Starting an LLC provides a load of benefits, like Limited Liability protection, which is why it's such a popular business type among entrepreneurs. But before you start your LLC in Hawaii, you need to learn more about time frames and the formation process, all of which we'll cover in our in-depth guide.
Discovering Hawaii
The Aloha State has a number of unique geographic details that set it apart from the other states in the nation. First, it’s made up of a chain of islands, which are volcanic. Its most active volcano, Kilauea, has been erupting for 30 years. It also has gorgeous beaches, not all of which are the typical golden brown sand of other beaches. Some of them have pink, green, red or black sand. There are dense tropical forests, waterfalls, coral reefs, and much more. Some of its natural resources include pineapples, macadamia nuts, coffee, sugarcane and various flowers. And tourism is a driving force in its economy.
Economic Overview of Hawaii
Hawaii has a Gross State Product (GSP) of $76.5 billion, and an economic growth rate of 14.9k% between 2018-2023. The industries that make the most revenue in the state are Public Schools, Hotels & Motels, Health & Medical Insurance, Gasoline & Petroleum Bulk Stations, and Hospitals. The companies that employ the most people in Hawaii are Hawaii Pacific Health, Hawaiian Electric Industries, Inc., Kamehameha Schools, Securitas, and the Kaiser Foundation Health Plan, Inc. And the sectors that contribute the most to the state’s GSP are Real Estate and Rental and Leasing, Accommodation and Food Services, Healthcare and Social Assistance, Retail Trade, and Professional, Scientific and Technical Services.
Business Environment in Hawaii
The business environment in Hawaii is grim. USnews.com ranked its business environment at #49, meaning only one other state is worse. When you look into the other numbers on its ranking, they tell you the story of why Hawaii ranks so low. The cost of living index in the state is 113.2 (national: 100), and the median household income is $84, 857 (national $69,717), affordability is ranked #49, job growth in the state is -0.8% (national: 0.2%), the venture capital per GDP is $0.507 (national: $7.65) and the net migration in the state is -0.5% (national: 0.1%).
Here’s what those numbers mean in terms of starting a business in the state.
Even though the median household income is a bit higher than the national average, the cost of living in the state is through the roof. That drives business expenses up, and it’s expensive to buy and rent property there- commercial or residential. It’s expensive to run a business in Hawaii. There isn’t much in the way of job growth, because there aren’t many businesses moving in and creating great new jobs for the working people. It’s hard to find capital in the state and there are limited financial resources such as angel investors. And the net migration means that not many people or companies are moving to the state.
To top it all off, research has found that people living in the state indicate shady practices by the state’s government.
State-Specific Regulations and Incentives for Forming an LLC in Hawaii
Hawaii offers an assortment of incentives and programs for starting a business in their state.
- Hawaii State Trade Expansion Program (HISTEP): This is a program carried out by the Department of Business, Economic Development and Tourism, with help from other agencies to help small businesses generate new export sales. It provides export assistance, counseling and training.
- Hawaii Small Business Innovation Research Program (SBIR): This is a multi-stage state program that helps small businesses win federal R&D assistance. If your business has already qualified for phase 1 of the federal SBIR program, then you can apply for Hawaii’s SBIR matching grant program. This matching program provides up to 50% of the federal phase 1 award, with the aim to beef up the phase 1 development of companies so they qualify for more during the 2nd phase and are able to develop a successful business.
- High Technology Development Corporation- Innovate Hawaii: This program is developed and administered by Hawaii’s High Technology Development Corporation and it exists to provide small and medium-sized manufacturing or pre-manufacturing businesses with innovations at an affordable price. Innovate Hawaii is a resource that helps manufacturers in everything from finding to making and saving money. They’ve worked with a number of industries, and can help with things like management consulting and SBIR/STTR grant assistance.
- Motion Picture, Digital Media & Film Production Income Tax Credit: This is a refundable tax credit for production companies that’s based on the expenditures they rack up during film production, or commercial or digital media projects. The state upped the amount of the credit, and it’s now up to 20% of the total production costs in Oahu, and 25% on Big Island, Kauai, Lanai, Maui, and Molokai.
- Royalties Tax Exemption: Royalties that come from performing arts products aren’t included in personal income and aren’t subject to income taxes from the state.
- Hawaii Enterprise Zones Partnership: This is a program that’s intended to use tax and business incentives to promote certain business activities, as well as businesses to create and preserve jobs. If a business or one of its branches is located in an Enterprise Zone, then it can lower the amount of state taxes it pays and receive a number of benefits from the county government for as long as 7 years as long as they live up to their hiring and gross receipts requirements.
