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An Interesting Trend in South Dakota Business

July 13, 2007

A growing number of South Dakota entrepreneurs are taking advantage of a law that helps them start a business without putting the welfare of their families at risk. For new startup businesses, the thought of putting a shingle out and severing ties with a steady paycheck is scary, however the state created limited liability corporations in 1993, which provides some safeguards. Brian Winrow, assistant professor of business law and management at Emporia State University in Kansas, conducted a study of LLCs in South Dakota, and was surprised at how quickly South Dakota businesses adapted to it. Winrow says the law was an important development.

“According to the Small Business Development Center, only 44 percent of businesses that start are in existence after four years of operation. A lot of these entrepreneurs are investing everything they have. But then, the thought of also losing your house will affect commerce if they don't have that type of protection.”

Winrow cautions that the LLC is still in its infancy in South Dakota and that long-term success is still uncertain.

“Nobody knew exactly how the courts would treat the LLC. Sometimes courts become a little bit of an activist. They're starting to treat the LLC a lot like a corporation as far as piercing the corporate veil and exposing the owners to personal liability. They're using the same test that they have for the corporations. So, it really looks like the popularity of the LLC might start to decrease.”

Winrow says between 1996 and 2002 limited liability corporations in South Dakota grew by 400 percent. The article appears in the South Dakota Business Review published by the Business Research Bureau at the University of South Dakota. The article is available online at www.usd.edu/brbinfo.

David Law/Eric Mack, Public News Service - SD