Articles of Organization

The formation of a District of Columbia LLC means that you have to file articles of organization (along with a $150 filing fee) with the DC Corporations Division. The articles, which must be signed and dated by all organizers, must include:

• The LLC’s name and street address
• The LLC’s business purpose
• The name and registered office address (not a post office box) of the LLC’s registered agent in DC
• The names and street address of each organizer
• The duration of the LLC if it is not to be perpetual
• Whether the LLC will be manager-managed or member-managed

Your new LLC is officially deemed “organized” after the LLC’s articles of organization and an exact copy are delivered to the Corporations Division with the filing fee.

Registered Agent and Office

Every District LLC must maintain both a registered agent and registered office in the district—the person or office designated to receive official legal and administrative correspondence on the LLC’s behalf. An LLC registered agent may be an individual who resides in the district, or a corporation with the authority in its own articles to act as a registered agent in DC.

The registered agent’s address must be within the district, and the address given must be the physical street address, not just a post office box.

Operating Agreement

The LLC’s next most critical document is its operating agreement. Having an operating agreement is not officially required by the District of Columbia, but it’s a critical internal document that sets forth how the LLC will run—and therefore highly advisable to establish and maintain.

The operating agreement should list the LLC’s members, how much each one has invested, how any profits will be distributed, and how much relative weight each member has when voting. It can be amended or repealed as specified in the agreement itself or by state law.

The operating agreement can also include requirements for meetings (notice, quorum, voting rules, etc.) and similar functions, but it doesn’t have to. Often, however, it does include operating constraints and allowances that are already contained in state law and regulations. It also may contain constraints on the members’ authority to change or repeal the operating agreement or any provision thereof.

Membership in the LLC

A District of Columbia LLC must have at least one member, who may be a natural person or a business entity. Members may acquire an interest in the LLC either in proportion to their contribution or in some other way that is in accordance with the LLC’s operating agreement.

The contributions of a member to the LLC may consist of cash, property, services rendered, or a binding obligation to contribute those in the future.

An LLC member may not resign except in accordance with the organization’s operating agreement or articles of organization. If a wrongful dissociation causes harm to the LLC, the member may be liable for those damages.

Unless the operating agreement states otherwise, a member who resigns will receive the fair value of his or her membership interest within a reasonable time after resignation. If the resignation is in violation of the operating agreement or the result of wrongful conduct, the LLC may offset the amount paid to the resigning member by the amount of damages caused by the breach or wrongful conduct, including the costs of obtaining replacement services owed to the LLC by the resigning member.

Managers are elected by the members, but unless otherwise stated in the articles or operating agreement, managers’ removal and election must be approved by those members owning at least a majority of profit interests in the LLC.

Ongoing Requirements

District of Columbia LLCs submit a Two-Year Report biannually with the DCRA, along with a registration fee of $200. The report must include:

• The LLC’s name and the state or country where it was initially organized
• The address of the LLC’s registered office in the state
• The name of the LLC’s registered agent at that office
• The address of the LLC’s principal executive office
• The names and business addresses of any managers

It’s also a good idea to keep copies of the minutes of the various proceedings and committees meetings of the members and managers.

Dissolution

A District of Columbia LLC is dissolved when any one of the following events occurs:

• An event or events specified in the articles of organization or operating agreement
• Agreement to dissolve by the number or percentage of members specified in the operating agreement
• The LLC has no members for 90 days
• Expiration of the LLC’s duration
• A court order mandating dissolution

Taxes

An LLC by its nature normally offers some tax advantages over a corporate organizational structure, especially for taxes. This includes access to more deductions, since the LLC is not required to be a separate tax entity like a corporation. Instead, it is considered a “pass-through” entity for tax purposes, meaning that LLC owners report business profits and losses on their individual tax returns.

An LLC within the District of Columbia, however, is required to file as either a corporation or a partnership. District of Columbia LLCs must pay a 9.975 percent tax on all income earned in the District. The District of Columbia also charges a sales and use tax, with a 5.75 percent rate on most sales and a maximum rate of 14.5 percent.

