Are you looking to form a limited liability company (LLC) in the state of Washington DC, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Washington DC LLC that is compliant and able to do business in the state.
What is a Washington DC LLC?
The Washington DC LLC is one of the most popular business structures in state. It's a more casual and flexible type of business than a corporation, but includes the same personal asset protection you get with a corporation. That means you aren't personally liable for debts or lawsuits against your business. This is a critical protection that is lacking from sole proprietorships and general partnerships.
LLCs in Washington DC 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.
Forming an LLC in Washington DC (in 6 Steps)
Step One) Choose an LLC 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 take into consideration when selecting a name for your business:
Legalities: In the state of Washington DC, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Explanatory Naming: Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?: At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your LLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LLC is to not get too attached to any one business name until you have either reserved the name with the state of Washington DC, or you’ve officially formed your business. Washington DC makes this process rather easy, as you can search their entire database of business names at this link (please note that you’ll need an account to use the site). If you’re not yet ready to form your LLC, you can reserve your desired name. You can file by downloading the Name Registration & Renewal Form and submitting it to the district. Reserving your name gives you an extra 120 days to get your business affairs in order.
Step Two) Designate a Registered Agent
Every LLC in Washington DC 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.
According to the Washington DC Department of Consumer and Regulatory Affairs,
The duties of a registered agent shall be to: forward to the represented entity at the address most recently supplied to the agent by the entity any process, notice, or demand that is served on the agent.”
Without a registered agent, you could lose your good standing with the state of Washington DC, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Our Recommendation: At the end of the day, we recommend designating a Registered Agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record. Incfile and Northwest Registered Agent both offer a free Registered Agent service when you utilize their services to form an LLC. Both are fast and affordable. In fact, they’re the best available.
Step Three) File Formation Documents with State
Once you are ready to form your Washington DC limited liability company, you will fill out the articles of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
Cost to Form an LLC: The state of Washington DC charges a $220 fee to form an LLC.
Processing Time: It can take more than 15 days for the district to process your mailed-in Washington DC formation paperwork and have your filings back to you. You can also file online and expedite to have your filings back within 15 business days. If you’re in a hurry, you can pay to expedite your filings. $30 will give you a 3-day turnaround, and $1,000 has your documents back to you within one business day. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
Step Four) Create an Operating Agreement
After you register an LLC in Washington DC, 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 state, 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 here, 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) Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to district-level LLC taxes, Washington DC levies these taxes based on the nature of your business. If you’re considered a pass-through entity—usually a sole proprietorship or partnership—you’ll make payments on your business income on your personal tax return. LLCs which choose to be taxed as corporations will be responsible for the district’s Corporate Franchise Tax. The 2019 rate is 8.25%; you can learn more about this tax here.
LLCs involved in retail sales are also responsible for the district’s sales tax. The current rate is 6%; you can read an in-depth guide for the tax here.
LLC owners with employees are also required to pay a number of taxes. First, employers are responsible to pay withholding taxes on employee wages. Essentially, you’ll keep back a portion of an employee’s wages and forward that tax to the district. You can learn more about Washington DC’s withholding taxes here. Similarly, Washington DC employers are also required to make payments to the district’s unemployment insurance. While it’s not technically a tax, you do need to pay it on a regular basis, so we’ve included it in this section. You can learn more about this fund at the Department of Employment Services.
In addition to these general taxes, Washington DC also requires taxes specific to particular industries. For example, there are taxes on mobile food vendors, small retail services, and more. You can learn more about the district’s business taxes and file them online here.
There are no local tax requirements.
Step Six) Obtain Business Licenses and Permits
The District of Columbia requires that many businesses acquire a Basic Business License in order to do business. You can learn more about the district’s requirements and file online with the DC Business Center.
Washington DC also upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
And much like the district has industry-specific tax requirements, it also has licenses and permits that are required for businesses in certain industries. Washington DC has a wide variety of these licenses, so there’s a good chance at least one of them applies to your LLC. We recommend that every LLC owner search through the district’s database of licenses for businesses here.
Would you prefer to have a professional form your LLC?
If you would prefer to have a professional handle the paperwork for you, consider hiring an online incorporation service like LegalZoom and Incfile. To see which is the better option for you, check out our side by side comparison.
Next Steps: What to do After Creating a Washington DC LLC
Open a business bank account: We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance. Every Washington DC business with employees is strictly required to acquire workers’ compensation insurance. For more information on this policy, check out the District of Columbia Department of Employment Services. Essentially, this policy helps to pay your employees when a work injury or illness keeps them from working. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting. Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. The District of Columbia offers resources to help explain income reporting requirements and forms here.
Understand annual reporting. Washington DC requires that all LLCs file a biennial report. You can file it online here; please note that there is a $300 fee. Your annual report will essentially serve to update the district on any pertinent information regarding your business that has changed over the course of the year.
Find an accountant. We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.