By Jake Lawson, LLC Formation Strategist
Let’s cut to the chase: South Dakota makes forming a general partnership incredibly easy, but that doesn’t mean you should do it. After helping over 1,200 entrepreneurs choose the right business structure—including dozens in South Dakota—I’ve learned that “easy to form” and “good for your business” are two very different things.
Yes, I’ll show you exactly how to form a general partnership in South Dakota. But I’m also going to explain why a South Dakota LLC is probably a much better choice for your business partnership, even in a state known for being business-friendly.
What Is a South Dakota General Partnership?
A general partnership in South Dakota is governed by the Uniform Partnership Act (Title 48, Chapter 7A of South Dakota Codified Laws). Here’s the basic structure:
Formation Requirements
- No state filing required (partnerships exist when you start doing business together)
- No minimum capital requirements
- No registered agent required
- Two or more people carrying on business as co-owners for profit
What You Actually Need to Operate
- Partnership agreement (not required by law, but essential for banking)
- EIN from the IRS (required for tax filing)
- DBA filing ($10 with South Dakota Secretary of State, if using a business name)
- Business licenses (depends on your industry)
- Business bank account (requires formal documentation)
The reality: While South Dakota doesn’t require formal filing, you still need substantial documentation to operate professionally.
South Dakota’s Business-Friendly Environment
South Dakota is genuinely one of the most business-friendly states in the nation:
Tax Advantages
- No state income tax (applies to partnerships and LLCs)
- No corporate income tax
- No personal property tax on business assets
- Low sales tax (state rate of 4.2%)
Regulatory Environment
- Minimal compliance requirements
- Business-friendly courts
- Streamlined filing processes
- Low filing fees across the board
Here’s the thing: These benefits apply equally to LLCs and partnerships. The tax advantages don’t make partnerships a better choice.
Why I Still Don’t Recommend General Partnerships (Even in South Dakota)
South Dakota’s business-friendly environment doesn’t eliminate the fundamental problems with general partnerships:
Problem #1: Unlimited Personal Liability
What it means: Each partner is personally responsible for ALL partnership debts and legal judgments.
South Dakota scenario: Your partner signs a ranch equipment lease for $75,000 without telling you. The business fails. The equipment company can seize your personal truck, home, and bank accounts to collect—even though you never agreed to the lease.
Problem #2: Joint and Several Liability
The legal reality: In South Dakota, creditors can collect the entire debt from any partner who has assets.
Real-world impact: Business gets hit with a $150,000 lawsuit. Even if you’re only a 25% partner, you could be personally liable for the full amount if your partners can’t pay.
Problem #3: Automatic Dissolution
South Dakota law: Partnerships automatically dissolve when any partner dies, becomes incapacitated, or withdraws.
Business disruption: Your business relationship with suppliers, customers, and banks gets complicated every time partnership composition changes.
Problem #4: Management Confusion
Default rule: Unless your partnership agreement says otherwise, every major decision requires unanimous consent.
Paralysis risk: Partners deadlock on important decisions, stopping business operations until legal intervention resolves disputes.
The South Dakota LLC Alternative
Here’s why I recommend a South Dakota LLC instead:
Formation Comparison
General Partnership:
- Formation cost: $0-$10 (DBA only)
- Ongoing compliance: Minimal
- Personal protection: None
South Dakota LLC:
- Formation cost: $150 (state fee)
- Ongoing compliance: Annual report ($50)
- Personal protection: Strong liability shield
Tax Treatment (Identical)
Both partnerships and multi-member LLCs in South Dakota have:
- Pass-through taxation (no entity-level tax)
- No state income tax on business profits
- Same federal tax filing requirements (Form 1065)
Bottom line: The tax benefits are identical, so this isn’t a reason to choose partnerships.
Professional Credibility
Partnership challenges:
- Banks often confused by partnership structure
- Vendors may question business legitimacy
- Harder to get business credit
LLC advantages:
- Universally understood business structure
- Easier banking relationships
- Better access to business credit and loans
Step-by-Step: How to Form a South Dakota General Partnership
Despite my reservations, here’s the complete process:
Step 1: Plan Your Partnership Structure
Critical decisions:
- Ownership percentages (profit/loss allocation)
- Capital contributions (who invests what)
- Management roles (who handles what)
- Decision-making process (voting procedures)
Jake’s advice: Spend serious time on this planning. Most partnership failures stem from unclear expectations and unresolved disagreements about roles and responsibilities.
Step 2: Create a Partnership Agreement
Essential elements:
- Partner names and addresses
- Ownership percentages and capital accounts
- Profit and loss allocation
- Management responsibilities and authority
- Decision-making and voting procedures
- Dispute resolution mechanisms
- Partner withdrawal and death provisions
- Business dissolution procedures
Critical reality: While South Dakota doesn’t require a written agreement, you absolutely need one for:
- Opening business bank accounts
- Getting business loans
- Resolving partner disputes
- Protecting your interests
Step 3: Choose a Business Name and File DBA
DBA requirements in South Dakota:
- Required if: Using any name other than all partners’ legal names
- Filing fee: $10
- Renewal: Every 5 years
- Process: File online through South Dakota Secretary of State
Naming strategy: Choose something that can outlast personnel changes and represents your business vision, not just current partners’ names.
Step 4: Obtain Federal EIN
Required for:
- Filing annual partnership tax returns (Form 1065)
- Opening business bank accounts
- Hiring employees (if applicable)
Process: Apply directly through IRS.gov (free and takes 10 minutes) or by fax/mail.
