If you’ve made it to this page, it’s a fair assumption that you’ve chosen to form an LLC in Washington DC.
Congratulations! The decision to start a Limited Liability Company (LLC) is an important business milestone.
I’m going to tell you everything you need to know about forming an LLC in the District of Columbia, but first I’m going to provide you with an overview that covers what a Limited Liability Company (LLC) is, as well as some of the reasons that small business owners choose Washington DC LLCs rather than another business structure (like a sole proprietorship or corporation).
(If you want to skip to the “How To Form an LLC” section, click here.)
What Is a Washington DC LLC?
A Washington DC LLC is a Limited Liability Company formed in the District of Columbia and governed by the laws, regulations, and statutes of Washington DC.
Why Choose an LLC?
There are many reasons that business owners choose to form LLCs and I’m sure you’ll find many benefits of owning a Washington DC LLC. But here are three main reasons that typically influence one’s decision to form an LLC:
1. Limited Liability and Asset Protection
One of the main benefits of owning a Washington DC LLC is the limited liability protection applied to the personal assets of LLC owners. When you own an LLC in Washington DC, you are not individually liable for the debts and obligations of your DC LLC. Creditors of your Washington DC LLC are not permitted to designate your personal assets as collateral for the financial obligations owed to them by your LLC.
This means that if your business declares bankruptcy or is sued, your creditors cannot confiscate your home, vehicles, or any other personal property you may have. Their only choice for financial remedy is limited to the assets of your DC LLC.
Given the potential for even the best prepared company to be crippled by an unforeseen event, this degree of personal asset protection is an invaluable necessity for anybody who appreciates the hard work they’ve invested in establishing their business.
Another reason to form an LLC is the ability to protect your personally identifiable information and identity.
Over the past decade, hackers and thieves have advanced in expertise and can now use even the most simple information about you and your life to assume your identity and run up massive debts in your name.
When you manage a business structure such as a sole proprietorship or sole trader, your individual information is put on the public record and therefore accessible to any hacker.
However, when you form an LLC, you can safeguard your information.
To do so, you’ll need to utilize an LLC formation service. The formation service company will register the company’s information on the public record (while you keep possession of your DC LLC), shielding your information from the snoopers and malicious individuals on the internet, as well as safeguarding your credit score and identity.
The third reason that business owners typically choose to form an LLC is taxation benefits. These benefits are most obvious when you compare a Washington DC LLC to a corporation.
If you choose a corporation as your business type, your business will be subject to what is known as “double taxation.” Here is how corporations are taxed:
A corporation’s taxable income is taxed at corporate rates before being given to corporate shareholders as dividends. Dividends are further taxed, which means that the profits of a corporation are taxed twice before shareholders have access to them. This is why the taxation method used to tax corporations is referred to as “double taxation.”
If you choose to form a Washington DC LLC, however, you’ll circumvent the “double taxation” phenomenon.
If you form a DC LLC, your profits will be taxed at company rates, which aren’t as high priced as corporate rates. The taxed profits are then provided to LLC members in the form of personal income. While personal income is taxed, it isn’t taxed as steeply as dividends and it’s not taxed immediately. It’s therefore quite easy to see that a DC LLC isn’t taxed in quite the same way as a corporation in Washington DC.
LLCs enjoy even more benefits beyond avoiding “double taxation.”
The Qualified Business Income Deduction (QBID) was introduced along with the 2017 Tax Cuts and Jobs Act. QBID is a type of tax discount that saves LLCs as much as 20% on their taxes. And since this discount is exclusive to LLCs, it’s an excellent reason to consider forming an LLC in Washington DC.
How to Start an LLC in Washington DC
If you’ve reached this portion of the article, you should now know what an LLC is, as well as some of the benefits of forming an LLC. You can now make an informed decision about whether an LLC is the right structure for your business and whether it will meet your needs. Here are the steps to start an LLC in Washington DC:
*IMPORTANT* If you’re nervous about completing the steps on your own, don’t worry. There’s a category of professional service designed to help you.
It’s called an LLC formation service, and for as little as $0 plus the district filing fees, they will help you obtain, fill out, and file all of the formation documents necessary to form and establish your Washington DC LLC with the Department of Consumer and Regulatory Affairs. The best LLC formation service is Northwest Registered Agent, which charges $39 plus the filing fee.
If you’d like to know more about what an LLC formation service does, or you’d like to find a quality formation service in Washington DC, click here to read my article about the best LLC service.
1. Obtain Articles of Organization Form
The first step in starting your Washington DC LLC is to get your hands on a copy of the Washington DC Articles of Organization from the Department of Consumer and Regulatory Affairs Corporations Division.
