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From food trucks by the Capitol to souvenir stalls in Union Station, small business owners in Washington, D.C. should form an LLC to take advantage of a variety of tax and liability benefits.
EASY STEPS TO FORM AN LLC IN WASHINGTON, D.C.
- Choose a Name
LLCs formed in Washington, D.C. face a few requirements for their names. First, the name has to have “limited liability company,” “limited company,” “L.L.C.,” “L.C.,” “LLC,” or “LC,” where limited can be abbreviated “ltd.” and company can be shortened to “co.” Second, the name must be distinguishable from all other business entities either formed in Washington, D.C. or qualified to do business there.
- File a Certificate of Organization
D.C. LLCs officially exist once they file their certificate of organization with the Mayor and pay the $220 filing fee. The certificate of organization must include the name of the LLC, the address of the LLCs principal office, the name and address of the Registered Agent, and a statement stating that the LLC will be a Series LLC if it will be. This can also include any other provisions that the organizer wants to include.
- Draft and Execute an Operating Agreement
An operating agreement is the agreement, whether oral, written, or implied, between members of a D.C. LLC regarding how the LLC will conduct its business. By D.C. law, this is any agreement that satisfies this definition, whether called an operating agreement or not.
- Continued Compliance
EIN: Like other entities, D.C. LLCs with employees or multiple members will need Employer Identification Numbers from the I.R.S., which can be obtained directly or by hiring an incorporation service.
Biennial Reports: D.C. LLCs must file a biennial report with the Mayor that includes the name of the LLC, the name and address of the Registered Agent, the address of the principal office, and at least one “governor”, along with a $300 filing fee.
WHY FORM AN LLC IN WASHINGTON, D.C.?
The Benefits and Advantages of Creating a District of Columbia LLC
- Advantages of Forming a District of Columbia LLC
The District of Columbia LLC Act provides for an LLC’s unlimited life. Section 29-801.04 states an LLC’s duration is perpetual. An LLC’s existence can therefore outlive its members’ lifetimes.
The Act does not require filing of members’ names. A “person” may form an LLC by filing its certificate of organization, and the definition of “person” includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s Certificate of Organization.
Dealing with Business Partners
The District of Columbia LLC Act gives members contractual freedom to customize the duties each party to an LLC agreement owes to the other parties. Section 29-801.07 of the Act provides an LLC agreement may identify activities that do not violate the duty of loyalty, alter the duty of care other than permitting intentional misconduct or knowing violation of law, and alter or eliminate any other fiduciary duty. In addition, it provides an LLC agreement “may specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts.”
Preventing Unwanted Business Partners
The Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from transferring their membership interests. But if an LLC agreement does not prohibit it, a transfer does not dissolve the LLC or entitle the transferee to become a member or to have access to the LLC’s records. Instead, the transferee may receive only the distributions to which the transferor would have been entitled, and all the other members must consent before the transferee can become a member.
Creditors Only Get Passive Rights, Not Control Rights
If a judgment creditor of a member obtains a charging order against the member’s membership interest, the charging order constitutes “a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.” The judgment creditor may foreclose on the charged membership interest, but the purchaser of the interest at a foreclosure sale obtains only the rights of a transferee and does not become a member merely by purchasing the membership interest.
- District of Columbia Registered Agent
A District of Columbia LLC must continuously maintain an agent for service of process in the District. A commercial registered agent service may act as a District of Columbia registered agent.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Washington D.C. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in Washington D.C. with your Delaware LLC (Form Delaware LLC).
- District of Columbia LLC Act Statutory References
§ 29-101.02 “Definitions” § 29-104.02 “Entities Required to Designate and Maintain Registered Agent” § 29-105.02 “Registration To Do Business in the District” § 29-801.02 “Definitions” § 29-801.04 “Nature, Purpose, and Duration of Limited Liability Company” § 29-801.07 “Operating Agreement; Scope, Function, and Limitations” § 29-802.01 “Formation of Limited Liability Company; Certificate of Organization” § 29-804.09 “Standards of Conduct for Members and Managers” § 29-805.02 “Transfer of Transferable Interest” § 29-805.03 “Charging Order” § 29-104.05 “Listing of Commercial Registered Agent”
| Washington DC vs. Delaware LLC's: Which State Is Better?|
|States||LLC Filing Fee||Required to Name Members or Managers||Report Frequency||Annual Fee?||Reduce Fiduciary Duties?||Series?||Charging Order as Exclusive Remedy||Maximum Freedom of Contract||Separate Equity Court?|
|Washington DC||$220||Entity Governor||biennial||$300|