Are you an entrepreneur looking to start your business journey in the District of Columbia? Great! It would be best if you began by choosing a structure for the business you are trying to introduce to the market. A Limited Liability Company (LLC) can be your ideal choice. It provides excellent flexibility in your operations and has many tax benefits.
The District of Columbia has one of the strongest economies. It is home to the headquarters of some of the biggest corporate entities, such as the World Bank, Hilton Worldwide, Lockheed Martin, and many more.
However, the procedure for setting up an LLC may seem confusing. This article will guide you through all the steps involved in successfully incorporating an LLC in the District of Columbia.
Naming Your District of Columbia LLC
A name is the identity of a business. The first step in your journey of setting up an LLC is to name your company. Remember that the name you choose will be how the market identifies your business. So, make sure you have a name that is easy to recall and attractive to potential customers.
While naming your LLC, you must follow all the naming guidelines the District of Columbia has laid down.
The name that you choose for your company should contain the words “limited liability company” or “limited company” or the abbreviation “L.L.C.,” “LLC,” “L.C.,” or “LC.” You may abbreviate “Limited” and “company” as “Ltd.” and “Co.” respectively.
The name of your LLC should not be identical or deceptively similar to an existing entity.
Make sure that the name you select for your LLC does not contain words that are identical or deceptively similar to the name of a department, agency, or any other branch of the Government.
Therefore, avoid using abbreviations and words such as “F.B.I.,” “Treasury,” or any such names that may give an impression that your business is associated with the Government.
Certain restricted words such as “bank,” “banking,” “credit union,” “insurance,” etc., need the approval of the Mayor and the requisite license before you can use them as a part of your company’s name.
To know more, you can read § 29–103.01of the Code of the District of Columbia.
Does Your Business Require a DBA?
DBA stands for “Doing Business As.” You can think of it as an alternate name for your business. You must operate the business using the name it is incorporated under. However, after incorporating your business, you may feel the name you have selected for your LLC is unsuitable for the new market you are planning to enter or for a new product you are planning to launch. A DBA can become helpful in such instances.
A DBA (doing business as) or an assumed name enables you to operate your LLC under a different name. A DBA in the District of Columbia is referred to as a “Trade Name” or an “Assumed Name.”
You can register your trade name in D.C. by applying with the Department of Consumer and Regulatory Affairs. Your application must set forth the name of the applicant, the proposed trade name, details of the LLC’s governor, and the details of the registered agent.
Remember, the trade name you choose for your LLC should be distinguishable from the names of other entities and government agencies. To know more, you may read provisions of § 47–2855.01, Sub Chapter I-C of the Code of the District of Columbia.
Option 1: Apply for a DBA OnlineApply Online – OR –
Option 2: Apply for a DBA by MailDownload Form
Department of Consumer and Regulatory Affairs
P.O. Box 92300
Washington, DC 20090
Doing a Name Search and Name Reservation
The naming guidelines of the District of Columbia mandate that the name you choose be distinguishable and unique. You can use the CorpOnline portal of D.C to create an account online and do a business entity name search. It will help you determine if the name you have in mind is truly unique.
Once you have thoroughly checked the name availability and decided on the name for your LLC, you can reserve the same. You must apply to the Department of Consumer and Regulatory Affairs Corporation Division. If the name selected by you satisfies the naming guidelines, it will be reserved for 120 days. There is also an option to renew your reservation.
Option 1: Reserve Your Name OnlineApply Online – OR –
Option 2: Reserve Your Name by MailDownload Form
Department of Consumer and Regulatory Affairs
P.O. Box 92300
Washington D.C. 20090
Registering your business domain
E-Commerce has changed the way business was done traditionally. Online business opportunities have increased the potential market size of businesses tremendously. A company is no longer bound by its local physical location and can do business online with people residing in faraway locations.
Even if you do not plan to start your online business immediately, you must plan for it ahead. People prefer a company that has an online presence.
Your website address is how customers find you online. Therefore, your business’s website address must match your LLC’s name. So before you select a name for your LLC, it is recommended that you ensure that the website address you need is also available.
You may do so by checking the currently available domain names.
Choose a Registered Agent in the District of Columbia
A registered agent acts as a point of contact for your LLC. The registered agent is responsible for accepting all communication sent to your LLC by the District of Columbia, including notices and service of process. They also act as the point of contact for matters concerning certificate of good standing and Franchise Tax.
You can appoint an individual or another entity as a registered agent if they satisfy the statutory requirements.
Who Can Be a Registered Agent?
The laws of D.C. mandate that every LLC appoints a registered agent. A registered agent you choose for your LLC must be
- An individual above the age of 18 or
- A business entity that has obtained authorization to conduct business in the District.
The registered agent should be available during business hours on all working days and have a physical address in D.C. You can appoint any member (including yourself) or another officer of your LLC as the registered agent. Alternatively, you may hire the services of a commercial registered agent.
To know the other legal provisions regarding a registered agent, you may read Subchapter IV of the Code of the District of Columbia.
Individual v. Registered Agent Service
Appointing yourself or anyone from your LLC may prove cost-effective. However, hiring the services of a commercial registered agent comes with plenty of benefits.
