Here is an outline of the steps you need to follow in order to form a corporation (specifically, a "C corporation") in the District of Columbia. You should also read the general section on forming a corporation for information applicable in any state. Additionally, you should familiarize yourself with the Department of Consumer and Regulatory Affairs website, which has useful information and resources.
1. Choose a business name for the corporation and check for availability.
- District of Columbia law requires that a corporation name
include the word "corporation," "company," "incorporated," or
"limited," or an abbreviation of one of these words. Additionally, your
corporation name may not be the same as, or deceptively similar to, the
name of any other corporation on file with the Department of Consumer
and Regulatory Affairs, and it may not indicate that the corporation is
organized under an act of Congress.
2. Recruit and/or appoint a director or directors for the corporation.
- Under DC law, a corporation must have at least one director.
- Directors do not have to be residents of the District or shareholders of the company, unless the articles so require.
- There does not appear to be a minimum age requirement for
directors, but incorporators (i.e., those filing the paperwork) must be
at least eighteen years old.
3. Prepare and file articles of incorporation with the Department of Consumer and Regulatory Affairs.
- DC law requires that the articles of incorporations contain a
clause stating that the company will not commence business until it has
raised $1000 in capital.
- DC law requires that the articles of incorporation state the
number of directors that will constitute the corporation's board of
directors and identify the individual or individuals who will serve as
directors until the first annual meeting of shareholders.
4. Raise $1000 in capital.
- DC law is unique in requiring a corporation to raise
$1000 in capital before commencing business or incurring any debt. This
requirement does not stop a corporation or its owners from taking steps
necessary to organize the corporation or to obtain subscriptions to or
payment for its stock. This requirement does not apply to non-profit
corporations, LLCs, and other unincorporated businesses in DC.
5. Create the corporation's bylaws.
- There is no set criteria for the content of bylaws, but
they typically set forth internal rules and procedures for the
corporation, touching on issues like the existence and responsibilities
of corporate offices, the size of the board of directors and the manner
and term of their election, how and when board and shareholder meetings
will be held, who may call meetings, and how the board of directors
will function. You are not required to file bylaws with the Department
of Consumer and Regulatory Affairs, but the corporation should keep a
copy at its principal place a business. For general information on
corporate bylaws, please see the Corporate Bylaws page.
6. Hold an organizational meeting.
- After the Department of Consumer and Regulatory
affairs issues the corporation a "certificate of incorporation"
approving its articles, the initial directors must hold an
organizational meeting for the purpose of adopting bylaws, electing
officers, and transacting any other necessary business. Minutes of the
meeting should be recorded. You can find the DC statute relating to the
organizational meeting at D.C. Code Ann. § 29-302.05.
7. Issue stock certificates to the initial owners of the corporation.
- See the general section on forming a corporation for details. The DC statute relating to stock certificates is located at D.C. Code Ann. § 29-304.21. Unless the articles of
incorporation state otherwise, the board of directors has the authority
to set the "consideration" (i.e., the amount to be received) for each
share of stock.
8. Obtain any required local licenses.
- The District of Columbia issues what is known as a
Basic Business License (BBL) to new local businesses. The Department of
Consumer and Regulatory Affairs website has a helpful Basic Business License Information page to help you determine whether you need a BBL.
9. Determine what tax and other regulatory obligations the corporation has, and take care of any necessary registrations.
- Request an Employer Identification Number (EIN) from the IRS. This can be done via its online application. There is no filing fee.
- Register for District of Columbia business taxes using the FR-500 Combined Business Tax Registration service.
This service will tell you what taxes you will be responsible for
(including income and employment taxes), guide you to what forms you
will need to file, and tell you when they must be filed.
- Whenever you hire an employee in the District of Columbia,
you must inform both the IRS and the District of Columbia. The IRS
details all of the necessary steps to complete, including verifying
work eligibility and withholding allowances certificates, on its page
entitled Hiring Employees. Information on what to do on the District level will be detailed when you register for taxes using the FR-500 Combined Business Tax Registration service.
- The District of Columbia's current income tax rate for corporations is 9.975%.
10. Open a bank account for your business.
- It is a good idea to keep your business's finances
separate from your personal accounts. A good way to do this early on is
by opening a bank account for your corporation. You will probably need
a Tax ID number (EIN), a copy of the articles of incorporation, and a
resolution identifying authorized signers if those names are not listed
in the articles.
Other Notable Requirements for Maintaining a Corporation in the District of Columbia
- DC corporations must file a Two-Year Report
with the Department of Consumer and Regulatory Affairs every two years.
The filing fee is $250. Note that the first such report is due April
1st of the first year after incorporation, with each subsequent report
filed every two years thereafter.
- DC law requires certain documents to be kept at a
corporation's principal place of business. A list of the required
documents is located in D.C. Code Ann. § 29-313.01.
Additional Steps and Information about Forming an S Corporation
- An S corporation has the same basic organizational structure as a regular corporation, but some of the tax advantages of a partnership or LLC.
An S corporation pays no federal income tax, except for tax on certain
capital gains and passive income. Instead, the corporation's profits
and losses "pass through" to shareholders, and profits are taxed at
individual rates on each shareholder's Form 1040. Certain requirements
and additional obligations apply -- please see the S Corporation page for details.
- To form an S corporation, designate "S" status with IRS via Form 2553
within 2 months and 15 days of filing your articles of incorporation
with the Distrrict of Columbia. There is no additional paperwork that
you need to file with DC.
- The District of Columbia does not recognize the "S" status
of a corporation and subjects S corporations to the same corporate
state tax as other corporations. This does not mean, however, that you
cannot designate your DC corporation an S corporation for federal tax
purposes.
Additional Steps and Information about Forming a Close Corporation
- DC law has provisions relating to what is known as a "close
corporation" -- a classification for a corporation with a small number
of shareholders (thirty-five maximum) that does not issue stock to the
general public. In general, running a close corporation permits a less
formal management style under the auspices of a shareholders'
agreement. Please see the Close Corporation page for details.
- The articles of incorporation of a close corporation are
different from ordinary articles of incorporation. The Department of
Consumer and Regulatory Affairs has a sample articles of incorporation for a DC close corporation. Among other things, close corporation articles must contain:
- A heading stating the name of the corporation and that it is a close corporation.
- A provision stating that all of the corporation's stock, of all classes, is not to be held by more than thirty-five persons.
- A provision stating that all of the corporation's stock is subject to certain transfer restrictions.
- A provision stating that the corporation shall make no
offering of any of its stock of any class which would constitute a
"public offering" within the meaning of the United States Securities
Act of 1933 (15 U.S.C. § 77a et seq.).
- The articles may also include a provision stating that the
corporation will be managed by its shareholders rather than a board of
directors pursuant to D.C. Code Ann. § 29-305.42.
- Running a close corporation generally requires a shareholders'
agreement. This is an agreement among all or most of the corporation's
shareholders, in which they agree to the relaxation of various
corporate formalities, such as holding frequent shareholder and board
meetings.
- If you are interested in forming a close corporation, you should contact a lawyer.