Before you can start forming a Hawaii LLC, you must familiarize yourself with the formalities and regulations associated with LLCs in Hawaii. An LLC can be an attractive option to choose because there are fewer formalities than with other structures.
From understanding the legal requirements to filing the necessary paperwork, our expert insights will ensure you are well-prepared to establish your LLC in Hawaii.
This comprehensive guide provides clear and concise information to help you navigate the process smoothly.
Quick Summary
- A Hawaii LLC is a business structure that provides liability protection to its members while offering flexibility in management and taxation. It can have one or more owners, known as members.
- Hawaii has four LLC types: single-member LLCs, multi-member LLCs, LLCs taxed as a corporation, and professional LLCs.
- The steps to start an LLC in Hawaii include choosing a unique name, appointing a registered agent, obtaining necessary licenses and permits, filing Articles of Organization, drafting an operating agreement, and obtaining an Employer Identification Number (EIN).
What is a Hawaii LLC & How Does it Work?
In Hawaii, a limited liability company (LLC) is a business structure that provides liability protection to its members while offering flexibility in management and taxation.
Members enjoy limited personal liability, and the company's profits and losses can be allocated according to the operating agreement. This arrangement allows for efficient and adaptable business operations in Hawaii.
A Hawaii LLC must have at least one owner called a "member." Members can be individuals, corporations, or other LLCs.
A Hawaii LLC may have an unlimited number of members.
As a business owner who wants to amp up the personal liability protection against the debts and obligations of your business, you may want to consider forming a Hawaii LLC.
Types of Hawaii LLCs
LLC's formation process will largely depend on the chosen business structure.
There are currently four types of LLCs in Hawaii:
- One person can own a single-member LLC. It has the same characteristics as a sole proprietorship but fewer tax benefits and liability protection. No separate entity exists for federal tax purposes because all business income is taxed at the owner's personal rate.
- A multi-member LLC can have two or more owners and offers the same benefits as a partnership but with limited liability protection for each owner. Like a single-member LLC, all business income is taxed on the members' personal tax returns. The entity is not subject to federal taxation but is taxed like a partnership.
- A corporation (this is not a structural classification but a tax classification). An LLC can be taxed as a corporation, which allows it to avoid double taxation. This, however, may not always be the case and will depend on whether the owners choose to be taxed as an S or C corporation.
While LLCs have grown in popularity, certain kinds of companies, such as those with securities to sell or vast real estate holdings, are better suited as corporations.
Steps to Set Up an LLC in Hawaii
The first step for starting an LLC in Hawaii is determining the type of LLC you want.
After you determine the structure of your LLC, it is time to choose an appropriate name, appoint a registered agent, and file the legal documents with the state.
These documents will include the LLC Articles of Organization and an operating agreement.
You might need additional paperwork depending on the type of your LLC and the methods it will use to conduct business.
1. Pick a Name for Your Hawaii LLC
Your business name is an essential part of your LLC. It will be listed on all official documents filed with the state, and it is how customers and clients will identify your business.
The name you choose must be unique and cannot include words restricted by the state of Hawaii.
The following guidelines apply to naming a Hawaii LLC:
- Your LLC's name must include "Limited Liability Company" or "LLC."
- The name cannot include words restricted by the state of Hawaii. This includes terms associated with a government agency or words such as - bank, insurance, and trust.
- Your LLC's name must be distinguishable from all other businesses registered with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division.
- If you choose to use a business entity name, such as "XYZ LLC," you must register and transact business under that full name.
Search for name availability before filing any formation documents to check whether your desired business name is already in use.
That way, you can prevent the rejection of your filing due to an existing business with a similar name and minimize yours.
You can reserve your LLC's name online at the Business Registration Division website. Business entity name reservation is available in Hawaii for a $10 filing fee [1].
Once you file the reservation form successfully, your business name will be restricted from other entities using it for the next 120 days.
Read More: Hawaii LLC Lookup
2. Appoint a Hawaii Registered Agent
A registered agent or a registered agent service in Hawaii is a person or business entity that agrees to receive legal notices and service of process on behalf of your Hawaii LLC.
The registered agent must have a physical address in Hawaii to accept mail and be available during normal business hours.
Why is it important to appoint a registered agent? The state will not accept your LLC formation documents if your LLC does not have an appointed registered agent.
Hawaii LLCs must appoint an agent before registering with the state.
What are registered agents required to do? A registered agent has several duties:
Your registered agent's appointment begins once you complete and submit Hawaii LLC formation documents, including filing organization articles.
Before that, your Hawaii's registered agent must sign a contentment statement that they will be your registered agent during the time that you are registered with Hawaii.
Service of process must be completed on registered agents when a lawsuit is filed against your LLC in Hawaii state courts.
Registered agent service includes:
- Acceptance of legal documents sent by email and via fax if these methods are offered as options for registered agent service. If an email address or fax number is not provided to the registered agent, they are not responsible for accepting notices and service of process through those methods.
- Forward all legal documents from the state to your LLC's manager or registered representative.
If you appoint a registered agent that does not meet the three duties listed above, your LLC will be considered in default by the state of Hawaii.
