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Editorial 8 MIN READ

The District of Columbia in May 2020: what a DC LLC actually costs

A $220 filing fee, a $300 biennial report, and the franchise tax most founders don't see coming

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. The mechanics
  2. Maintenance: the biennial, the franchise tax, and the property tax
  3. The registered-agent market and the DC address problem
  4. D.C. Code Title 29, Chapter 8, briefly
  5. Who this state actually makes sense for
  6. Sources

District of Columbia LLC costs $220 to form with the Department of Consumer and Regulatory Affairs and $300 every two years to keep on the rolls. Those are the sticker numbers. The number that actually decides whether DC is the right home for your entity is 8.25%, the rate the District applies to the net income of unincorporated businesses that clear its filing threshold.

This is a guide for someone forming a DC LLC in the spring of 2020, written for founders who already live or operate inside the District and are trying to figure out what they are signing up for. It assumes you know why you are not just forming in Delaware, because if Delaware were obviously right you would not still be reading.

The mechanics

You file Articles of Organization (Form DLC-1) with the DCRA Corporations Division. The form asks for the name of the LLC (which must include "Limited Liability Company," "L.L.C.," or "LLC"), the address of the principal office in the District, the name and address of a registered agent with a physical DC street address, the name and signature of an organizer, and a check box for manager-managed versus member-managed. CorpOnline, the DCRA portal at corponline.dcra.dc.gov, takes the filing electronically and is the path most organizers use in 2020. Paper mail still works; it just takes longer.

The fee is $220. That is higher than most founders expect, and higher than every neighboring jurisdiction. Virginia charges $100 to file Articles of Organization for an LLC. Maryland charges $100 for a paper filing and $150 expedited. The District sits at $220 because its fee schedule bundles a base filing charge with a name-reservation component and a technology fee, and the legislature has not revisited the number in years. Expedited processing is available: $50 extra buys you a three-day turn, $100 buys same-day if you file before 1 p.m.

You will also need an EIN from the IRS, which Form SS-4 online produces in about ten minutes. You will need an operating agreement, which the District does not ask you to file but expects you to have under D.C. Code § 29-801.08. And if you are operating a business from a DC address, you will need a Basic Business License from DCRA before you start taking revenue. The BBL is a separate track from the entity filing, and new formations routinely miss it because the entity registration and the licensing workflow live on different pages of the same agency's website.

Maintenance: the biennial, the franchise tax, and the property tax

The District runs on a two-year rhythm, not an annual one. Every DC LLC files a Biennial Report (Form BRA-25) by April 1 of the year after formation and every second year thereafter. The fee is $300. Miss the April 1 deadline and the District tacks on a $100 late fee; miss it long enough and DCRA administratively revokes the entity, which is recoverable but ugly. Reinstatement costs $300 plus the outstanding reports. The notice DCRA sends before the deadline looks like generic government mail and ends up in a stack more often than it should.

The franchise tax is the line item that surprises people. DC imposes an Unincorporated Business Franchise Tax on any unincorporated business with gross income above $12,000 that is not effectively a service business whose income is primarily personal compensation. The rate in 2020 is 8.25% of net District-source income. An LLC taxed as a partnership or a disregarded entity files Form D-30 and pays the 8.25%, on top of the federal income tax the members owe on their distributive shares. An LLC that has elected S-corp or C-corp treatment files the D-20 corporate franchise return at the same 8.25% rate. Either way, there is a $250 minimum tax for filers with under $1 million in DC gross receipts, and a $1,000 minimum above that threshold.

The "primarily personal services" carve-out is the most misunderstood piece of DC tax. If at least 80% of your gross income comes from personal services performed by members who own at least 80% of the entity, and capital is not a material income-producing factor, the entity is exempt from the unincorporated-business franchise tax and the members pay only the District's individual income tax on the distributions. That graduated individual rate runs from 4% at the bottom to 8.95% on taxable income above $1 million in 2020 under the Individual Income Tax schedule the Office of Tax and Revenue publishes. A two-person consulting LLC whose members do all the work and own the whole company is usually out of D-30 entirely. A two-person agency that hires a handful of contractors and bills for their output is usually in.

