How to Form a PLLC in South Dakota

As a licensed professional in South Dakota you can structure your business as a South Dakota professional limited liability company (PLLC). This will give you protection from several important types of liability. It also may provide certain tax advantages compared to other ways of structuring your business.

Note: South Dakota law sometimes refers to PLLCs as professional service firms.

What is a South Dakota PLLC?

A South Dakota PLLC is a limited liability company (LLC) formed specifically by people who will provide South Dakota licensed professional services. LLCs in general are businesses registered with the state that consist of one or more people—called LLC members—who own the business. Like other LLCs, PLLCs protect their individual members from people with claims for many (but not all) types of financial debts or personal injuries.

What is a Professional Service in South Dakota?

Under the relevant South Dakota law, professional services include the licensed practices of:

• medicine
• chiropractic
• optometry
• podiatry
• physician's assistants
• nursing
• health care (as defined by applicable law)
• dentistry
• veterinary medicine
• law, and
• public accounting.

South Dakota has separate statutes for each of these professions. The statute for each profession varies slightly from the statute for every other profession. However, in general, anyone who is licensed to practice one of these professions in South Dakota can form a South Dakota PLLC.

How Do I Form a South Dakota PLLC?

To form your South Dakota PLLC you'll need to:

• have the state license for each professional who will be a member of the company
• for many professions , apply for and obtain a certificate of registration from the state board that licenses or otherwise regulates the profession, and
• file articles of organization with the South Dakota Secretary of State (SOS).

Regarding the second point, applying for a certificate of registration, you should check with the state board that regulates your profession for more details.

You can or download a blank articles of organization form by going to the SOS website. The form is in PDF format and you can type in the required information on your computer (you will have to print it out in order to sign it). The current filing fee is $150.

Naming Restrictions

South Dakota requires that your PLLC's name contain the words "professional limited liability company" or the abbreviation "Prof. L.L.C." For some professions the name must also meet requirements, such as ethical requirements, of the relevant state licensing board. For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Service and Membership Restrictions

Generally speaking, all members of a South Dakota PLLC must be licensed to provide the professional services offered by the PLLC. In some cases, a PLLC may provide more than one type of professional service. For more details, check with a local business attorney. And keep in mind that South Dakota PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.

Operating Agreement

You should make sure you have an operating agreement for your PLLC. Unlike professional licenses, articles of organization, naming restrictions, and service restrictions, this is not a state requirement. However, it is important to have an operating agreement so that other members of the PLLC (if any), as well as outside companies and businesses (for example banks), know what the internal rules are for the company. Depending on your own level of knowledge and expertise, you should consider having a lawyer assist you in preparing this document.

A PLLC Will Not Protect You From All Liability

Forming your professional service business as a PLLC will protect you personally from:

• creditors seeking to collect unpaid debts owed solely by the PLLC
• liability for the malpractice of other PLLC members (technically known as "vicarious liability"), and
• people who are personally injured in connection with your PLLC because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your PLLC's offices).

Regarding protection from liability for the malpractice of fellow PLLC members, be aware that, for some professions in some states, PLLC members are required to have a minimum amount of malpractice insurance before they are eligible for such protection. Therefore, it's always a good idea to double check your state's PLLC laws, as well as your state's rules for your particular profession, regarding minimum insurance requirements.

Meanwhile, you are personally responsible if:

• you personally guarantee repayment of a business loan
• you engage in professional malpractice (such as completely botching a patient's treatment or egregiously mishandling a client's case), or
• you intentionally or negligently commit a tort (such as assaulting someone).

Because you are not protected from your own malpractice, you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any minimum insurance requirements.

A PLLC is Different From a Professional Corporation

A PLLC is not the same thing as a professional corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:

• a PLLC, like other LLCs, is comprised of members, but a PC, like other corporations, is comprised of shareholders
• following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PC ownership is based on shares of stock; and
• a PLLC, like other LLCs, is a so-called pass-through tax entity, meaning that in most states only the individual members have income tax obligations, while a PC, like other corporations, usually has its own income tax obligations.

The tax differences between PLLCs and PCs can become complicated. For example, a PC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. And, meanwhile, PCs that don't elect special status may be subject to double taxation—in other words, both the PC itself and its shareholders may have to pay taxes on business income. Because South Dakota is one of just a very few states that has neither a personal income tax nor a corporate income tax, state tax differences between PLLCs and PCs may be less significant. However, you'll still have to contend with federal tax issues.

South Dakota allows professionals to form both PLLCs and PCs, and both PLLCs and PCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both PLLCs and PCs, but PLLCs are simpler to create and operate, many professionals prefer the PLLC structure.

Additional Information

For more information on the requirements for forming and operating an LLC in South Dakota, such as those relating to annual reports and taxes, see Nolo's articles in 50-State Guide to Forming an LLC and 50-State Guide to Annual Report and Tax Filing Requirements for LLCs, along with the other articles on LLCs in the LLC section of the Nolo website.