3. Obtain Hawaii Licenses & Permits
State laws and rules govern LLC operations in Hawaii, requiring business owners to acquire certain company licenses or permits.
According to Hawaii law, all LLCs must acquire a General Excise Tax License, which the Hawaii Department of Taxation issues.
This business license is required for all businesses in Hawaii and allows you to collect and pay the state's General Excise Tax (GET) [2].
To get your GET Business License, you must complete an application form and provide certain information, including company name and address, contact information, type of business activity, and estimated annual gross sales.
In addition to the GET License, certain businesses may also be required to obtain other licenses or permits from state or local agencies, depending on the nature of their business.
For example, companies that sell or distribute food products may need a Food Establishment license from the Hawaii Department of Health.
Researching and understanding all state requirements governing your business before starting operations is important.
This step is crucial for setting up a professional limited liability company (professional LLC) in Hawaii because these entities require the highest licensing and compliance.
4. File your Hawaii Articles of Organization
Hawaii LLC Articles of Organization are submitted to the Hawaii Department of Commerce and Consumer Affairs (DCCA).
The Articles need to include your named LLC, address in the state, and name & address of the registered agent.
Your Articles of Organization will specify:
- The name of your LLC
- Purpose of the LLC
- Duration of the LLC (perpetual or for a specific term)
- Membership information and management
- Registered agent's name and address
There is a $50 filing fee. You can file online or by mail.
The filing process can be completed through Hawaii Business Express if you want to file online or through the DCCA if you file by mail.
Before your Articles of Organization are approved, the waiting time could extend to a few weeks, but you can opt for expedited processing for a $25 fee.
Learn more about all the expenses related to starting an LLC in Hawaii.
5. Draft your LLC Operating Agreement
LLC operating agreements are documents that state the rights and responsibilities of LLC members.
This document is not required in Hawaii, but it's a good idea to have one to avoid any potential disputes among members.
Your LLC operating agreement can be as simple or complex as you want. It should include:
- The name of your LLC
- The function and purpose of your LLC
- The rights, responsibilities, and authority of each member within the company.
- How to deal with member disputes or if a member leaves the business.
If you don't want to draft the Hawaii LLC operating agreement independently, template forms are available online for free.
However, it is always best practice to consult with an attorney if possible to ensure you follow all legal guidelines.
6. Obtain an Employer Identification Number
A federal employer identification number, federal tax identification number, or an EIN represents a number the Internal Revenue Service assigns to all business entities.
It's used for tax reporting purposes. EINs are issued to all U.S based companies and LLCs (including single-member limited liability companies).
You can obtain an EIN through the IRS website [3]. You’ll be required to submit this form with supporting documentation, including the company's articles of organization and operating agreement.
The employer identification number is essential for all LLCs that want to hire employees or open a business bank account.
There is no fee to apply for an EIN.
How is Hawaii LLC Taxed?
By default, LLCs are treated as disregarded entities (much like a sole proprietorship). However, LLCs with more than one member are treated as partnerships for tax purposes.
Lastly, single-member and multi-member LLCs can be taxed as corporations (S or C corporations).
The LLC members pay federal income taxes on their share of the profits.
The amount of income tax you pay is determined by your income, deductions, and other relevant criteria.
The Hawaii Department of Revenue collects state income taxes [4].
Federal and state taxes are due on April 20th of the following year.
If you file as a corporation, taxes are paid by the LLC every quarter or month, depending on your revenue.
Sales tax is imposed on those LLCs that sell goods and services in the state of Hawaii.
The tax rate is currently at .05% [5].
Lastly, if you have employees or are self-employed by your LLC, you must pay FICA taxes.
If you have employees, you must register for the Unemployment Insurance Tax with the Department of Labor and Industrial Relations [6]. You should also enrol your employees with the Hawaii Department of Taxation regarding the Employee Withholding Tax.
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FAQs
Who Can Be a Member of My Hawaii LLC?
In Hawaii, a member can be an individual or business entity, including a corporation or another LLC. No residency or citizenship restrictions exist for LLC membership in Hawaii, providing flexibility for local and non-local individuals or entities to participate in Hawaii LLCs.
Can I Use My Personal Bank Account For My LLC in Hawaii?
You can use your personal bank account for your LLC in Hawaii, but it is advisable not to do that.
Keeping your LLC bank account separate from your personal bank account will protect your assets in case of a lawsuit or a dispute with creditors and maintain your corporate veil.
How Do I Change Ownership of an LLC in Hawaii?
You can change the ownership or the initial members of a Hawaii LLC by filing Articles of Amendment with the Hawaii Department of Commerce and Consumer Affairs.
Is Starting An LLC In Hawaii Easy?
Starting an LLC in Hawaii is a relatively easy process to do on your own, but some steps can be confusing.
If you're unsure about the best course for registering your business entity, you should consult ZenBusiness. The company will provide services to help you confidently start your Hawaii LLC.
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ZenBusiness
ReferenceÂ
- https://cca.hawaii.gov/breg/registration/dllc/
- https://tax.hawaii.gov/geninfo/get/
- https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
- https://manoa.hawaii.edu/fsis/taxes/state/
- https://taxfoundation.org/state/hawaii/
- https://labor.hawaii.gov/ui/new-employer-registration/