Step 5: Research License Requirements
South Dakota licensing:
- No general state business license required
- Industry-specific licenses may apply
- Local permits required by city/county
Resources:
- South Dakota Governor’s Office of Economic Development
- Local government offices for city/county requirements
- Professional licensing boards for regulated industries
Step 6: Set Up Business Banking and Records
Banking requirements:
- Partnership Agreement (signed by all partners)
- EIN Confirmation Letter (CP 575)
- DBA certificate (if applicable)
- Photo IDs for all partners
Record keeping (recommended):
- Tax returns (previous 3 years)
- Partnership Agreement and amendments
- Financial statements
- Bank records and receipts
South Dakota Partnership vs. LLC: The Real Comparison
Let me break down the honest differences:
Formation Costs
- Partnership: $10 (DBA only)
- LLC: $150 (state fee) + $50/year (annual report)
Cost difference: $190 in year one, $50 annually thereafter
Legal Protection
- Partnership: Zero personal asset protection
- LLC: Strong liability protection for personal assets
Value assessment: $190 for liability protection is the best insurance you’ll ever buy.
Business Operations
- Partnership: Automatic dissolution when partners change
- LLC: Continues operating despite member changes
Stability factor: LLCs provide business continuity that partnerships can’t match.
Professional Image
- Partnership: Often viewed as informal or temporary
- LLC: Universally recognized and respected business structure
Credibility impact: Banks, vendors, and customers take LLCs more seriously.
When General Partnerships Might Make Sense in South Dakota
In my 15 years of experience, here are the rare cases where I might consider recommending a partnership:
Short-Term Joint Ventures
Example: Two ranchers partnering on a single cattle operation with a clear end date.
Family Businesses with Existing Insurance
Example: Family members working together who prioritize simplicity and have comprehensive liability insurance.
Professional Practices with Regulatory Requirements
Example: Certain professional practices where partnership structure is required by licensing boards.
Important note: Even in these cases, I usually still recommend exploring LLC options first.
My South Dakota Business Structure Recommendation
For 95% of business partnerships in South Dakota, here’s what I recommend:
South Dakota Multi-Member LLC
Advantages:
- Same tax benefits as partnerships (no state income tax)
- Personal asset protection from business debts
- Professional credibility with banks and vendors
- Business continuity despite member changes
- Flexible management structure options
- Easier exit strategies for members
Formation process:
- File Articles of Organization ($150)
- Appoint registered agent (can be member or hired service)
- Create operating agreement (not required but essential)
- Obtain EIN (same as partnership)
- Get necessary licenses (same requirements)
Ongoing Compliance
- Annual report: $50 per year
- Registered agent: $0-$225/year
- Total annual cost: $50-$275
Value proposition: Minimal additional cost for substantial legal protection and business credibility.
South Dakota-Specific Considerations
Agricultural Partnerships
South Dakota’s strong agricultural economy creates unique partnership considerations:
- Equipment sharing arrangements
- Land lease partnerships
- Livestock joint ventures
- Crop sharing agreements
Recommendation: Even agricultural partnerships benefit from LLC protection due to equipment liability and weather-related risks.
Tourism and Recreation Businesses
South Dakota’s tourism industry (Mount Rushmore, Badlands, Sturgis Rally) creates liability-sensitive businesses:
- Guest safety concerns
- Property damage risks
- Seasonal operation challenges
Strong recommendation: Tourism businesses absolutely need LLC protection due to high liability exposure.
Common South Dakota Partnership Questions
Do I need to register my partnership with the state?
No state registration required, but you’ll need a DBA ($10) if using a business name other than partners’ legal names.
Can one partner sign contracts for the entire partnership?
Yes, unless your partnership agreement specifies otherwise. This is a major risk—any partner can bind the entire partnership to obligations.
What happens if a partner wants to leave?
Unless your partnership agreement provides otherwise, the partnership dissolves automatically when any partner withdraws.
Are there annual filing requirements?
No annual state filings for partnerships, but you must file federal Form 1065 each year.
How do South Dakota partnership taxes work?
Partnership files informational return (Form 1065) but doesn’t pay taxes. Partners receive K-1s and pay taxes on their share of profits.
The Bottom Line on South Dakota Partnerships
Look, South Dakota makes it incredibly easy to form a partnership—just start doing business together and you’ve got one. But easy formation doesn’t mean it’s the right choice for your business.
The math is simple: A South Dakota LLC costs $140 more in the first year but provides thousands of dollars worth of liability protection. In a state with no income tax, that additional cost is even more negligible.
My honest recommendation: Take advantage of South Dakota’s business-friendly environment by forming a multi-member LLC. You’ll get all the tax benefits with none of the personal liability risks.
If you’re absolutely determined to form a partnership, invest in a comprehensive partnership agreement prepared by a South Dakota attorney. And seriously consider converting to an LLC once your business generates enough revenue to justify the additional protection.
South Dakota’s pro-business environment is real, but it doesn’t eliminate the fundamental risks of unlimited personal liability that come with partnerships.
Ready to take advantage of South Dakota’s business-friendly environment the smart way? I’ve helped dozens of South Dakota entrepreneurs choose the right structure for their partnerships. Check out my complete South Dakota LLC formation guide or learn about the best LLC formation services for 2025.
Questions about partnerships vs. LLCs for your specific South Dakota business? Send me a message—I personally read and respond to every inquiry within 24 hours.