Are you looking to form a limited liability company (LLC) in the state of Hawaii, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Hawaii LLC that is compliant and able to do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a Hawaii LLC?
The Hawaii LLC is one of the most popular business structures in state. It's a more casual and flexible type of business than a corporation, but includes personal asset protection that's lacking from sole proprietorships and general partnerships.
LLCs in Hawaii have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Forming an LLC in Hawaii (in 6 Steps)
Step One) Choose an LLC Name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In the state of Hawaii, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your LLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LLC is to not get too attached to any one business name until you have either reserved the name with the state of Hawaii, or you’ve officially formed your business. Hawaii makes this process rather easy, as you can search their entire state business database at this link. If you’re not yet ready to form your LLC, you can reserve your desired name with the Hawaii Department of Commerce and Consumer Affairs. Reserving your business name gives you 120 days to get your affairs in order without running the risk of someone claiming your name in the meantime.
Step Two) Designate a Registered Agent
Every LLC in Hawaii is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Hawaii Secretary of State,
each entity must designate a registered agent and registered office in Hawaii upon whom process (such as summons and subpoenas) may be served. Service on the registered agent is deemed to be service on the entity, regardless whether the registered agent actually forwards the notice to the entity.”
Without a registered agent, you could lose your good standing with the state of Hawaii, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Step Three) File Formation Documents with State
Once you are ready to form your Hawaii limited liability company, you will fill out the articles of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
Cost to Form an LLC: The state of Hawaii charges a $50 fee to form an LLC.
Processing Time: It takes approximately 10 business days for the state to process your Hawaii LLC formation paperwork and get your finalized documents in the mail to you. You can choose to pay a $25 expediting fee; if you do, the state will return your filings within 3-5 business days. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
Step Four) Create an Operating Agreement
After you register an LLC in Hawaii, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to state-level LLC taxes, Hawaii levies these taxes based on the nature of your business. The most important of these is income taxes. If your LLC is considered a pass-through entity—usually a sole proprietorship or partnership—you’ll pay income taxes on your individual tax returns. However, LLCs which choose to be taxed as corporations will be subject to the state’s corporate income taxes. You can learn more about Hawaii’s corporate income taxes here.
Hawaii’s main business tax is the General Excise Tax (GET). Instead of levying sales taxes on consumers, Hawaii uses the excise tax on retail goods and services. The usual tax rate for most items is 4-4.5%. All businesses are required to pay the tax, but some choose to pass the excise tax onto the final price of the good or service, thereby charging the customer the GET (in a manner of speaking). Doing so is permitted by law. You can learn more about the GET here.
Unlike some states, Hawaii does not levy a franchise tax or privilege tax on businesses. However, Hawaii LLCs with employees are required to pay withholding taxes from each employee’s wages. Similarly, all businesses are required to contribute to unemployment insurance through taxes. You can learn more about Hawaii’s unemployment insurance program here.
Beyond these taxes, you may need to pay industry-specific taxes, such as transient accommodations taxes, rental vehicle taxes, and more. You can learn more about business taxes with the state’s Tax Facts guide.
While determining which taxes you need and then registering for them may sound like a headache, Hawaii makes the entire process very easy. All you need to do is fill out an online form on their “One Stop Registration” page. With this process, you’ll fill out Form BB-1 to get enrolled with the proper agencies and taxes that apply to your business. Please note that there is a one-time $20 registration fee.
Depending on where in Hawaii your business is located, you could also need to pay some local taxes. For example, counties within Hawaii are authorized to add a surcharge to the state’s GET. You can learn more about the county surcharges at the Department of Taxation. You’ll want to be sure you don’t overlook these potentially crucial taxes.
Step Six) Obtain Business Licenses and Permits
If you used the One Stop Registration mentioned in Step Five to register your business for taxes, you’ve already got at least one license covered, the General Excise Tax license. Depending on the nature of your business, however, you may need a few more licenses to operate in compliance with the state.
First, Hawaii upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
And much like the state has industry-specific tax requirements, it also has licenses and permits that are required for businesses in certain industries. Hawaii has hundreds of these licenses, so there’s a good chance at least one of them applies to your LLC.
We recommend that every LLC owner search through the state database of occupational permits and licenses, and don’t forget that your local government may require licenses or permits as well. You can get more information on county-level licenses at this link or by calling your local county government office.
Next Steps: What to do After Creating a Hawaii LLC
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance
Every Hawaii business with employees is strictly required to acquire workers’ compensation insurance as well as employee disability insurance. The difference between these two policies is subtle: both provide partial wage reimbursements for employees who are unable to work. However, workers’ compensation provides these reimbursements for work-related injuries or illnesses while employee disability insurance covers non-work-related instances. For more information on either of these policies, check out the Disability Compensation Division. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. The state of Hawaii has several forms based on how your business is set up that you can access: sole proprietors file this form while this one applies to LLCs with two or more members.
Understand annual reporting
Hawaii requires that all LLCs file an annual report. The state makes it easy to file the report online here. You can also print and file by mail, but please note that mail-in-filings take the ordinary $12.50 filing fee up to $15. The report is due within two months of the anniversary month of your LLC’s formation. If you formed your LLC in January, you must have the report filed by March.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.