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.
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”).
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.
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.
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.
Once you are ready to form your Washington DC limited liability company, you will fill out the articles of organization.
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.
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 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.
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.
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.