which means the business has a single owner who has the total control and responsibility over the business. It is the easiest legal structure to set up as well as the least expensive. To start operating as a business, the owner requires a business license, a tax ID and has to register a business name. However, the owner is liable for the debts of the business.
The next option is a general partnership, which is created by two or more people who will act as co-owners of the business. In a general partnership, each general partner shares equal rights and responsibilities to manage the business; however, each of the partners is equally liable for all debts of the business. According to the South Dakota Governor’s Office of Economic Development, while not required, a written partnership agreement is highly recommended. This agreement lays down the ownership structure and can prevent the partners of being liable for business debts that exceed the owner’s investment.
Another form of the partnership is the Limited Liability Partnership (LLP), which is regulated to a higher extent than a general partnership. It allows partners to assume limited partner position in order to avoid unlimited liability. Additionally, personal assets of partners are protected against business liabilities.
If you plan on running a larger operation, you should look into the corporation structure. These are complex legal business structures, or legal entities that exist apart from its owners or shareholders. The rights, privileges and liabilities are completely separated from individual investors.
Possibly combining the best of all worlds, a Limited Liability Company (LLC) is designed to combine the tax obligations of a partnership with liability protection of a corporation. A Limited Liability Company is set up in such a way that it eliminates double taxation. Income is taxed at the owner’s individual rate while liability for business debts and obligations are with the LLC and not individual owners.
In terms of registration, every business structure has to be registered with the South Dakota Secretary of State. If you plan on running a sole proprietorship under a business name, you should register the record a declaration of business name at the local county Register of Deeds office or at the Secretary of State’s website. General Partnerships require a registration of a General Partnership Statement of Authority with the office of the Secretary of state. The registration of all the remaining business structures is also completed through the office of the Secretary of State. The forms required can be filed at the address provided in the contact details section at the end of this article.
It also is important to determine whether your business requires any special permits or licenses. Various departments might have different requirements and you should consult with an attorney or a business advisor, or simply head to the city offices to inquire about any special requirements.
The following step should be completed carefully as it is the most complex and certainly very important one in the whole business registration process: tax.
The South Dakota Secretary of State notes that the first step towards fulfilling your tax obligations in the state is to obtain a Federal Employer Identification Number. This process is completed through the Internal Revenue Service (IRS).
Once you have obtained the Employer Identification Number (EIN), it is time to determine whether you are required to obtain a sales tax license in the state of South Dakota.
According to the South Dakota Secretary of State, “any retailer engaged in selling, renting, or leasing tangible personal property or products delivered electronically or selling services in South Dakota is required to have a sales tax license. Sales tax applies to retailers’ gross receipts from all sales of tangible personal property, products delivered electronically, and services not specifically exempted.”
If you are engaged in retail, or for example, buying cheap wholesale merchandise to resell online, you are required to obtain a sales tax permit. In South Dakota, sales tax is a combination of a 4.5 percent state tax and a general municipal tax, which can range from 0 to 2 percent.
The process of applying for a South Dakota sales tax permit is completed through the Department of Revenue. In the application, you will have to provide personal information, business information, such as address, EIN, the legal structure of your business as well as a description of your business. You will also have to include the date your business started operations in the state of South Dakota. The application is free of charge and, once approved, your sales tax license does not have to be renewed.
Like a number of other states, South Dakota provides certain tax exemptions, such as selling to the United States government agencies, South Dakota government agencies, Indian tribes, foreign diplomats, charity organizations, private or religious educational organizations to name a few.
As we used an example of purchasing wholesale merchandise for resale, we shall focus on another exemption, closer to the matter. Certain products are exempt from sales tax based on their use, and the most common one is purchasing a product for resale. In order to complete a tax-exempt purchase you, as a buyer, have to provide an exemption certificate. With the exemption certificate, you have to provide your seller with your tax permit number. Keep in mind that the exemption certificate has to be completed properly, and must contain buyers name and address as well as tax ID numbers and the type of business, as well as the seller’s name and address. It also has to be signed by the buyer.
According to the Department of Revenue, the exemption certificate can be issued and used for a single purchase or as a blanket certificate if the buyer is making a number of purchases from the same seller. The seller also has to keep a record of all the exemption certificates he/she have received for a period of three years. In case you find yourself on the receiving end of such a certificate, make sure to check all the information in the document and keep the document on record for the required period.
We urge you to consult an attorney, a business advisor or your local authority offices for detailed information in order to avoid any confusion and make sure the process has been completed correctly. Once all the steps are complete, all you have to do is declare the business open.
Capitol Building, Suite 204
Phone: (605) 773-4845
445 East Capitol Avenue
Pierre, SD 57501
Phone: (800) 829-9188
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