Are you looking to form a limited liability company (LLC) in Washington D.C., but you’re not sure how the process works? There are several important steps to create a compliant DC LLC that can do business in the Capitol.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a Washington D.C. LLC?
The Washington D.C. LLC is one of the most popular business structures in the district. It’s a more casual and flexible type of business than a corporation but includes the personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Washington D.C. have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Setting up a brand-new Washington D.C. LLC in 6 Steps
For the first part of this guide, we’ll cover the 6 essential steps to setting up a Washington D.C. business that doesn’t have employees yet. These steps also apply to businesses with employees, but we’re keeping things streamlined to start. If you do have employees, make sure you complete these steps and the steps for employers (which we’ll cover later in the guide).
Step One: Choose a business name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to consider when naming your business.
In the District of Columbia, you’re required by law to meet several requirements for your business name. Here’s a quick glimpse at the rules for LLCs:
- Your name must include the phrase “limited liability company” or “limited company” or the abbreviation “LLC” or “LC” (with a few permitted variations)
- Entity type identifiers in other languages are allowed
- You cannot include entity type identifiers belonging to other entity types
- Your name must be “distinguishable on the records,” or distinct from other entity names in use in the District
For more information on naming rules in Washington D.C., please consult the Permitted Names Subchapter of the Code of the District of Columbia.
Another aspect to consider is including language that explains what your business does ― for example, if you’re starting a coffee shop, put the word “coffee” or “brew” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.” This helps potential customers know exactly what to expect from your business.
Once you’ve picked the perfect name for your business, you don’t want to lose it to another aspiring entrepreneur. Thankfully, Washington D.C. allows you to reserve your business name if you’re not quite ready to register your business. To do that, you’ll need to file the Application for Name Reservation and pay the $50 filing fee.
Filing this reservation protects your chosen name for your exclusive use for 60 days. You can learn more about name reservations here.
Step Two: Appoint a Registered Agent
Every LLC in Washington D.C. is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
When you appoint a Washington D.C. registered agent, here are the requirements to be mindful of:
- Every entity that files with the District of Columbia must appoint a commercial registered agent or a noncommercial registered agent
- A commercial registered agent is one that has registered with the District to be included on the district’s list of agents, usually as a business venture
- If appointing a noncommercial registered agent, the entity may appoint an individual resident of the district, another business entity with authority to operate in the district, or an officer of the entity itself
- An agent must be continuously maintained
You can find a full rundown of the district’s laws here.
Without a registered agent, you could lose your good standing with the District of Columbia, and the District also has the right to dissolve your LLC if they decide to. In a worst-case scenario, you could miss the alert regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
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Step Three: File Formation Documents
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Once you are ready to form your Washington D.C. limited liability company, you will fill out the Articles of Organization. You can either do this on your own or hire a Washington D.C. LLC service. Some services, like ZenBusiness, even offer discounts on their service.
This is THE document that will register your LLC with the District. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Street address of your initial principal office
- Name and address of your registered agent
- Verification that your business has at least one member
- Effective date for the filing (usually filing date, but may be any day up to 90 days after the filing date)
- Any additional provisions you wish to improve
- Name and address of each member or manager with a large stake in the business or with directorial duties for the day-to-day operations of the LLC
- The name and signature of the organizer
For the most part, Washington D.C. has a pretty simple form; they don’t ask for a bunch of complicated information. Aside from your registered agent’s address, you probably have most of the required information immediately on hand. And as long as you submit the form with all the required information, you should be set to go. If you prefer, you can file this form online.
- Total cost: $220
- Processing speed: 3-4 weeks for mail-order filings; 10 business days for online
- Expedited processing: $50 for 3-day turnaround and $100 for same-day processing
Step Four: Draft an Operating Agreement
After you register an LLC in Washington D.C., create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the District, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member-owner out, or transferring their shares in the case of illness or death
Step Five: Get Licenses & Permits
Washington D.C. law requires an LLC to obtain all necessary licenses and permits before starting operations. District law also decrees that an LLC can only provide one specific type of service. All owners of the LLC must be licensed or registered to provide the specific service under which the LLC was assembled.
The type and cost of the permits that your business may require varies depending on the nature of the services your LLC offers. In Washington D.C., every single business needs to obtain a general business license. The exact one you’ll need, however, varies depending on your business type; D.C. has a few variations of the license. To learn more about which applies to your business, check out the DC Business Center.
Next, depending on your industry, there’s a good chance that you’ll need to get an industry specific license for your occupation or profession. For example, Washington D.C. requires licenses for athlete agents, tour guides, and more. There’s a full list of licensed professions here, but we recommend using the DCRA Permit Wizard to start out. This tool helps generate a personalized list of licenses and permits that apply to your business, making this step a lot easier.
Obtain a Business Bank Account
One of the most important aspects of running an LLC is ensuring that your business funds remain separate from your personal finances. And to do that, you’ll need a separate bank account for your business.
