An LLC is a business structure that can be used for many different types of businesses, and it can be an attractive option to choose because there are fewer formalities than with other structures.
Before you can start the processing of forming a Hawaii LLC, you need to understand the formalities and regulations that come with LLCs in Hawaii.
What is a Hawaii LLC & How Does it Work?
A Hawaii limited liability company represents a business entity with a separate legal identity from its owners.
In other words, a Hawaii LLC allows LLC owners to limit their personal liability for the company's debts and obligations.
A Hawaii LLC must have at least one owner called a "member." Members can be individuals, corporations, or other LLCs.
The members of an LLC manage the business and make all decisions concerning it.
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.
The legal protection LLCs provide can also help shield your personal assets from judgments against the business and debts creditors might want to go after.
Unlike other business entities, limited liability companies provide flexibility in tax options.
LLCs can be taxed as a partnership, corporation, or disregarded entity (a pass-through taxation method in which the company's income and losses are "passed through" to the individual members, like with sole proprietorships).
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 has fewer tax benefits and liability protection. Because all business income is taxed at the owner's personal rate, no separate entity exists for federal taxation purposes.
- 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 instead taxed like a partnership.
- A corporation (this is not a structural classification but a tax classification). An LLC can choose to 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 what type of LLC you would like.
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.
Depending on the type of your LLC and the methods it will use to conduct business, you might need additional paperwork.
Step 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 the words "Limited Liability Company" or the abbreviation "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.
To check whether your desired business name is already in use, make sure to do a name availability search before filing any formation documents.
That way, you can prevent the rejection of your filing due to an existing business with a similar name.
Business entity name reservation is available in Hawaii for a $10 filing fee.
You can reserve your LLC's name online at the Business Registration Division website.
Once you file the reservation form successfully, your business name will be restricted from other entities to use for the next 120 days.
Step 2: Appoint a Hawaii Registered Agent
A registered agent or a registered agent service is a person or business entity that agrees to receive legal notices and service of process on behalf of your 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? If your LLC does not have an appointed registered agent, the state will not accept your LLC formation documents.
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.
Prior to that, your 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.
- Forwarding all legal documents received 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.
Step 3: Obtain Hawaii Licenses & Permits
State laws and rules govern the operation of LLCs in Hawaii, requiring business owners to acquire certain company licenses or permits.
According to Hawaii law, all LLCs have to acquire a General Excise Tax License, which the Hawaii Department of Taxation issues.
This business license is required for all businesses operating in Hawaii and allows you to collect and pay the state's General Excise Tax (GET).
To get your GET Business License, you will need to 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 to obtain a Food Establishment license from the Hawaii Department of Health.
It is important to research and understand all state requirements governing your business before starting operations.
The best way to do this is by contacting the applicable agency directly or visiting their website.
They will also inform you about the state filing fees required for the licenses.
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.
Step 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 state, 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 either through Hawaii Business Express if you want to file online or through the Department of Commerce and Consumer Affairs 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.
Step 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 to be. 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 disputes between members or if a member leaves the business.
If you don't want to draft the Hawaii LLC operating agreement on your own, there are template forms available online for free.
However, it is always best practice to consult with an attorney if possible to ensure that you are following all legal guidelines.
Step 6: Obtain an Employer Identification Number
Federal employer identification number, federal tax identification number, or simply an EIN represents a number assigned by the Internal Revenue Service 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).
The first step in establishing an LLC in Hawaii and any other state should be obtaining a federal employer identification number.
You can do this online through the IRS website (Application for Employer Identification Number).
It is necessary 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, both single-member and multi-member LLC can choose to be taxed as corporations (S or C corporation).
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.
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%.
Lastly, if you have employees or a self-employed by your LLC, you will need to pay FICA taxes.
If you have employees, you must also register for the Unemployment Insurance Tax with the Department of Labor and Industrial Relations and enroll your employees with the Hawaii Department of Taxation regarding the Employee Withholding Tax.
How Do I File an Annual Report for an LLC in Hawaii?
To file an annual report for your LLC in Hawaii, you must complete the Annual Report for Domestic and Foreign Limited Liability Companies form.
You can find this form on the Hawaii Department of Commerce and Consumer Affairs website, which is where you file the annual report and pay a $12.50 filing fee.
Late filings are fined by an additional $10 fee.
The Department of Commerce and Consumer Affairs reviews the applications submitted to them.
If they don't find any errors, you can expect your Annual Report for Domestic and Foreign Limited Liability Companies form to be approved within one week.
How Much Does It Cost to Form a Hawaii LLC?
The cost of forming a Hawaii LLC is $50. This amount covers the Articles of Organization.
However, there might be additional costs applied, especially if you need business licenses or if it's a foreign LLC that you need to set up.
Who Can Be a Member of My Hawaii LLC?
A member of your Hawaii LLC can be anyone of legal age.
A member can be an individual or business entity, including a corporation or another LLC.
Can I Be My Own Registered Agent in Hawaii?
Yes. No matter what type of business entity you choose to form, you can be your own registered agent in Hawaii.
For example, if you are a sole proprietor or multi-member LLC, this is easy because you are not required by law to have an outside agent for either one of these types of companies.
However, you need to keep in mind that the job of a registered agent is highly responsible and can be time-consuming.
If you want to avoid the responsibility of being your own registered agent, you should hire an outside person or company.
This will give them this power and allow you more convenience because they can accept all legal documents on behalf of your business entity.
Does a Foreign LLC Have to Register in Hawaii?
Yes. A domestic LLC and a foreign LLC both have to register with the Department of Commerce and Consumer Affairs.
The filing fee for a foreign LLC in Hawaii is the same as with the domestic LLC - $50.
Keep in mind that foreign LLCs also need to obtain all the remaining permits, licenses, and other paperwork that are otherwise required for domestic 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 highly advisable not to do that.
By keeping your LLC bank account separate from your personal bank account, you will not only protect your assets in case of a lawsuit or a dispute with creditors, but you will also maintain your corporate veil.
Make sure that you clearly distinguish between business and personal transactions in your business checking account and don't commingle funds from different businesses or ventures into a single account.
Never use a business credit card to pay personal bills.
What Is an LLC Formation Service in Hawaii?
LLC formation service is a company that helps you to create a Limited Liability Company.
They will help you through the entire process, from filing the paperwork with the state to providing ongoing support and resources as your business grows.
There are many different LLC formation services in Hawaii, so it's important to do your research before choosing one.
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.
Articles of Amendment is a form that includes:
- LLC name, business address, and phone number.
- Date information was last updated in DCCA's records.
- New business name if it has changed since filing Articles of Organization
- Names of the new member or managers (if there were any changes to the initial managers or members).
How Do I Change My Registered Agent in Hawaii?
Changing your registered agent in Hawaii is a relatively simple process.
You can either do it yourself or hire a professional service to help you out.
To change your registered agent online, you will need to provide some basic information such as your name and contact information, the name of your business, and the new registered agent's name and contact information.
Lastly, you need to file a completed Statement of Change of Registered Agent by Entity to the Hawaii Department of Commerce and Consumer Affairs.
Starting an LLC in Hawaii: Conclusion
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 of action for registering your business entity, you should consult with a professional who knows how to advise and assist you through this process.