You can get your Washington DC Articles of Organization here. This is a PDF version of the Washington DC LLC Articles of Organization.
Because the LLC Articles of Organization is the primary formation document you’ll be required to file, the following steps will refer to this form.
2. Choose Your Business Name
One of the first and most important pieces of information you’ll list on this form is your Washington DC LLC name.
Unfortunately, you can’t just write down the first name that occurs to you. Every business in Washington DC is required to use a unique business name, so if another business is using the LLC name you chose, that name is not available to use.
It’s simple to check the availability of LLC names, however. All you need to do is search the business names database located on the Department of Consumer and Regulatory Affairs website.
Once you’ve decided on an available LLC name, you’ll need to file an application for Name Reservation Registration and Transfer Form, which you can get here. This is a PDF form, but you can also use it and follow the instructions at the bottom of the form to file online. The filing fee for either filing option is $50.
If you don’t like the LLC name you’ve registered with the Department of Consumer and Regulatory Affairs, then you can use a trade name, fictitious name, or DBA (Doing Business As) name. This is the name you’ll display to the public and use on signs, advertising, and online. For more information about trade names in Washington DC or to file for a trade name, click here.
3. Choose a Washington DC Registered Agent
Another piece of information you’ll be required to list on this form is the name of your LLC’s registered agent. Every LLC in the District of Columbia must have a registered agent.
A registered agent is an individual or business entity that becomes the point of contact for your LLC and accepts mail, legal documents, and Service of Process on behalf of your business during normal business hours. You have several options when it comes to choosing the registered agent for your LLC, so I’ll explain them all so that you can make an informed decision.
You can choose to take on the role of registered agent for your business yourself or choose a friend or trusted employee to take on the role. This is risky for a couple of reasons, however. Not only are you expected to be available during normal business hours to run your LLC but you’ll also be expected to receive mail and documents for your business during those same hours if you’re the registered agent for your LLC—and there’s really no way you can be in two places at once to perform both tasks adequately.
If you happen to miss a Service of Process you could be sued with no way to defend yourself, which could result in a default judgment against your business, which could mean losing your business. Furthermore, missing a Service of Process while acting as the registered agent for your business could mean that the Department of Consumer and Regulatory Affairs will find your LLC noncompliant with their laws regarding registered agents in the District of Columbia. This could result in you losing your good standing status and no longer being able to legally do business in Washington DC.
The only benefit of being the registered agent for your business is that you won’t have to pay the fees of a registered agent service.
A registered agent service will ensure that you receive all of the mail, legal documents, and Service of Process that are sent to your business. Using a Washington DC registered agent service negates most of the risk involved with taking on the role of registered agent for your company yourself. The only real drawback to using a Washington DC registered agent service is that they charge $99-$299 per year for their services.
However, because of the monumental risks involved with acting as the registered agent for your company and missing a Service of Process, it’s well worth every dime of that money to hire a registered agent service. It’s for this reason that I ALWAYS recommend using a registered agent service to new LLC owners.
One more note about registered agents, there are two types: commercial registered agent services and noncommercial registered agent services. There’s no difference between the services offered by either type; it’s mostly just a matter of which companies have become registered with the Department of Consumer and Regulatory Affairs. To find a preapproved Washington DC registered agent in the District of Columbia, you’ll want to search for commercial registered agents.
4. Choose Your LLC Address
Your LLC's address is a critical piece of information that you must provide in your Articles of Organization. The Corporations Division of the Washington DC Department of Consumer and Regulatory Affairs requires that every LLC and company in the district register a principal business address, which is publicly available on the department's website.
If you do not utilize an LLC formation service or registered agent, your company must register its physical address. Without a physical address, your only option is to give your home or workplace address, which isn't ideal.
There is no need to provide your personal address on the Articles of Organization if you have hired a registered agent service. By using a registered agent service, you ensure that your personal information isn't misused since they put their own address on the form.
5. Sign and File Articles of Organization
Once you’ve gathered all the necessary information and decided on your LLC’s registered agent, it’s time to sign and file your Articles of Organization.
Before submitting your Washington DC Articles of Organization for filing with the Department of Consumer and Regulatory Affairs, double-check all your information and ensure that it’s accurate. Your Washington DC Articles of Organization should include the following information:
- The LLC's name
- The street address of the LLC's principal office
- The name and address of the LLC's registered agent
- The effective date of the Articles (upon filing or a later date)
- The name and address of the LLC's organizer
- The organizer's signature
Once all of that information has been verified, you can file the Articles for your Washington DC LLC online or via postal mail. Both methods carry a $220 filing fee and you can expect a waiting period of five to seven days for online filings, or three weeks by mail. If you choose to file by mail, send your Articles of Organization to the following address:
Department of Consumer and Regulatory Affairs
PO Box 92300
Washington DC 20090
Other LLC Activities
There are a few additional procedures to follow after filing your Articles of Organization in Washington DC to make sure your District of Columbia LLC is off to a great start.