Obtaining a business bank account is pretty simple, and you can choose the financial institution you like best. Some banks will ask to review your LLC’s operating agreement, and some also ask to see your EIN (see the Employers section below). Once you have your account, you’ll be able to get checks, make payments using your business card, and so on.
If you failed to get a business bank account, you would technically be blurring the line between your personal accounts and your business accounts. That compromises your personal asset protection.
Next Steps for Newly-Formed LLCs
1. Prepare for tax time
Regardless of how far away April 15th is, it’s never too soon to prepare for tax time and setting up accounting software. As an LLC owner, the exact tax rates you’ll pay depend on the taxation structure you choose for your business. If you choose to be taxed as a corporation, the LLC itself will pay taxes from its own funds. Meanwhile, LLCs taxed as pass-through entities don’t technically pay taxes; its members do. The profits are distributed to the LLC’s members, and each member reports that income on Schedule C of their personal taxes.
If you choose to be taxed as a corporation, you’ll pay the following rates:
- Federal: 21%
- District: unincorporated franchise tax instead
Meanwhile, LLCs taxed as pass-through entities pay these rates:
- Federal: 10-37%, rising on a fixed-bracket scale
- District: unincorporated franchise tax instead
In order to compliantly file and pay your taxes, you’ll fill out a complete copy of federal Form 1065 including all federal K-1s, statements, and attachments. Most businesses will be subject to the district’s unincorporated franchise tax instead of a standard income tax. The current rate is 8.25%, with a minimum tax of $250 (the minimum rises to $1,000 if your gross receipts exceed $1 million).
If you’re involved in retail sales, you’ll have to collect and pay the District’s sales tax, which has a base rate of 6%. And last but not least, there’s a slight chance you’ll need to account for some miscellaneous taxes or fees. For example, Washington D.C. has industry-specific taxes for professional baseball, mobile food vendors, and more. You can learn more about business taxes at the Office of Tax and Revenue.
Because taxes can be incredibly complicated, we highly recommend consulting with a business attorney or accountant to ensure that you cover all requirements on the local and federal level.
2. Be ready to file your biennial report
All business owners operating in Washington D.C. are required to file a periodic report. In many states, this document is due every year. But in D.C., it’s required every other year. Not only does this report let the district know that your business is still open, but it also updates them on some pertinent information about your business that may have changed over the course of the year.
It’s easiest to file this report online, and it’s due by April 1st. The filing fee is $300.
3. Consider business insurance
The big advantage to the LLC is that it offers you personal asset protection. But that doesn’t mean that mishaps won’t happen along the way. We highly recommend obtaining a general liability policy with the right coverage for your business.
In the event of a mishap or natural disaster, an insurance policy can help you navigate unexpected expenses. Be sure to compare your different options to get the best coverage for your particular type of business.
Extra Steps for Businesses with Employees
When you’re operating as a one- or two-person show, operating a business is relatively streamlined. Things get more complicated when you bring employees into the picture, but employees also help raise your business to new heights. But to reach those heights, you need to comply with employee-related legal requirements.
Step One: Address employee-related taxes
Any business with employees must obtain an EIN, or an Employer Identification Number. This is a free registration with the IRS, and the number acts a lot like a social security number for a business. Obtaining the number also lays the groundwork for other taxes, such as social security and withholding taxes. For example, you’re required to withhold income taxes from employee paychecks, make social security and medicare tax payments, and pay unemployment fund taxes. For more information on employer taxes at the federal level, look here.
There are similar taxes on the district level. For example, Washington D.C. requires withholding taxes (but keep in mind that many of your employees may live in nearby states), contributions to the unemployment insurance fund, and more. We recommend consulting with the Department of Employment Services to learn what taxes apply to you and your business.
Step Two: Obtain additional insurance
Most Washington D.C. businesses with employees are required to get workers’ compensation insurance. For more information on this policy, check out the Workers’ Compensation page by the Department of Employment Services.
If you haven’t already obtained a general liability policy, we highly recommend that you do so when you bring employees into the business. The more people you have involved in a business, the higher your risk of needing general liability insurance.
Of course, proper care and discretion will eliminate most problems, but incidents happen—from faulty products to an employee slipping and falling and theft and many places in between. And in some cases, insurance can be the difference between a minor hiccup and a budget-breaker.
Step Three: Enlist Help
For some entrepreneurs, part of the fun of running a business is the opportunity to wear lots of different hats: accountant, manager, marketer, quality control expert—it’s a near-endless list. And if your business is still pretty small, you might be able to handle many of these tasks yourself, especially if you’re prepared with a business administration degree.
But if you aren’t (and it certainly isn’t a prerequisite), some of these tasks may leave you feeling overburdened or out of your depth. For instance, navigating employer-related taxes might steal valuable time that you’d rather spend promoting your business or developing a new product. An accountant or tax attorney, however, knows those tasks like the back of their hand. You may decide it’s worth the added expense to enlist their help.
Ultimately, it’s your decision whether to bring in professionals or DIY. But in our opinion, it’s often worth it to get help from specialized pros.