How to Start an LLC in Hawaii? (Formation in 10 Easy Steps)

Jon Morgan
Published by Jon Morgan | Co-Founder & Chief Editor
Last updated: March 6, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
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Before you can start forming a limited liability company, 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.

You may also use one of these Hawaii professional LLC services to assist in setting up an LLC for you.

Quick Summary

  • To form a Hawaii LLC choose a unique name, appoint a registered agent, file Articles of Organization, draft an operating agreement, and obtain an Employer Identification Number (EIN).
  • An LLC business structure provides liability protection to its members while offering flexibility in management and taxation.
  • In 2023, Hawaii was home to 133,993 small businesses, which represented 99.2% of all state businesses, highlighting a thriving environment for entrepreneurial ventures.
  • From personal experience, the process of establishing an LLC in Hawaii is a worthwhile investment for securing your business's future in a competitive market


How to Form an LLC in Hawaii

Pointing where to write signature

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. Choose The Type of Your LLC (Mandatory)

When choosing the type of LLC for your business in Hawaii, you typically have the following options:

  1. Single-Member LLC: This structure is for businesses with only one owner.
    • Advantages: It offers simplicity in management and tax filing, as profits and losses can be reported on the owner's personal tax returns. It also provides liability protection for the owner's personal assets.
    • Disadvantages: Limited growth potential as there's only one member, and some investors may perceive it as less credible than a multi-member LLC.
  2. Multi-Member LLC: Ideal for businesses with more than one owner.
    • Advantages: Allows for shared management responsibilities and potentially more investment opportunities. Profits and losses are passed through to members' personal tax returns.
    • Disadvantages: More complex operating agreements are required, and there can be potential for conflicts among members.
  3. Professional LLC: Specifically for licensed professionals (e.g., lawyers, doctors).
    • Advantages: Offers liability protection while allowing professionals to pool their resources and expertise.
    • Disadvantages: Typically, all members must belong to the same profession, limiting diversity in business expertise.
  4. Series LLC: A unique structure where each series within the LLC can have separate members, assets, and operations.
    • Advantages: Provides flexibility and isolation of liabilities among different series.
    • Disadvantages: It's a complex structure that may require more administrative work and is not recognized in all states.

Each type of LLC has specific benefits and drawbacks, and the choice depends on your business needs, the number of owners, and future growth plans.

I've witnessed how crucial it is for entrepreneurs to carefully consider these factors. It's advisable to consult with a legal or financial advisor, as I've often recommended to my clients, to determine the best structure for your situation.

"Professional help and guidance can help you make an informed decision that aligns with your business goals and minimizes potential complications down the road."

- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions

2. Choose a Name for Your Hawaii LLC (Mandatory)

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 an 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 LLC name availability in Hawaii 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.

3. Select a Registered Agent (Mandatory)

Handing someone a document while still in a phone call

A registered agent in Hawaii is a person or business entity that agrees to receive legal notices and service of process on behalf of your LLC.

The agent must have a physical address in Hawaii to accept mail and be available during normal business hours, a requirement that I've emphasized to my clients.

Appointing a registered agent is crucial because the state will not accept your LLC formation documents if your LLC does not have an appointed registered agent.

Registered agents have several duties, and these duties begin once you complete and submit LLC formation documents, including filing organization articles. Having a reliable registered agent ensures that your business remains compliant with state regulations and can receive important legal documents promptly.

Before that, your Hawaii's registered agent must sign a contentment statement that they will be your 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.

4. File Your Articles of Organization

Filing documents and using a calculator

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 by the Department of Commerce and Consumer Affairs, 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.

Steps to Take After Forming an LLC in Hawaii

After successfully forming your LLC in Hawaii, there are several key steps you need to take to ensure your business operates smoothly and remains compliant with state laws.

These steps involve finalizing your business's internal structure, ensuring tax compliance, and setting up for operational success.

LLC operating agreements are documents that state the rights and responsibilities of LLC members.