According to the District of Columbia's Department of Consumer and Regulatory Affairs, you must obtain the necessary business licenses to operate lawfully in the District of Columbia. The kind of license required will vary based on the nature of the business, but a Basic Business License will be sufficient in the majority of cases. The Business License Center on the DCRA website has more comprehensive information on Basic Business License requirements, including a list of business license categories. You can also apply for a Basic Business License and obtain more information via the DC Business Center here.
LLCs in Washington DC are required to submit an LLC Biennial Report to the Department of Consumer and Regulatory Affairs. Similar to how tax returns are submitted at the state and federal level, LLCs are required to file a Washington DC Biennial report by April 1st of the year after the business forms. Every other year thereafter, your LLC is required to submit a Biennial Report to the Department of Consumer and Regulatory Affairs, and you can file the biennial report for your Washington DC LLC online or via the mail. You risk losing your “Good Standing” status with the Department of Consumer and Regulatory Affairs if you don't submit your LLC Biennial Report by the deadline of April 1st. The filing cost for the LLC biennial report is $300.
Professional LLCs in Washington DC, such as those providing legal or accounting services, must go through the Professional LLC formation process. In order to offer the licensed professional service for which the LLC was established, a Professional Limited Liability Company (PLLC) is restricted to providing a single type of professional service. All members must have the appropriate business licenses and permits or be registered with the district. You may be required to provide a copy of each LLC member's relevant business license or district registration as part of the LLC formation process.
Your LLC must be registered with the District of Columbia Office of Tax and Revenue if it intends to sell goods, collect sales taxes, or hire employees. The District of Columbia Office of Tax and Revenue of Washington DC may, nevertheless, compel you to register your LLC even if it does not collect sales tax or employ people. Visit the District of Columbia Office of Tax and Revenue's website by clicking here to register online.
There are also certain Washington DC LLC taxes that you’re obligated to pay as well. Typically, LLCs are exempt from both federal and state income taxation. LLCs in the District of Columbia, on the other hand, are subject to the unincorporated franchise tax. The District of Columbia franchise tax, also known as the DC unincorporated business franchise tax, is levied on companies in the District of Columbia with gross receipts of at least $12,000 per year. Even though partnerships, S corporations, LLCs (Limited Liability Companies), and even some individuals are subject to this tax, you should speak with a DC franchise tax attorney about your specific tax situation and options if you plan to start or operate a business in the District of Columbia, especially if you are not a resident of the district.
As a non-Washington DC resident, or as an LLC with locations outside of Washington DC, you must complete the foreign LLC formation process in order to expand your business into the District of Columbia. The difference is that foreign LLCs need to file a Foreign Registration Statement instead of the Articles of Organization. In addition to the information required for the Articles of Organization, foreign LLCs must include the names and business addresses of any managers for your LLC in DC. A Foreign LLC must also choose a registered agent with a physical address in Washington DC. It costs $220 to submit the application, and you may file online or by mail.
Expert services are available to assist you if this is your first time submitting Biennial Reports or applying for a Basic Business License. To help you file your Biennial Report and other papers, a Washington DC PEO service may be able to assist you. Online legal services may also aid with the additional paperwork.
Washington DC LLC District Fee Summary
Whether or not you use an LLC formation service, there are bound to be costs to start an LLC. Here’s a summary of each District of Columbia filing fee, as well as the personal and corporate income tax.
Articles of Organization: $220
Name Reservation: $50
Registered Agent Fee: $99–$299 per year
Biennial Report: $300
State Personal Income Tax: 4% on up to $85,025 plus 8.95%
State Corporate Income Tax: 8.25%
After Starting Your Washington DC LLC
Choosing to set up a Limited Liability Company in the District of Columbia is a big step and it deserves to be celebrated. So unwind with a drink or glass of wine, plan a vacation, or treat yourself to a nice dinner. However, don't let your guard down too much. You're not ready to take control of your LLC just yet.
You still have three important tasks to complete before you can lay the foundation for your company's future success.
Step 1. Create an Operating Agreement
District of Columbia law doesn’t place any obligation for LLCs to form or adopt an LLC Operating Agreement. Nonetheless, it is in your business's best interests to do so.
Without an Operating Agreement, your LLC will be subject to the District of Columbia's business and LLC rules and regulations, which may or may not benefit your company. By establishing an LLC Operating Agreement, you can create procedures and standards that go above the basic, minimal requirements of state law.