Articles of Incorporation

Before it can start conducting business in the District, a new DC corporation must file articles of incorporation, along with a minimum $120 incorporation fee ($100 filing fee and a minimum $20 authorized stock fee). You may authorize up to $100,000 of capitalization (shares) in your articles for this minimum $20 fee—for example, 100,000 shares with a par value of $1 each or 200,000 with a par value of 50 cents each. Shares without par value are given a $1 per share value for purposes of this fee, so you can authorize up to 100,000 shares without par value for the minimum $20 authorized stock fee.

Two original signed copies of the articles, along with a Written Consent of Registered Agent, must be delivered by at least one incorporator. The incorporator may be one of the initial directors, or anyone else as long as they are at least 18 years of age.

The following information must be included in the articles of incorporation:

• The number of the corporation’s directors
• The directors’ names and addresses
• The period of the corporation’s duration, which may be “perpetual”
• The corporation’s specific business purpose
• The number of shares that the corporation is authorized to issue, itemized by class
• The par value of shares or a statement that the shares are to be without par value
• The street address of the corporation’s initial registered office
• The name of the corporation’s initial registered agent at that office
• The initial registered agent’s principal business address
• Signed acceptance by the registered agent of appointment as such (this is the Written Consent of Registered Agent form)
• The name and address of each incorporator

Most incorporators authorize only common shares of stock with equal voting, dividend, and liquidation rights, and no special restrictions. If you want to authorize the maximum number of common shares without par value, you can state that in your articles. Or, to authorize par value shares, you can include a statement along the lines of, “The aggregate number of shares the corporation is authorized to issue is 100,000, with a par value of $1.00 each.”

If you want to authorize a special class or classes of shares, you must state the name of each class or series, the number of shares in each, and the par value (if any) of each class or series. Another alternative is to state that the shares in each class or series are without par value.

If you do authorize separate classes or series of shares, you should also state any applicable rights and/or restrictions.

District law requires that a corporation obtains at least $1,000 of capitalization before it starts doing business. Your financial records should show that this much cash or property was paid into your corporation by the initial shareholders.

Registered Agent and Office

Every District of Columbia corporation must have a registered agent in the district—the person or office designated to receive official administrative and legal correspondence. The registered agent is required to sign the articles of incorporation, indicating acceptance of the appointment as such.

The registered agent must be either a DC resident or a corporation authorized to conduct business there. In either case, the agent’s business office must be the same as the registered office. The registered office may be the same as the corporation’s place of business.

Bylaws

Bylaws lay out the corporation’s basic managerial and legal operating principles that manage their internal affairs. The District of Columbia corporations must keep a copy of their bylaws at their principal executive office, but are not required to file them with the state. At its initial meeting, the incorporators or the board of directors should adopt corporate bylaws, and then keep them updated as time goes on.

The board of directors of a corporation may adopt, amend, or repeal bylaws, unless the articles reserve this right to the shareholders. Bylaws normally address:

• Shareholders and directors meetings
• The authority, number, and tenure of directors
• Voting procedures
• The duties, responsibilities, and tenure of officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Directors and Officers

A corporation’s board of directors consists of one or more individuals in accordance with the articles of incorporation (initially) or the corporation’s bylaws (after the corporation is organized). The number of directors may be increased or decreased by amending the bylaws.

Officers are listed in the initial bylaws or elected by the board of directors, and may appoint other officers in accordance with the bylaws. At least one officer should have the responsibility of preparing minutes of director and shareholder meetings, and for maintaining and authenticating corporate records.

Required Reports

DC corporations must file a report with the mayor’s office by the end of the second calendar month after delivery of the corporation's original articles, and every year after that. This report must include the corporation's name, its jurisdiction of incorporation, and any information in its articles that has since changed since the last report.

If shareholder requests it, a DC corporation must send that shareholder its most recent annual and published reports.

Taxes

The District of Columbia imposes a corporate franchise tax based on net taxable income, and it also imposes an unincorporated business tax on unincorporated businesses. The minimum tax is $100 per year, which includes a surtax.

District corporations must pay a 9.975 percent tax on all income earned there. The District also charges a sales tax of 5.75 percent rate on most sales and a maximum rate of 14.5 percent.