Based on my research, 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 LLC operating agreement independently, I advise clients to use template forms that 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.

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.

Opening a separate bank account for your LLC in Hawaii is essential for protecting personal assets by clearly separating them from business finances.

It simplifies accounting, enhances professionalism in transactions, and streamlines financial management and tax preparations.

Steps to Open an LLC Bank Account in Hawaii:

  • Choose the Right Bank: Research various banks to find one that offers favorable terms for small businesses, like low fees, easy online access, and additional business services.
  • Gather Required Documents: Typically, you'll need your LLC’s Articles of Organization, Hawaii registration certificate, EIN (Employer Identification Number), and operating agreement.
  • Visit the Bank: While some banks allow online account opening, it’s often recommended to visit a branch in person, especially if you have specific questions about your business needs.
  • Deposit Funds: Open your account with an initial deposit if required. The amount can vary depending on the bank’s policy.
  • Set Up Online Banking: For ease of management, set up online banking and familiarize yourself with the bank's digital tools for business.

Remember, regularly using and monitoring your LLC bank account not only aids in financial organization but also reinforces the legitimacy and independence of your business entity.

8. File Your Hawaii LLC Annual Report (Mandatory)

A man studying to setup a Hawaii LLC and how it works

In Hawaii, all LLCs are required to file an Annual Report to maintain good standing with the state. This report is crucial as it keeps the state updated on your LLC's vital information, ensuring that public records are current.

Key Points:

  • Filing Deadline: The report is due in the quarter of the anniversary month of your LLC’s formation. For example, if your LLC was formed in May, the report is due by the end of August.
  • Filing Process: You can file the report online through the Hawaii Business Express website, which is a more efficient and faster method, or mail a paper form.
  • Information Required: The report typically requires basic information about your LLC, such as the names and addresses of the members/managers, principal office address, and a confirmation of your registered agent and their address.
  • Filing Fee: In Hawaii, the filing fee for an LLC Annual Report is $12.50 if filed online and $15 if filed by mail. The fee amount can be confirmed on the Hawaii Business Express website or the state’s Department of Commerce and Consumer Affairs.

Failure to file the Annual Report can result in penalties and could potentially lead to the administrative dissolution of your LLC. Therefore, it’s important to mark this deadline in your calendar and ensure compliance to keep your LLC in good standing.

9. Obtain Business Licenses and Permits

State laws and rules govern LLC operations in Hawaii, requiring business owners to acquire certain LLC 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 business 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.

10. Choosing Your Tax Structure

Close up image using a calculator

When choosing a tax structure for your LLC in Hawaii, you can opt for the default pass-through taxation or elect to be taxed as a corporation.

Pass-through taxation avoids double taxation, as profits and losses are reported on the owners' personal tax returns, making it simpler for small businesses.

Corporate taxation, while subjecting profits to double taxation, can be beneficial for larger LLCs due to potential tax advantages and reinvestment opportunities.

Changing your tax structure involves filing specific forms with the IRS, typically by March 15th, to be effective for the current tax year [4].

The choice depends on your business size, revenue, and long-term goals. Smaller LLCs often benefit from pass-through taxation for its simplicity and tax savings, while larger LLCs might find the corporate structure more advantageous for its reinvestment and tax planning options.

Related Articles:

Benefits and Drawbacks of an LLC in Hawaii

Benefits:

  • Pass-Through Taxation: LLCs in Hawaii benefit from pass-through taxation, meaning the income of the business is only taxed at the individual level, avoiding the double taxation that corporations face.
  • Limited Liability Protection: Members of an LLC in Hawaii enjoy limited liability protection, which means their personal assets are protected from business debts and lawsuits against the business.
  • Flexibility in Management: Hawaii LLCs are not required to adhere to the rigid management structure of corporations, offering flexibility in how the business is run and managed.
  • Ease of Formation and Maintenance: With 133,993 small businesses representing a whopping 99.2% of all businesses in Hawaii in 2023, as per the US Small Business Administration statistics, Hawaii is a hotbed for small business ventures and entrepreneurial spirit [5]. This makes it an attractive place to form an LLC. Setting up an LLC in Hawaii is relatively simple, with fewer formalities and requirements compared to corporations.
  • State-Specific Incentives: Hawaii may offer specific incentives for LLCs, particularly those engaged in certain types of business or located in specific areas, such as enterprise zones.

