If you’ve ever been to Hawaii once, you know it’s a place like no other on Earth thanks to its unique tropical nature and mythical culture. Many visitors wish they could stay in this paradise forever, but is it really worth it? Is Hawaii a good spot to actually live and do business in?
In 2018, the Aloha State was reported to be the least business-friendly territory in the USA. Hawaii came last out of all 50 states in such categories as human capital, resource availability, and cost of living. It also has the second-highest tax burden in the country with almost 13%.
However, despite all these disadvantages, Hawaii remains one of the wealthiest states in the USA carried by its highly developed tourism and agriculture industries. Business opportunities may differ from island to island, but there are a few common spheres that you’re likely to cash in on:
So, if you’d like to join the party and start an LLC in HI, the best way to do it is to form a limited liability company. In this article, we’ll discuss all the pros and cons of this business structure and give you a complete guide on creating an LLC in Hawaii.
Table of Content
Over the last two decades, no other business entity has had a bigger increase in popularity than limited liability companies. LLCs offer great versatility for business owners, making them the perfect choice for multiple situations.
First, let's get the negative factors out of the way and check out 3 things about limited liability companies that we wish did not exist:
In our opinion, the items in the previous section are minor inconveniences compared to all the great things that limited liability companies bring to the table. Here are some of the main selling points for the LLC structure:
Speaking of registration, in the next segment, we’ll go over all the stages of the LLC formation and tackle every tricky question regarding this procedure. Want to know how to start an LLC in Hawaii? Let’s go!
While starting an LLC in Hawaii, you need to designate an LLC organizer. The main responsibility of the organizer is to prepare the registration documents and file them with the Hawaii Secretary of State. It can be you, your friend, a member of your family, a member of the company, an attorney, a registered agent, an accountant, or a specialized LLC formation service.
Once you’ve chosen the organizer, it’s time to initiate the process of your LLC formation HawaII. Usually, it includes 6 steps:
First things first, your company needs a name. However, you can’t just call it what you want and be done with it. Like all states, Hawaii has a unique set of regulations and restrictions regarding LLC names, corporation names, trademarks, and other marks. As seen in Title 16, Chapter 36 of the Hawaii Administrative Rules, a business name will not be registered if:
The full list of corporate name requirements in Hawaii can be found here.
The name of your limited liability company must include an entity modifier, such as:
If you fail to apply any of these tags to your corporate name, the company will be registered as “LLC” by default.
So, you’ve got a cool-sounding name that checks all the regulation boxes, but there may still be a problem. What if there is another company with the same name somewhere in Hawaii?
Don’t worry, the Secretary of State can help you handle this. Here is a useful search tool that allows you to find every LLC, corporation, or partnership registered in the Aloha State and see if your desired name is up for grabs. You can even reserve it for 120 days to prevent the opponents from taking it by paying a $10 fee.
By Hawaiian laws, your LLC cannot use any other name for promotion except the one it’s registered under. In other words, the sign on your office will look something like “Jonh Doe’s Bicycle Rental Service LLC.” To solve this problem, your company can register a fictitious name, also known as DBA (doing business as).
A DBA gives you an opportunity to establish a unique and recognized brand and attract more customers. The trade name application can be submitted online or by sending this form by mail. The DBA registration fee is $50.
What is the next step in our “How to get an LLC in Hawaii” guide is a registered agent. To legally do business in Hawaii, it’s mandatory to appoint a statutory agent, also known as a resident agent or agent for service of process. It’s a person or another legal entity that accepts mail and correspondence from federal and state agencies on behalf of your company.
You may ask, “But why can’t I receive my mail myself?” It’s a good question, and the short answer is yes, you absolutely can be your own registered agent. However, it’s not as simple as it looks. If you choose to represent your company as its agent for service of process, you will have to follow these rules:
The good news is there are plenty of local and national registered agent companies that can make your life much easier. The fees range from $50 to $250 per year for a standalone service, and in our experience, it’s totally worth it as you’ll kill two birds with one stone. Not only do you get an experienced and reliable assistant who will never miss a single document, but it also gives you time and freedom for more important parts of your business life.
Pro tip: most LLC providers offer free resident agent service for 6 or 12 months when you buy one of their formation plans, allowing you to get more products for the price of the standard service of process.
Preparing the Articles of Organization is probably the most vital stage of business formation. This document provides the state of Hawaii with basic details about your LLC, which will be used in the official business registry.
Note: in other states, the LLC registration form may be also called the Certificate of Organization or the Articles of Formation. These should not be confused with the Articles of Incorporation, which is a similar form used for creating S-corps and C-corps.
The Hawaiian version of the Articles (form LLC-1) consists of 7 sections:
We’ve already discussed Sections 1 and 3, so let’s take a closer look at the other points, starting with #2.
Here you need to specify the address of the initial principal office for mailing purposes. Unlike registered agents, you can enter any street on any Hawaiian island or even outside of the state completely. The only limitation is that you cannot use a post office box.
In this section, the organizer of your LLC must enter their full name and address. The state needs this information to provide feedback about the formation process and send approved or rejected documents back to your company.
Note: LLCs are not required to have more than one Organizer, but there’s an option to add multiple names if needed.
Section 5 clarifies how long your company is planning to be active. You can select one of two options:
Note: if you're unsure what to choose, go with the "At-will" option. You will be able to discontinue the LLC at any time in the future.
There are two ways you can manage a limited liability company: by members or by managers.
In member-managed LLCs, all business decisions are made by the owners. The amount of leverage for each member is specified in the operating agreement (see Step 4) and cannot be regulated from the outside. Member management is a great choice for businesses with fewer than 10 people where every owner is engaged in the company's activities.
