Guide to Starting an LLC in Hawaii
If you’re researching how to start a business, you may be wondering about the best way to structure your company. One option is to create an LLC in Hawaii. An LLC is a popular choice for small businesses because it offers some protection from personal liability. In this article, we’ll walk you through the process of creating an LLC in Hawaii. We’ll also provide some tips on how to get started. So read on for all the info you need to make the right decision for your business.
What is an LLC?
The Limited Liability Company (LLC) is a popular entity structure for businesses starting in Hawaii. The LLC provides personal liability protection and has the potential to save money on taxes.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over other entities because of the multiple tax options, ease of administration, and management flexibility.
To form a Limited Liability Company in Hawaii, file the Articles of Organization with the State of Hawaii, Business Registration Division. The LLC filing fee for standard processing is $51. Approval for the LLC typically takes 1-2 weeks for mailed-in forms versus 3-5 days for online filings. Expedited processing is also available for an additional $25.
Steps to Form a Hawaii LLC
While it can be intimidating to form an LLC for the first time, with a little research and patience, you can learn how to form an LLC in Hawaii without an attorney.
Let’s break down the steps and show how to complete the Hawaii LLC formation process.
Total Time: 10 minutes
Step 1: Choose an LLC Name
The first step in forming a Hawaii Limited Liability Company is to make sure the name you want is available. The name of each LLC has to be distinguishable from other entity names in the state of Hawaii.
See how to do a business name availability search in Hawaii through the Hawaii Department of Commerce and Consumer Affairs Business Registration Division’s business name database.
In addition, the name of an LLC must include one of the following designators at the end of the business name:
– Limited Liability Company
– Limited Liability Co.
– Ltd. Liability Company
A comma may be used after the company name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is an LLC name you want to register but are not ready to file the LLC paperwork, a business entity name may be reserved for up to 120 days. The state filing fee for the Reservation of Name is $10.
You may also want to see if a domain name (also called a URL) is also available to have a matching website address.
Step 2: Appoint a Hawaii Registered Agent
A requirement of all LLCs in Hawaii is to name a Registered Agent.
The Registered Agent can either be a resident of Hawaii or a registered agent service. The agent must be available during normal business hours and have a physical street address in the state to receive service of process (act as a point of contact to receive legal documents, tax notices, summons, subpoenas, etc.) on behalf of the LLC.
Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Learn more about the requirements of a registered agent in Hawaii.
Step 3: File the Hawaii LLC Articles of Organization
The paperwork to create an LLC in Hawaii is called the Articles of Organization. To file, you can either register with the Hawaii DCCA Business Registration Division or download and mail the Hawaii Articles of Organization (Form LLC-1).
Turnaround for the state to approve the Articles of Organization is approximately 1-2 weeks for mailed-in filings or 3-5 days for online submissions. Expedited processing is available for an additional fee.
If mailing the LLC-1 form, send payment to:
State of Hawaii – Department of Commerce and Consumer Affairs (DCCA)
Business Registration Division
PO Box 40
Honolulu, HI 96810
If you have questions, contact the Hawaii Department of Commerce and Consumer Affairs at 808-586-2727 or firstname.lastname@example.org
Estimated Cost: 51 USD
When filling out the Articles of Organization, there are a few sections that can sometimes trip people up. Let’s go over a few of the most common ones.
Mailing Address of Principal Office – In this section, enter the street address, city, state, zip code, and country of the initial principal office. This address can be the LLC’s physical address, or it can be the address where the business records are stored. This does not have to be an address in Hawaii, but you may not use a PO Box for the registered office.
Organizer Information – The LLC Organizer is someone who is involved with the formation of the Articles of Organization. The Organizer may or may not be a member, such as a mentor, attorney, or accountant, but the initial members could be listed as an organizer.
At least one organizer has to be listed.
Learn more about who can be an LLC Organizer.
Period of Duration – Most businesses intend to exist forever and would suggest “At-will.” If you have a specific end date in mind (typically used for investment-related businesses), choose the close date.
Member-Managed or Manager Managed – This section asks for the names and addresses of initial managers if the LLC is manager-managed or the names and addresses of the initial members if the LLC is manager-managed.
- Member-Managed LLCs have members (owners) that are active in the day-to-day operations of the business.
- Manager-Managed LLCs have managers hired by the members to run the LLC, similar to a CEO of a corporation.
Most LLCs are member-managed.
Liability – This section has options on if the members will be liable for the LLC’s debts and obligations.
Most people select “Shall not be liable for the debts, obligations, and liabilities of the company.” Discussing the right choice for the members with an attorney is recommended.
While you can select this option, if the LLC takes out a bank loan, expect the bank to require a personal guarantee from the members that will require them to pay back a loan personally.
IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!
You have a Hawaii LLC! Now what??
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Hawaii LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
In Hawaii, it is not required to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Related: Hawaii operating agreement template
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- In some cases, a Hawaii Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state. A Certificate of Authority will be needed for a foreign LLC)
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed to start your business. Some common registrations include:
- Business License – Some counties in Hawaii require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- General Excise Tax License – To sell products and certain services, registration with the Hawaii Department of Taxation will be necessary.
File Annual Reports
LLCs are required to file an annual report with the Hawaii Department of Commerce and Consumer Affairs. The annual report updates ownership information and other details.
Common Questions To Starting an LLC in Hawaii
How much does it cost to form an LLC in Hawaii?
There is a state filing fee of $51 to start an LLC in Hawaii.
Is there a yearly fee for an LLC in Hawaii?
Each year LLCs will need to file an Annual Report and pay the $15 annual fee.
How long does it take to start an LLC in Hawaii?
It normally takes 3-5 business days for online filing versus 1-2 weeks for forms sent by mail for an LLC to be approved in Hawaii.
For an additional fee, expedited processing is available.
Who can be a Registered Agent for an LLC in Hawaii?
Anyone can act as a Registered Agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
Which licenses and permits are required for an LLC in Hawaii?
Every business is going to be different, as there are different business licensing requirements depending on what the business does and where it’s located.
Can you use a PO Box for your LLC in Hawaii?
A PO Box can only be used as a mailing address for the LLC. A physical street address in Hawaii must be used for the Registered Office and Registered Agent.
Does Hawaii allow single-member LLCs?
An LLC in Hawaii can be operated by one individual or many. An LLC owned by one person is referred to as a single-member LLC.
What is a Foreign Limited Liability Company?
A Hawaii foreign LLC is an LLC that was formed in another state (domestic Limited Liability Company) but wants to physically operate in Hawaii. Physically operating means having a presence, such as having an office or hiring an employee.
Related: What is a foreign LLC?
What is a Professional Limited Liability Company?
Businesses that require state licensing, such as accountants, attorneys, podiatrists, physical therapists, acupuncturists, etc., often must file as a Professional Limited Liability Company (sometimes referred to as a Professional LLC or PLLC) instead of an LLC. Filing for a PLLC is very similar to that of an LLC.