*IMPORTANT* Before beginning to write the Operating Agreement, you must establish your LLC's managerial system. A voting procedure is used to make choices in a multiple-member LLC, whereas single-member LLCs typically allow the owner to make all the high-level decisions. If you or any of your LLC members lack management expertise, a manager-managed structure is the best option. Under this structure, your LLC delegates power to make high-level decisions to managers, rather than making them yourself. If this management style is chosen, it is critical to guarantee that each manager is capable and trustworthy.
Operating Agreements define the manner in which members, managers, and departments within your LLC interact, as well as their respective duties and obligations. Going forward without an Operating Agreement severely restricts your LLC’s ability to operate.
Additionally, an LLC Operating Agreement serves as a contract between members, clearly outlining their respective roles and levels of authority. Poorly drafted operating agreements often include ambiguous or misleading language, resulting in disputes among LLC members and departments. Additionally, a badly drafted Operating Agreement may exclude processes for onboarding new members and allocating shares and duties in the event of a member's departure, impeding your business's development.
To prevent these scenarios, ensure that your Operating Agreement's provisions are clear and comprehensive. A well-written Operating Agreement should list each LLC member, their profit and loss share, their duties and authority level, and how they should interact with the LLC's other divisions. If your LLC has managers, the Operating Agreement should contain guidelines and procedures outlining their power and duties. A well-written Operating Agreement, with clear instructions and comprehensive procedures governing how your LLC operates, may help simplify your company's everyday operations, allowing you to rest as your business grows.
If this is the first time you've drafted an Operating Agreement, many LLC formation services include assistance with the process as part of their service package. Consider subscribing to an online legal service if you need assistance with wording your Operating Agreement. Additionally, Northwest Registered Agent provides a free Operating Agreement template on their website, which you may download by clicking here.
Step 2. Apply for an Employer Identification Number
You may be required to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) in order to conduct certain company activities. The collection of sales taxes and the employment of workers are two examples of operations for which you'll need an EIN. You aren’t required to hire employees in order to get an Employer Identification Number (EIN), of course. You will need an EIN if you want to apply for other types of licenses and permits for your company. Your LLC’s EIN also serves as its Federal Tax Identification Number.
Obtaining an EIN also gives you the ability to utilize it more often than your Social Security Number, which may prevent future identity theft. An EIN may be obtained through the Internal Revenue Service (IRS) and the process is simpler than you would expect.
Step 3. Open a Business Bank Account
You must create a separate business bank account for your District of Columbia LLC in order to properly lay the groundwork for your company.
Many District of Columbia business owners overlook this step due to inexperience or forgetfulness, but it is so important that you will be happy you took the time to do it.
For a lot of LLC and small business owners, having a single bank account for all their personal and business finances is simple and saves time. There are many reasons why opening business accounts for your company will make running your company easier.
To begin with, it makes filing federal and state tax returns much easier. A common misconception among company owners who use their personal accounts for both personal and business purposes is that they will be able to tell the difference between personal and business expenses at tax time when they file their taxes. As a result, federal tax returns are frequently submitted months after these transactions have taken place, and the lapse of time only makes it more difficult to recall them. If this is the case, you should open a business bank account rather than keeping a detailed ledger of all of your company's financial transactions for tax purposes.
If you conduct business transactions for your LLC using a personal bank account, you run the risk of having your personal details and bank account funds used against you in court. When you use your personal bank account to run your LLC's finances, you essentially negate the limited liability and personal asset protection that an LLC provides for you.
To summarize, opening a business bank account for your LLC can make tax preparation easier while also protecting your assets and personal information.
You'll need a “bank kit” to open a business bank account for your Limited Liability Company. For example, a bank kit includes your Articles of Organization, Operating Agreement, EIN, and a copy of your LLC's first resolution, as well as many other documents related to your formation. Many LLC creation providers offer bank kits with their services, so you don't have to gather all of this information on your own.
Congratulations on taking an important step forward for your company by forming a Washington DC LLC!
For those who want to start an LLC without using LLC formation services, these are the procedures you must follow to do so:
- Obtain the Articles of Organization form.
- Name your LLC.
- Choose your Registered Agent.
- Choose your LLC address.
- Sign and file your Articles of Organization.
Don’t forget the important post-filing activities, such as drafting your Operating Agreement or applying for your Basic Business License either.
Creating a District of Columbia LLC is time consuming and may be daunting at times. There are a plethora of forms to file, papers and applications to collect, prepare, and submit, an endless list of filing fees to pay, and a frightening ocean of red tape to traverse. However, if you do this task on your own, you will be surprised at how satisfying the sense of accomplishment is.
Again, congratulations on your choice to establish your business in Washington, DC, and best wishes for your future business endeavors!