Firstly, it helps you protect your privacy. The details of your LLC’s registered agent, including the address, are published in the CorpOnline portal of D.C. If you work from your home office, having a registered agent service can be an advantage.
A registered agent service helps ensure that your LLC maintains its good standing status. In addition, most registered agent services have a compliance calendar service whereby they promptly remind you of due dates for filing essential documents with the authorities.
Having a registered agent service also accords the freedom of travelling for your business needs without worrying about missing any critical communications. Also, you can focus your time and attention on growing your business.
A commercial registered agent service also helps you handle certain situations, like receiving a process for a lawsuit discreetly. If you are your LLC’s registered agent, you risk receiving such sensitive documents in front of your employees and clients.
File the Article of Organization for your District of Columbia LLC
Articles of Organization is a legal document needed to officially form and legally incorporate your LLC. It is also called a “Certificate of Organization.” One or more persons acting as organizers of the LLC shall deliver the duly filled form to the Mayor for forming the LLC.
You should provide the details about your LLC in the articles of organization, such as:
- Entity Name
- Street and Mailing address
- Details of the Registered Agent Mailing
- Details of the members and a statement indicating that the LLC has at least one member.
- Effective date
You have to file the articles of organization with the Department of Consumer and Regulatory Affairs Corporations Division. You can do the same online or by submitting a copy of the duly filled form through the mail.
For more information, you may read provisions of § 29–802.01of the Code of the District of Columbia. You may also read the District of Columbia’s Instruction Sheet for Articles of Organization before filling out the form.
Option 1: File Your Articles of Organization OnlineFile Online – OR –
Option 2: File Your Articles of Organization by MailDownload Form
Department of Consumer and Regulatory Affairs
PO Box 92300
Washington, D.C. 20090
Department of Consumer and Regulatory Affairs
1100 4th Street SW
Washington, D.C. 20024
The District of Columbia does provide an option to expedite the processing of your application by paying an additional fee. For more information, you may refer to the “Fees for Corporate Registration Services” section of the Department of Consumer and Regulatory Affairs Website.
Public Notice of Formation
As of now, the District of Columbia does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Creating an Operating Agreement for Your District of Columbia LLC
An operating agreement contains the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
Imagine you have multiple members in your LLC. Who will make decisions concerning day to day affairs of the company, and how will the profits be distributed? Who is responsible for maintaining the accounts? In the absence of clarity in these matters, there are often disputes which usually end up as litigations. An operating agreement helps avoid such circumstances. It acts as a guiding force in cases of the day-to-day functioning of the LLC.
The laws in D.C do not require you to have an operating agreement. However, it is recommended that you have one. An operating agreement offers credibility to your enterprise. Once you form your LLC, you will need an operating agreement to open an account in the bank. More importantly, an operating agreement helps to protect the limited liability status of the LLC by reinforcing it.
It is recommended that you have an operating agreement in writing. However, the law recognizes an oral operating agreement that can be implied from records or conduct.
There are no prescribed templates for an operating agreement. Accordingly, you may draft one according to the needs of your business. However, your operating agreement should ideally cover the following aspects:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
- Procedure for amending the operating agreement
Writing the Operating Agreement Yourself vs. Hiring a Service
You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC.
Alternatively, you may hire an attorney or a professional to prepare your operating agreement. While it may cost you more than purchasing a template online, these professionals are experts and can help you draft an operating agreement in accordance with the law.
Limits of Operating Agreement
There are no specific formats for an Operating Agreement. However, it cannot include any matters prohibited under the law.
For example, your operating agreement cannot vary the LLC’s right to sue and be sued, eliminate the responsibility to perform a contract entered into in good faith, etc. To understand the other limitations, read the provisions of § 29–801.07 of the Code of the District of Columbia.
Obtaining an EIN for your District of Columbia LLC
EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS. The IRS uses the EIN to identify an operating business entity for taxation purposes.
It is mandatory by law to obtain an EIN if you are a multi-member LLC. Similarly, a single-member LLC should also get an EIN if you intend to hire employees.
An EIN will also be necessary to open a bank account and file tax returns. The IRS issues an EIN, and you can apply for it online or through the mail.
Option 1: Request an EIN from the IRSApply online – OR –
Option 2: Apply for an EIN by Mail or FaxDownload form
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
File Biennial Report for your LLC in the District of Columbia
A biennial report is a legal document. An LLC must file it with the office of the Mayor. The document contains updated information about the LLC. The first report should be filled with the Mayor by the 1st of April in the year immediately after the year of incorporation of the LLC. The report should then be filed by the 1st of April every second year after that. If you miss the deadline for filing, you must pay a late fee of $100.
The Annual reports should contain the LLC details, the registered agent, the name of at least one governor, etc. Also, from the 1st of January 2020, you must include in the report details of persons whose aggregate share of beneficial ownership or distributional interest in the LLC exceeds 10%. Or, where the percentage does not exceed ten percent, the details of persons capable of controlling the LLC’s financial or operational decisions or directing the LLC’s everyday operations.
