South Dakota Nonprofit Corporation FAQ

The first questions are almost always about the difference between forming a nonprofit and becoming tax-exempt, and about what South Dakota specifically requires.

Is "nonprofit" a tax status or a legal structure?

Both, in a sense, but they come from different governments. When you file Articles of Incorporation with the South Dakota Secretary of State, you create a nonprofit corporation — a legal structure under state law. Whether that corporation is tax-exempt is a separate determination made by the IRS. You can be an incorporated South Dakota nonprofit and not yet be tax-exempt; in fact, every organization passes through that in-between stage while its IRS application is pending.

What's the very first thing to do?

Clear your name. Search the South Dakota business database to confirm your intended name is distinguishable from everything on file. There's no point drafting Articles around a name the state will reject. After that, line up your board and your registered agent, then file.

Do I need a lawyer to form a nonprofit?

Not strictly. Many founders incorporate without one. But nonprofit formation has a wrinkle most business filings don't: your Articles need specific IRS language, and your governance has to satisfy the exemption review. A lawyer or an experienced filing service helps you avoid the mistakes that force an amendment or delay your 501(c)(3) application. For complex organizations, professional help usually pays for itself.

This is where the most consequential — and most misunderstood — questions live.

How do we actually become a 501(c)(3)?

After incorporating in South Dakota and getting your EIN, you apply to the IRS using Form 1023 or the streamlined Form 1023-EZ. The IRS reviews your purpose, your governance, and your Articles' required language, and if it approves, it issues a determination letter recognizing you as tax-exempt. Only then are donations to your organization tax-deductible.

What's the difference between Form 1023 and 1023-EZ?

The 1023-EZ is a shorter, cheaper, faster application available to smaller organizations that pass the IRS eligibility worksheet. The full 1023 is for larger or more complex organizations and asks for detailed narratives, budgets, and governing documents. Filing the EZ when you don't qualify, or the full form when the EZ would do, both cause problems — check the eligibility worksheet honestly.

Does South Dakota tax our income?

No. South Dakota has no personal or corporate income tax, so there's no state income tax exemption to chase. Your tax-exempt work is entirely on the federal side. Do note that South Dakota has a sales and use tax, and federal exemption doesn't automatically exempt you from it — that's a separate question for the state Department of Revenue.

Nonprofits are run by a board, not by owners, and the governance questions reflect that.

Who owns a nonprofit?

No one. A nonprofit corporation has no owners — no shareholders, no equity holders. This is the defining structural difference from an LLC or a business corporation. The board of directors governs the organization and holds it in trust for its charitable purpose, but no individual owns it or can profit from it beyond reasonable compensation for actual work.

How many directors do we need?

South Dakota sets a statutory minimum, but plan around the IRS expectation for 501(c)(3) organizations: at least three directors, ideally three who aren't related to each other. An independent board tells the IRS and grantmakers that the organization serves a public rather than a private interest.

What are bylaws, and do we file them?

Bylaws are your internal rulebook — how the board is structured, how decisions get made, who the officers are. You don't file them with South Dakota; they're private. But your board, your bank, and the IRS all rely on them, so they need to be complete and properly adopted at your organizational meeting.

Can board members be paid?

Directors can be reasonably compensated for actual services, but a nonprofit can't exist to enrich its insiders. The IRS watches for private inurement — using the organization to benefit those who control it. Reasonable pay for real work is fine; funneling the organization's resources to insiders is exactly what will cost you your exemption.

Once you're formed and exempt, staying that way is a yearly rhythm across two governments.

What do we file every year?

Two main things. With South Dakota, an annual report to the Secretary of State to keep the corporation active. With the IRS, a Form 990-series return (990, 990-EZ, or the 990-N e-Postcard depending on size) to maintain your exemption. Keep both on a recurring calendar.

What happens if we miss the IRS 990?

Miss it for three consecutive years and the IRS automatically revokes your tax-exempt status — no warning that stops the clock. Reinstatement is a paperwork-and-fee ordeal. This is the single deadline most worth guarding, so put it on a permanent reminder the day you're approved.

Do we have to register to fundraise?

If you solicit donations from the public, many states — potentially including South Dakota and every other state you fundraise in — require charitable solicitation registration before you ask. This is separate from both incorporation and your IRS exemption. Multi-state fundraising means multiple registrations, each with its own renewal.

Finally, the practical questions about getting help with the paperwork.

What does a filing service actually do?

A filing service like Mainstay prepares and files your South Dakota Articles of Incorporation with the IRS-friendly purpose and dissolution language, provides or arranges your registered agent, and gets the corporation properly on record with the Secretary of State. It handles the state-facing mechanics so your board can focus on the mission.

What does a filing service not do?

It doesn't practice law or accounting. A filing service doesn't give legal or tax advice and doesn't prepare your Form 1023 exemption application or your Form 990 returns — those are the work of a nonprofit attorney and a CPA. Be wary of any service claiming to do it all; the boundary between filing and professional advice is real.

Are state fees marked up?

With us, no. South Dakota's state fees are pass-through — we collect exactly what the state charges and remit it, with our service fee shown separately. Your board can see precisely what portion of any invoice is a government fee versus a service charge, which matters for an organization built on transparency and stewardship.