There is also the District's Personal Property Tax, filed on Form FP-31 by July 31 each year. The tax is 3.4% of the remaining cost basis of tangible personal property (equipment, furniture, computers, leasehold improvements) used in the District, but the first $225,000 of value is exempt. Most single-location service LLCs file a zero return and move on. Businesses with real inventory, real equipment, or real build-out actually owe. File the zero return anyway; non-filing generates notices regardless of liability.

The registered-agent market and the DC address problem

Every DC LLC needs a registered agent with a physical DC street address. P.O. boxes do not qualify under D.C. Code § 29-104.04. The commercial market sits in the same $50 to $300 band as every other jurisdiction: the low end is a mailbox, the high end is a firm that catches service of process, forwards it the same day, and tells you your biennial is coming up. The DC-specific twist is that the District is geographically small and expensive, which pushes commodity agent prices roughly $20 to $40 higher than Wyoming or New Mexico.

The address question matters more than the agent question for founders who work from home. DC's residency rules for LLCs do not require a separate commercial address, but listing your apartment as the principal office creates a public record. Most formation attorneys in the District steer clients toward a virtual-office service or a commercial address from the outset, because the $500 a year it costs is cheaper than cleaning the record up later.

D.C. Code Title 29, Chapter 8, briefly

The District's LLC statute is the Revised Uniform Limited Liability Company Act, codified at D.C. Code Title 29, Chapter 8. The District adopted the RULLCA framework in 2010 and has amended it in modest ways since. Three provisions are worth knowing at formation.

First, § 29-801.08 on operating agreements. The statute recognizes oral and implied agreements but strongly prefers written ones, and several default rules (voting thresholds, distribution priorities, dissociation consequences) only yield to a written instrument. Form one.

Second, § 29-806.02 on fiduciary duties. DC follows the RULLCA's baseline duties of loyalty and care, and while members can narrow them in the operating agreement, they cannot eliminate the implied covenant of good faith and fair dealing. That matters if you are drafting a manager-managed structure where one member runs operations and the others are passive capital.

Third, § 29-807.01 on dissociation and § 29-808.02 on dissolution. The District's defaults are less founder-friendly than Delaware's: a member who dissociates may have buyout rights under circumstances the operating agreement should address explicitly, and judicial dissolution is available to members who can show the business cannot practicably continue. Founders who expect to add and lose members over time should paper those pathways before they matter.

DC does not have a specialized business court of the kind Delaware's Chancery runs. Business disputes in the District go to the Superior Court's Civil Division. The bench is competent and the volume is manageable, but the absence of a Chancery-equivalent is a real difference if your capital structure anticipates sophisticated governance fights.

Who this state actually makes sense for

Forming in the District is the right answer in three situations.

The first is anyone whose business is physically located in DC and whose customers are DC residents or DC-based institutions. Restaurants, retail, professional services with local clients, government-adjacent consultancies, nonprofits' affiliated for-profits: these belong in the District because they are already here. Foreign-qualifying a Delaware LLC to do business in DC costs $220 for the initial registration and $300 every two years on top of the home-state maintenance, so the Delaware-plus-DC structure roughly doubles your annual compliance cost without adding much.

The second is a holding vehicle for DC real estate. The District's recordation and transfer taxes are real, and moving titled property into a non-DC entity triggers them; forming local keeps the friction down at acquisition.

The third is a personal-services practice where every owner does billable work and the franchise-tax carve-out applies cleanly. Those entities pay $220 once, $300 every other year, the Individual Income Tax at graduated 4% to 8.95%, and effectively nothing to the D-30 system. For a two-lawyer firm or a three-person design studio billing under $1 million and owned entirely by the principals, that is a workable regime.

Everything else deserves a second look. If your business is online and national and has no particular reason to sit in the District, your home state is usually cheaper and your operating reality does not change. If you are venture-track and expect institutional capital, form in Delaware and foreign-qualify in DC only when you physically land here. If you expect the franchise-tax carve-out but your business model leans on contractors or capital rather than member labor, run the D-30 math before you file; an 8.25% surcharge on top of federal tax is the kind of number that makes founders wish they had asked three months earlier.

If you are forming this quarter and the business is genuinely DC-local, file the DLC-1 this week, pay the $220, calendar the biennial for April 1 of next year, and get the Basic Business License started in parallel. The District's system is slower and more expensive than most of its neighbors, and it rewards founders who treat the calendar and the license track as first-class problems rather than afterthoughts.

Sources

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