If you submit the report without the proper details of the aforementioned matters, the office of the Mayor will notify you of the shortcomings. You must take steps to correct your filings at the earliest. If you fail to do so, you risk having your business shut down.
Also, remember that the information you furnish in the report should be current as of the date of filing. If any changes occur after you have filed the document, you must update the information by filing a statement of correction.
You can file the report using the CorpOnline portal of the Department of Consumer and Regulatory Affairs website. Alternatively, you can download Form BRA-25 and mail a duly completed copy to the Department of Consumer and Regulatory Affairs, Corporations Division, P.O. Box 92300, Washington, DC 20090. The filing fee is $300.
Tax Liability for Your District of Columbia LLC
The tax liability of your LLC will depend on the business you’re doing in the State. There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
LLCs are, by default, treated as ‘pass-through’ entities for tax purposes. It means the LLC itself does not pay a tax, but as a person who owns an LLC, you are required to pay taxes on the income and profits you earn from the business.
First, you are liable to pay federal self-employment tax (which is presently 15.3%) on the profits you take out from your LLC. You are eligible for certain deductions in the nature of business expenses.
You are also liable to pay Federal Income Tax. The amount of the Income Tax you have to pay will vary depending on your income, filing status, deductions, etc.
Also, you are at liberty to treat your LLC as a corporation for tax purposes. If you choose to do so, federal corporate taxes will become applicable to your LLC.
If you’re a single-member LLC, your default taxation type will be that of a sole proprietor. The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 form of each partner.
If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively.
District Tax Liability
LLCs in the District of Columbia are required to pay a franchise tax. The tax rates vary according to the LLC’s income.
The franchise tax payments are to be made to the Office of Tax and Revenue (OTR), and there are no filing fees. The due date for LLCs whose tax year matches the calendar year is on the fifteenth of April. For others, the due date is the fifteenth day of the 4th month after the close of the tax year. If you miss the deadline, your LLC will be liable to pay the penalty. For more information, visit the website of the District of Columbia’s Office of Tax and Revenue.
If you choose to treat your LLC as a corporation, a separate tax return must be filed by the company. In addition, the LLC must also pay corporate income tax. For more information, visit the DC Business Franchise Tax Rates section of the District of Columbia’s Office of Tax and Revenue website.
Additionally, if, through your LLC, you plan to sell certain specific goods or provide certain services, you will need to collect and remit sales tax. For this purpose, you will need to obtain a seller’s permit for your LLC.
If your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Withholding Tax.
Permits and Licenses
An LLC in the District of Columbia should follow Federal and District Regulations and get permits that apply to its business.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are Agriculture, Alcoholic beverages, Aviation, Firearms, ammunition and explosives, Fish and Wildlife, Commercial fisheries, Maritime transportation, Mining and drilling, Nuclear energy, Radio and television broadcasting, and Transportation and logistics.
Your LLC must obtain a business license to operate in the District of Columbia. In addition, depending on the nature of business you carry out through your company, your LLC may need a basic or general business license. You may visit the Department of Consumer and Regulatory Affairs website to understand the licensing requirements of your LLC.
You can apply for your business license online using the My DC Business Center portal of the District of Columbia. Alternatively, you may also download the Business License Application form and submit a duly completed application to the following address: 1100 4th St. SW, 2nd Floor, Washington, DC 20024. The applicable fee is $95 for a Basic Business License and $200 for a General Business License.
Additionally, if you plan to sell specific goods or provide certain services, your LLC must obtain a seller’s permit, called a Sales Tax License. You can apply for a seller’s permit using the MyTax DC website.
Also, depending on the nature of your business or profession, you may be required to get additional permits and licenses. You may visit the Professional Licensing section of the Department of Consumer and Regulatory Affairs website to know more.
For more information regarding:
Business Bank Account and Phone Number
Once you incorporate your LLC, it is best to open a separate business bank account. Using your personal bank account for business is never a good idea. It can result in a mix-up of funds, especially if there are any litigations.
A separate business bank account helps you clearly segregate business funds, making filing your tax returns easier. Also, consider applying for business credit cards. They allow you buildup a credit score for your business. A good crest score is crucial, especially if you seek funding through bank loans.
Using your phone number for your LLC can prove to be very inconvenient. It threatens privacy by putting your personal contact information in the public domain. You might end up missing essential calls on account of being busy elsewhere.
It is best to either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls. In addition, most network carriers offer various business plans; check and confirm the program best suits your LLC.
The District of Columbia is an excellent choice for starting your LLC. The District offers several tax credit programs, such as the Alternative Fuel Infrastructure Credit and the Work Opportunity Tax Credit (WOTC). The District also has many grants and loan programs to ensure that small businesses have easy access to funding requirements. The Anacostia Economic Development Corporation (AEDC) Program and the Community Development Financial Institutions (CDFI) Fund are two such programs.
On completing the above steps, your LLC is legally incorporated and ready to do business. However, once you form your LLC, you should hold your first meeting to authorize opening a business bank account, applying for business credit, and obtaining requisite insurance for your business. We wish you and your new business the very best!