- Developer & Investor Center: The Hawaii SEO (State Energy Office) has a Developer & Investor Center, which is an online resource that business owners can log onto to find out about current problems with renewable energy development in the state. It provides information on project permits, local utilities, business registration, obtaining financing and local incentives for projects, consultants to discuss local permits, and purchasing real estate in the state.
- Self-Help Energy Suite: The State Energy Office gives crucial technical assistance, permit tools and connections to expedite projects to developers and investors. All of the tools in the Self-Help Energy Suite can be utilized to advance clean energy alternatives and their impact in the state.
- Renewable Energies Map: This map provides valuable information about specific sites in Hawaii and renewable energy resources. It’s designed to help developers and landowners, as well as policy makers get a clearer understanding of the potential of sites in the state for renewable energy.
- Renewable Energy Permitting Wizard: This tool was created to help people who are developing renewable energy projects in the state learn about state and federal permits they’ll need for the project. It works for all sorts of projects- from the installation of small solar fixtures on residential sites to large scale utility facilities. They’re currently working on updates to the wizard that will not only provide information about current permit requirements, it will improve the user experience and make it an open source resource.
- Hawaii Renewable Energy Projects Directory: This is a directory that allows you to learn and find various renewable energy projects in the state. It contains all of the projects ongoing in the state, and it provides information about the diverse renewable energy resources that are being used in Hawaii.
- Greensun Hawaii: This is a credit enhancement program created by the state of Hawaii to assist property owners upgrade to energy efficient and renewable energy options. It’s overseen by the Hawaii Community Reinvestment Corporation (HCRC), and it can help with things like financing upgrades and retrofits to air conditioning systems and lighting, solar thermal or solar electric systems, energy efficient windows, cool roofs, and more.
Pros and Cons of Establishing an LLC in Hawaii
If you’re interested in expanding your business to certain parts of the Pacific or to Asia, then Hawaii is a great place to set up shop thanks to its strategic location. Because of its unique location, its time zone makes it easy to do business with companies in both the United States and Asia.
There’s a unique business environment in Hawaii because of the diverse culture in the state. There are a diverse range of cultures and ethnicities in the state which exposes business owners to lots of different ideas and traditions, but also provides them with a uniquely diverse workforce.
The government provides several resources for small businesses, like training programs, grants, incentives and mentorship opportunities. Plus, the other businesses in the state are supportive of new businesses.
The tourism industry not only drives the economy but is a boon to the businesses in the state. This allows business owners to market their products and services for visitors to Hawaii. If done properly, this marketing can gain businesses awareness around the world because tourists may become repeat customers when they arrive in their home countries, or they’ll spread awareness through word of mouth when they get home.
There are some major considerations in the “cons” column, too.
Hawaii has one of the highest costs of living in the country. Much of the goods in Hawaii are delivered from other states or countries, and the transportation of these goods is figured into their prices, making them more expensive. Because of that, building supplies are expensive, which drives the costs of homes and buildings sky high. This means that it’s expensive to run a business in the state.
It’s hard to find good employees, too. This is because not many people are moving to the state, so there’s a limited workforce pool to draw from. And if you have a specialized industry, it can be especially hard to find the right employees because there’s no guarantee that people in the limited workforce are qualified and educated to work in your industry.
Environmental regulations in the state can hamper business operations, too. Hawaii has some really strict environmental regulations to preserve the state’s gorgeous natural habitat. And while that’s great, it can cause problems for businesses.
Procedure of Establishing an LLC in Hawaii
You have to learn to walk before you can run, as the saying goes, so you need to learn how to form a Limited Liability Company before you can fully understand information about formation time frames. In this section of our guide, we’ll give you the steps to form an LLC in Hawaii.
- Obtain an Articles of Organization Form: The first step in LLC formation in Hawaii is to pick up a copy of the Articles of Organization form for your business. Why? It’s essentially an application to form your LLC. It provides the state government with all of the information it needs about your company. You can get Form LLC 1 (which is the state’s technical name for the Articles of Organization form) from the Department of Commerce and Consumer Affairs Business Registration Division.
- Decide on a Business Name: This can be a tricky step. You aren’t allowed to call your business by a name that another business has already reserved, and it’s also not legal for your business name to be too similar to another business’s name. To find out if you can legally use the business name you’ve chosen, perform a business name search on the Department of Commerce & Consumer Affairs Business Registration Division website.