Large companies with multiple owners prefer to appoint one or several managers that will be responsible for running the business. Usually, this role is given to the most experienced members or professional third-party executives. The manager-managed model is especially suitable for LLCs with several investment sources or corporate ambitions.
Pro tip: since most LLCs are relatively small domestic businesses, member management is by far the most common choice here.
After you decide on the management structure, all you have to do is to enter the names and addresses of either initial members or managers in the corresponding fields of Section 6.
Section 7 allows you to choose among three liability models for LLC owners:
By default, your company should select the first option (not liable) unless agreed otherwise.
The Articles of Organization must be signed and certified by at least one of the Organizers.
Note: the Secretary of State accepts all LLC-1 forms, including scanned, photocopied, or faxed templates, on the condition that writing or typing is clear and done in black ink only.
The Articles of Organization for Hawaiian LLCs can be submitted in 5 different ways:
Pro tip: online and in-person applications generally have faster processing times.
If you have any questions about business registration in Hawaii, you can call (808) 586-2727 or send an email to [email protected]
What is an operating agreement? It's an unofficial deal between all members of the company that lists some regulations and conditions about LLC management and business operations.
Operating agreements are not mandatory in most states, but every LLC that's taking itself at least half seriously should have one. Get together with the other members and create detailed action plans for as many scenarios as possible so in the future, you could quickly and efficiently deal with every LLC-related issue.
Here is a potential layout of an operating agreement for a multi-member LLC:
An operating agreement usually starts by basically copying the Articles of Organization. Here you provide some essential information about your LLC:
Overall, this section acts as an introduction and does not go into much detail yet.
Here is where things start getting interesting. In this section, you assign roles and responsibilities for each member of the company and also describe the management model. We recommend including the following items:
Next, the members of the LLC should agree on the ways the company pays taxes and stores money. It’s important to pay attention to such details as:
This section regulates the financial side of the business, mainly investments, profits, debts, and general money distribution. Some of the items that you can add here are as follows:
This part focuses on the procedure of removing members from the company, adding new ones, or transferring the rights to another person. Make sure you include all possible moves to avoid confusion.
Every LLC must have a list of conditions that can initiate its dissolution. The possible options may include:
Finally, the company should handle some organizational aspects of the business. This includes:
Once the agreement is signed by all the members, it becomes effective from the date specified in the documents.
Note: an operating agreement does not have to exist in written form. Some companies operate on mutual trust and prefer so-called verbal contracts.
Even if your company includes no one but you, it’s still a smart idea to create an operating agreement that covers all the bases of your business structure. This will help you:
To sum it up, the more detailed and thought-out an operating agreement is, the more time and resources you will save as a business owner.
To receive taxes and track income, the Internal Revenue Service assigns each company a unique Tax Identification Number, also known as Employer Identification Number (EIN). To find out if your LLC is required to get an EIN, you need to ask yourself 2 questions:
If you got at least one Yes, it means you should apply for an EIN immediately. Luckily, this is a very easy procedure that takes about 15 minutes.
All you need is to go to the IRS website, submit an online application and receive your tax ID immediately. You can also download and fill out Form SS-4 and send it by fax (processing time – 1 week) or by mail (processing time – up to 5 weeks).
All three application methods are free of charge.
Note: single-member LLCs that are taxed as sole proprietorships and don't have employees are not required to obtain an EIN, and they can use their social security number instead.
The next step in our “How to create an LLC in Hawaii” guide is opening a bank account. As you already know, one of the biggest advantages of an LLC is the ability to protect the owner's assets by separating them from the company entirely. For this purpose, it is crucial for each owner to create their personal bank accounts along with a dedicated corporate account.
A business account serves as the storage for incoming payments, and it's also used as a salary deposit for all employees. On the other hand, owners' accounts are used for personal savings and individual tax payments due to the pass-through nature of the LLC taxation.
Opening a business bank account in Hawaii is fairly simple and typically requires a banking resolution and a small starting deposit of $100. Additionally, you may need a copy of the operating agreement and a Certificate of Good Standing.
Congratulations, your Hawaii LLC is officially registered! But before you start business activities, there are still a few matters that need to be addressed:
Back in the day, all LLCs had to announce their creation by publishing a notice in two local newspapers. However, in 2022, only three states keep this practice alive: Arizona, New York, and Nebraska. So, you can ignore this step and proceed to the next one.
Depending on the nature of their business and its location, most companies in Hawaii need to obtain some kind of license or permit for legal operation.
For example, in Hawaii county, it's necessary to get a business license if you sell firearms, scrap, or second-hand products.
The county of Maui requires a liquor-selling license as well as permission for land zoning and estate building.
All companies in Hawaii that sell any type of products or provide any services must file for a General Excise Tax License with the Department of Taxation (filing fee – $20).
The list of requirements is unique for every city and type of business, so it's recommended to do careful research to find out what exactly your LLC should apply for.
No one wants to lose money due to unexpected circumstances, so insurance is a logical choice for any business that seeks extra protection. The most popular types of insurance for limited liability companies are:
To maintain good standing with the state of Hawaii, an LLC must file regular reports within specified periods. This includes annual tax filings and corporate statements.
For more information on Hawaii taxation and licensing, check this guide.
As for the annual corporate reports, they provide the state with updates on your LLC's structure excluding the financial details. The due date of the statement is based on the date your LLC was registered:
The filing fee for annual reports is $15 for standard review and $40 for expedited processing. If you have any questions regarding corporate statements, check the FAQ page here.
Forming an LLC in Hawaii costs $51. This price consists of the filing fee for the Articles of Organization with the Secretary of State ($50) and a State Archive fee ($1).
Additional expenses may include:
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.