Drawbacks:

  • General Excise Tax (GET): Hawaii imposes a General Exercise Tax on all business activities. According to Boostsuite, corporations in Hawaii pay a corporate income tax ranging from 4.4% to 6.4% [6]. Unlike a sales tax, GET is levied on the business rather than the consumer, which can be a significant burden for small businesses.
  • High Cost of Living and Doing Business: Hawaii is known for its high cost of living, which translates into higher operational costs for businesses, such as rent, utilities, and wages.
  • Geographical Limitations: Being an island state, Hawaii faces logistical challenges, such as higher shipping costs and limited access to some resources, which can impact LLCs depending on their business model.
  • Limited Market Size: The market size in Hawaii is relatively small due to its population, which could limit growth potential for certain types of businesses.
  • Regulatory Challenges: Depending on the nature of the business, there may be state-specific regulations that could pose challenges, particularly in industries like tourism and agriculture, which are heavily regulated in Hawaii.

DIY vs. Professional LLC Formation

DIY LLC Formation

Pros:

  • Cost-Effective: DIY is generally less expensive since you're not paying for professional services.
  • Personal Control: You have complete control over the formation process and can tailor it to your specific needs.
  • Learning Experience: Doing it yourself can provide valuable insights into the legal and administrative aspects of running a business.

Cons:

  • Time-Consuming: It requires time to research and understand state-specific regulations and paperwork.
  • Risk of Errors: Without expert knowledge, there's a higher risk of making mistakes in the filing process, which can lead to delays or legal issues.
  • Limited Legal and Compliance Knowledge: You might not be aware of all the legal requirements and compliance necessary for an LLC, leading to potential legal vulnerabilities.

Professional LLC Formation Services

Pros:

  • Expertise and Experience: Professionals are knowledgeable about state-specific regulations and can navigate complex legal requirements.
  • Time-Saving: A service can handle most of the work, freeing you up to focus on other aspects of your business.
  • Compliance Assistance: Many services offer ongoing compliance support, helping you stay up-to-date with filing deadlines and legal requirements.
  • Peace of Mind: Professional assistance reduces the risk of errors and provides confidence that your LLC is set up correctly.

Cons:

  • Cost: Professional services are more expensive than DIY, which might be a significant factor for startups with limited budgets.
  • Less Personal Involvement: You may feel less involved in the formation process, with less understanding of the intricacies of your LLC's legal structure.
  • Dependence on Service Quality: The quality and reliability of service can vary, and you're reliant on another party for a crucial part of your business setup.

The choice between DIY and professional LLC formation depends on your individual needs, skills, and the complexity of your business structure. Both options have their merits, and the right choice varies based on personal circumstances and business goals.

Always consider consulting with legal and financial professionals to guide your decision.

FAQs

Who Can Be a Member of My LLC in Hawaii?

In Hawaii, a member of your LLC 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.

How Do I Change Ownership of an LLC in Hawaii?

You can change the ownership or the initial members of an LLC by filing Articles of Amendment with the Hawaii Department of Commerce and Consumer Affairs.


Reference 

  1. https://cca.hawaii.gov/breg/registration/dllc/
  2. https://tax.hawaii.gov/geninfo/get/
  3. https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
  4. https://manoa.hawaii.edu/fsis/taxes/state/
  5. https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-HI.pdf
  6. https://boostsuite.com/small-business-statistics/hawaii/

About The Author

Co-Founder & Chief Editor
Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
Learn more about our editorial policy
Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
Learn more about our editorial policy

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