In the bustling hub of Washington, DC, the future of business is digital, and so is the incorporation process. Online incorporation is your golden ticket if you’re eyeing a seamless, efficient, and cost-effective way to establish your S Corp. Dive into a hassle-free experience tailored for the modern entrepreneur, eliminating traditional complexities and ensuring you’re up and running faster than ever. Curious about how it works? 

Let MaxFilings guide you through the digital transformation of incorporation – because in DC, we’re not just about building businesses; we’re about building the future.

How to register a DC S corp

Choosing a business name

Selecting a name is the primary step in forming an S corp in the District of Columbia. The Council of the District of Columbia mandates that businesses use identifiers like “incorporated” for S corps.

Appointing a registered agent

Every business in Washington, DC, requires a registered agent. This agent serves as an intermediary for routine government correspondence. The criteria for an agent include having a local mailing address and being available during conventional business hours.

Selection of directors

With a registered agent on board, the next step is to choose directors. Directors usually govern corporations, and an S Corp can have a maximum of 100 shareholders.

Filing the necessary formation documents

After selecting your management team, the next move is filing your Articles of Incorporation or Organization with the DCRA. The process can be handled online with Maxfilings.

Completing the S corp election process

First, obtain an Employer Identification Number (EIN) to finalize your S Corp status. You’ll then file Form 2553 with the Internal Revenue Service (IRS).

DC S corp taxation

In contrast to C corps, a DC S corp isn’t subject to direct income taxes. Although an S corp with multiple shareholders submits tax returns, it’s the responsibility of individual shareholders to report their proportion of the corporation’s profits or losses on their personal tax declarations. This method is similar to the taxation approaches for sole proprietorships, partnerships, and Limited Liability Companies (LLCs).

For a business to be recognized as an S corp in DC, it must submit an IRS Form 2553 to the Internal Revenue Service. An additional state-specific election might be necessary for a limited number of states to achieve Sub S Corp status. Arkansas, New Jersey, New York, Ohio, and Wisconsin mandate this extra state-level filing alongside the IRS procedure.

For those seeking assistance with the IRS Form 2553, MaxFilings offers support by preparing the document and providing clients with detailed guidelines for its completion and subsequent submission to the IRS.

Important points to consider

• To establish a DC corporation, official paperwork must be submitted to the state, accompanied by the necessary state fees.
• The IRS requires Form 2553 to select a special tax designation.
• Legally, a DC S corp stands as a distinct entity, separate from its shareholders.
• Specific restrictions on the business activities permitted for DC S corps might exist.
• Proper documentation, including minutes from stockholder and board of directors meetings, must be maintained.
• DC S corps are limited to 100 shareholders, who are required to be U.S. citizens or residents.

Limited liability

• Shareholders of a DC S Corp typically have limited liability, with losses restricted to their initial investment in the corporation.
• Shareholders of a DC S Corp are generally not responsible for the corporation’s legal liabilities, debts, or commitments.
• One primary reason state business owners opt to incorporate is to safeguard the personal assets of DC S Corp shareholders.
• There are specific situations where shareholders might be liable and are not shielded by the corporation.

Raising capital

• It’s easier for a DC S corps than other types of businesses to raise additional capital because they can issue and sell shares or various financial tools that represent an interest in the corporation.
• State and federal securities regulations might regulate the issuance and sale of shares.
• Ownership in DC S corps can change hands by selling the corporation’s stock.
• Despite potential variations in voting rights, DC S corps are limited to a single stock class.

Taxation

• DC S corps typically face fewer audits compared to sole proprietorships and partnerships.
• Shareholders in DC S corps benefit from pass-through taxation, preventing the issue of “double taxation.”
• While DC S corps submit informational tax returns, they don’t directly pay income tax.
• Shareholders of DC S corps declare their portion of income and losses on individual tax returns, allowing them to counterbalance other income using these losses.
• Income and losses should be distributed according to the percentage of ownership.
• The self-employment taxes for owners don’t apply to the salaries they receive from the corporation.

Owners and employees

• Major shareholders might face restrictions on specific fringe benefits.
• Owners actively involved in the business are considered employees and qualify for benefits like group insurance, retirement plans, and tax-advantaged stock options.
• Many employees are drawn to corporations that provide stock options and bonuses.
• Corporations inherently have longevity and continuity, unlike other business structures, as their existence isn’t tied to a shareholder’s lifespan.

Public perception

The general public normally considers corporations more substantial than sole proprietorships and partnerships.

S corp vs. C corp in DC

The primary distinctions between the DC S corp and C corp are:

1. Double taxation: C Corps undergo double taxation, once at the corporate level and then at the individual shareholder level.
2. Pass-through taxation: S Corps benefit from pass-through taxation, wherein only members or shareholders are taxed upon distribution.

S corps in the District of Columbia are not exempt from all taxes. The district imposes an Incorporated Business Franchise Tax and an Unincorporated Business Franchise Tax. Consequently, every business in the district, even those with pass-through taxation, is subject to state-level taxes, irrespective of their tax classification. The franchise tax levied is contingent on the business’s size: $250 for businesses with gross receipts up to $1 million and $1,000 for those with gross receipts surpassing $1 million.