South Dakota LLC Operating Agreement
Every South Dakota LLC should have an operating agreement in place.
While not legally required by the state, having a written operating agreement will set clear rules and expectations for the management and operations of your LLC.
Download our free South Dakota operating agreement template below or sign up to create a custom operating agreement using our free tool.
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Free South Dakota LLC Operating Agreement Templates
We offer operating agreement templates for single-member LLCs and multi-member LLCs (including member-managed and manager-managed) as well as a customizable operating agreement tool.
Single-Member LLC Operating Agreement
Our single-member LLC operating agreement template was created for limited liability companies with only one member, where the sole member has full control over all affairs of the LLC and no other individuals have a membership interest in the company.
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Multi-Member LLC Operating Agreements
Our multi-member LLC templates are meant for LLCs with more than one member. There are two types available: manager-managed and member-managed.
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Create Custom Operating Agreement
Create a custom operating agreement using our free tool. Just answer a few basic questions, and the tool will develop an operating agreement for your new LLC.
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What Is a South Dakota LLC Operating Agreement?
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An operating agreement is a legal document that outlines the ownership structure and operating procedures of an LLC.
Whether you are starting a single-member or multi-member LLC, your operating agreement should address all of the topics below. Some of these stipulations will not have much bearing on the actual operations of a single-member LLC, but are still important to include for the sake of legal formality.
- Organization: When the LLC was officially formed, who its members are, and how ownership is divided. Multi-member LLCs may utilize an equal ownership structure or assign various members different “units” of ownership.
- Management & Voting: Whether the LLC will be managed by its members or by an appointed manager, and how members will go about voting on business matters. Typically, each member has one vote, but you may wish to give some members more voting power than others. For more information on managing your LLC, read our Member-Managed vs Manager-Managed guide.
- Capital Contributions: The amount of money each member has invested in the business. This is also where you should establish an approach to raising additional funds in the future.
- Distributions: How profits and losses will be divided among the members. The most common option is to distribute profits evenly. If you want them divided a different way, this should be detailed in your operating agreement. For more information on the basics of LLC ownership, read our Contributions and Distributions guide.
- Changes to Membership Structure: How roles and ownership will be transferred in the event that a member leaves the company. It’s essential to lay out the process for buying out and/or replacing a member in the LLC’s governing document.
- Dissolution: Dissolution: If at some point all the members of your LLC decide you no longer wish to conduct business, you should officially dissolve it. Outlining the hypothetical process of dissolving your business is an important aspect of your operating agreement. To learn how to dissolve your South Dakota LLC, read our South Dakota LLC Dissolution article.
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Why Should I Have a South Dakota LLC Operating Agreement
No matter what type of South Dakota LLC you're starting, you'll want to create an operating agreement. Here's why:
- It’s recommended by the state. According to South Dakota Codified Laws, Uniform Limited Liability Company Act § 47-34A-103, all members of a South Dakota LLC may enter into an operating agreement to regulate the internal affairs of the company.
- It'll prevent conflict among your business partners. If you're starting a multi-member LLC, having an operating agreement will prevent misunderstandings amongst your team by setting clear expectations about each partner's role and responsibilities.
- It helps preserve your limited liability status. If you're the sole owner of a single-member LLC in South Dakota, having an operating agreement will help to ensure your limited liability status is upheld by court officials, and add to your business's credibility as a whole.
The full text of the statute can be found below:
(a) Except as otherwise provided in subsection (b), all members of a limited liability company may enter into an operating agreement, which need not be in writing, to regulate the affairs of the company and the conduct of its business, and to govern relations among the members, managers, and company. A person that becomes a member of a limited liability company is deemed to assent to the operating agreement. To the extent the operating agreement does not otherwise provide, this chapter governs relations among the members, managers, and company.
(b) The operating agreement may not:
(1) Eliminate the duty of loyalty under § 47-34A-409(b) or § 47-34A-603(b)(3), but the agreement may, if not manifestly unreasonable:
(i) Identify specific types or categories of activities that do not violate the duty of loyalty; and
(ii) Specify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty;
(2) Eliminate the obligation of good faith and fair dealing under § 47-34A-409(d), but the operating agreement may determine the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
(3) Vary the right to expel a member in an event specified in § 47-34A-601(6);
(4) Vary the requirement to wind up the limited liability company's business in a case specified in § 47-34A-801(a)(3) or (4); or
(5) Restrict rights of a person, other than a manager, member, and transferee of a member's distributional interest, under this chapter.
(c) If not manifestly unreasonable, the operating agreement may:
(1) Restrict a right to information or access to records under § 47-34A-408;
(2) Reduce the duty of care under § 47-34A-409(c) or § 47-34A-603(b)(3);
(3) Alter any other fiduciary duty, including eliminating particular aspects of that duty.
(d) The court shall decide any claim under this section that a term of an operating agreement is manifestly unreasonable. The court:
(1) Shall make its determination as of the time the challenged term became part of the operating agreement and by considering only circumstances existing at that time; and
(2) May invalidate the term only if, in light of the purposes and activities of the limited liability company, it is readily apparent that:
(i) The objective of the term is unreasonable; or
(ii) The term is an unreasonable means to achieve the provision's objective.
After Creating Your South Dakota LLC Operating Agreement
Once you have finished your operating agreement, you do not need to file it with your state. Keep it for your records and give copies to the members of your LLC.
Following any major company event, such as adding or losing a member, it is a good idea to review and consider updating the operating agreement. Depending on how your operating agreement is written, it may require some or all of the members to approve an amendment to the document.
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Frequently Asked Questions
Yes. Although you won’t file this document with the state, having an operating agreement in place is the best way to maintain control of your South Dakota LLC in the face of change or chaos.
While it's a good idea to create an operating agreement before filing your Articles of Organization, the state does not discourage LLCs from waiting until the formation process is complete. It's worth noting that some banks require you to submit an operating agreement in order to open a business bank account.
No. Operating agreements are to be retained by the LLC members. There is no need to file your operating agreement with the South Dakota Secretary of State.