South Dakota

Registration or Filing Required? Yes, Registration
Business Opportunity Laws? Yes

South Dakota is a franchise registration state. So, you must file your FDD with the Division of Insurance and Securities Regulation of the South Dakota Department of Labor and Regulation prior to offering or selling franchises in the state. South Dakota charges a $250 fee for the initial filing application and a $150 fee for renewal applications, which must be done annually. More information can be found on the South Dakota Department of Labor and Regulation Website.

What Does South Dakota Consider a Franchise?

South Dakota’s Franchise Investment Law defines a franchise as a continuing commercial relationship in which:

1. The buyer obtains the right to operate a business that is identified with the seller’s trademark, or to offer, sell, or distribute goods or services that are associated with the seller’s trademark;
2. The seller exerts or has authority to exert a significant degree of control over the buyer’s method of operation or provide significant assistance to the buyer’s operation; and
3. As a condition of obtaining or commencing the operation of the business, the buyer makes a required payment to the seller or its affiliate.

What Franchises Are Subject to the Registration Requirements?

The South Dakota Franchise Investment Law applies when an offer to sell a franchise is made in, directed to, or accepted in South Dakota. The Law also applies whenever a franchisee is a resident of South Dakota and operates its franchised business there.

How do I Register in South Dakota?

In order to file notice of your franchise offering in South Dakota, franchisors must submit the following to the South Dakota Department of Labor and Regulation, Division of Insurance, Securities Regulation at 124 S. Euclid Ave., Suite 104, Pierre, SD 57501. You may also file your notice through NASAA’s Electronic Filing Depository for an additional fee. The initial filing application should include:

1. South Dakota’s Franchise Notice Filing Application
2. A copy of your FDD (in a text searchable PDF format on a flash drive)
3. Uniform consent to service of process
4. The $250 filing fee made payable to the South Dakota Division of Securities.

South Dakota is considered a registration state, because it requires franchisors to submit copies of their FDDs with the state, which are then reviewed by state auditors. Unlike most registration states, South Dakota only requires a notice filing. However, the state does reserve the right to request additional information from the franchisors. If it does, the filing is effective 15 business days after the additional documents are filed and approved.

Do I Need to Renew My Registration?

Yes, franchisors must renew their registrations every year. Specifically, they must file their new notice filing within 120 days after the end of their fiscal year. Franchisors need to submit the same information as they did for their initial filing, except that the fee for a renewal is only $150.

Do I Need to File Amendment Notices?

South Dakota does not require franchisors to file updates to their FDDs during their registration periods and expects those updates to appear in the annual renewal. However, the state does expect franchisors to still provide prospective franchisees with the most up to date copy of their disclosure documents.

Are There Exemptions to Registration?

South Dakota’s franchise laws contain exemptions for franchises meeting certain requirements. The following are exempt not only from the notice filing requirements, but from all the requirements in the Franchise Investment Law:

1. Franchise transactions that are governed by the Petroleum Marketing Practices Act
2. Franchise transactions where there are no written documents reciting or evidencing the terms of the franchise relationship
3. Fractional franchises
4. Leased departments
5. Transactions where total consideration from the inception of the franchise relationship through the 6-month anniversary of the franchised business is less than $500
6. Franchise relationships covering farm machinery, certain motor vehicles, recreational vehicles, mobile homes and manufactured homes

Additionally, the following franchises are exempt from the state’s notice filing requirements, as well as its disclosure requirements:

1. When the franchisee’s initial investment totals at least $1 million and the prospective franchisee signs an acknowledgment verifying the grounds for the exemption
2. The franchisee (or its parent or any affiliates) is an entity that has been in business for at least five years and has a net worth of at least $5 million
3. The offer or sale of a franchise by a personal representative, sheriff, marshal, receiver, trustee, trustee in bankruptcy, guardian, or conservator
4. Purchases by someone owning least 50% ownership in the franchisor
5. Purchasers who have been an officer, director, general partner, individual with management responsibility for the offer and sale of the franchisor’s franchises or the administrator of the franchised network for at least 2 years
6. Purchasers who have been at least a 25% owner in the franchisor for at least 2 years

Lastly, the following franchises are exempt from the state’s notice filing requirements only:

1. Selling to an existing franchisee who has operated for at least 2 years at the time of the offer or sale; or
2. Selling a franchise to a bank, saving and loan association, financial organization or life insurance corporation.

What Other Franchise Regulations Does South Dakota Have?

South Dakota does not have many additional franchise regulations outside of the standard prohibitions against fraudulent, deceitful or misleading practices. However, the state does require that franchisees maintain records of their offers and sales of franchises for at least 3 years.

Does South Dakota Have Separate Business Opportunity Laws?

Yes, South Dakota does have separate business opportunity laws that specifically exempt franchises that meet the state’s definition and comply with its disclosure requirements. The state defines a business opportunity as an agreement in which the seller agrees to provide to the buyer with products, equipment, supplies, or services that enable the buyer to start a business and the seller represents that:

1. It will provide or assist the buyer in finding locations vending machines, racks, display cases, or other similar devices;
2. The seller will provide or assist the buyer in finding outlets or accounts for the buyer’s products or services;
3. The seller will purchase any products made or produced by the buyer;
4. The seller guarantees that the buyer will derive income from the business which exceeds the purchase price;
5. The seller shall refund all or part of the purchase price, or repurchase any of the products, equipment, or supplies, if the buyer is dissatisfied with the business; or
6. The seller will provide a marketing plan.

Business opportunities must provide disclosures to prospective buyers similar to that of franchisors and must comply with all of the rules and restrictions set forth in the state’s business opportunity laws.

Fun Fact: The city of Clark, South Dakota was the first city to host a mashed potato wrestling contest! How many potatoes does that require? I honestly have no idea.