- Name a Registered Agent: One important bit of information that’s required on your Articles of Organization form is your registered agent’s information. You can’t get through the formation process without a registered agent! A registered agent is a person or business who will accept legal mail, like service of process, and official correspondence from government agencies (like the Department of Commerce and Consumer Affairs Business Registration Division) during regular business hours.
- Decide on an LLC Address: Your LLC address is important because it’s listed on public record so that government agencies and consumers can track your business down when they need to contact you. That means it’s not the best idea to list your home address on your Articles of Organization form. Some registered agent services will allow you to use their address as your business address, but because you don’t own that address, it could invalidate your Limited Liability protection and it could be considered a fraudulent filing because a registered agent isn’t legally allowed to process mail unless you fill out special forms with the US Postal Service. It may be prudent to research virtual addresses or virtual offices in the state.
- Sign and Submit Documents: Once you’re certain the information on your company’s Articles of Organization is correct, the next step is to submit them to the Department of Commerce and Consumer Affairs Business Registration Division. But before signing them yourself, you should consider that your name and information will be listed on the public record as the LLC’s organizer if you do. To protect your information, you can hire an LLC formation service. Once your form is submitted along with all of the other required documents and licenses, that’s when the processing times of the state come into play.
Once you’ve submitted everything and squared that all away, there are still items on your to-do list to cross off. For in-depth information about other LLC activities, read How to Start an LLC in Hawaii.
Necessary Documentation for Filing an LLC in Hawaii
Along with your Articles of Organization, you’ll need what’s known as an initial report. Every year, LLCs in the state are required to file an Annual Report, which has a filing fee of $15. Typically you don’t have to pay a fee for your initial report, but it still requires all of the same information. (Address, name, registered agent, etc.)
You’ll also need an EIN. An Employer Identification Number is a sort of tax identification number for businesses, and it’s handy for more instances than simply hiring employees. You need one if you plan to open a business bank account, and it can qualify your business for more grants and loans.
You need to have business licenses from the state, and local governments. You can check in with the Hawaii Small Business Development Center to make sure you have everything in place.
You have to register your business with the Hawaii Department of Taxation to collect sales tax, as well.
Legal Requirements for Starting an LLC in Hawaii
Hawaii has requirements for your business name. LLCs in the state must have the phrase “Limited Liability Company” in their name. This can be accomplished by using “L.L.C.”, “LLC”, “Ltd.” or “Co.” in the name.
Your company is required to maintain a registered agent. This person is responsible for accepting important mail from the Department of Commerce and Consumer Affairs Business Registration Division and other government agencies, as well as service of process and other legal mail for your business and making sure it finds its way to you in a timely manner. You’re allowed to choose someone you know to fill this role, but it’s important that it’s someone you trust because if your registered agent messes up then it can cause your company to fall out of good standing with the state government.
LLCs in Hawaii are required to file an annual report each year, with a filing fee of $15, as well.
Time Frame for Establishing an LLC in Hawaii
In this section, we’ll go over everything you need to know about the time frames for LLC formation in Hawaii.
How Long Does the Initial Paperwork Take in the State of Hawaii?
If you file by mail, then it can take 3-4 weeks to get an LLC in Hawaii, while online filing can take 7-10 business days.
Processing Times in the State of Hawaii
Processing time for both online and mail filing takes 7-10 days. Processing time is how long it takes for clerks in the office to go through all of your paperwork and properly enter it into the state’s database.
Common Delays in the LLC Formation Process in Hawaii
Some common delays in the formation process include:
- Filing Method: How you choose to file makes a difference. If you file by mail, then you have to wait for the mail to deliver your filings, making it a considerably slower option compared to online filing.
- Backlog: Certain times of the year the government gets hit with more filings than other times. That can significantly slow down processing times because it takes clerks longer to work through all of the documents and forms.
- Human Error: If you miss information or enter something incorrectly on your forms, then the Department of Commerce and Consumer Affairs Business Registration Division could reject your filing. Then you’ll have to start the process all over again, which is not only a pain, but takes more time.
Expedited Processing for LLC Formation in Hawaii
If you’re interested in forming an LLC in a jiffy, then expedited processing is your best bet!
What Are the Expedited Options Available?
Hawaii has an expedited processing option that speeds the formation process to 1-3 days.
Additional Costs for Expedited Services in Hawaii
The 1-3 day expedited processing costs an additional $25.
Comparing LLC formation Time Frame in Hawaii with Other States
Here’s Hawaii’s formation time frame in comparison to other states.
Brief Comparison with Key States
Hawaii has processing times of 7-10 days for both online and mail filing, and 1-3 day expedited processing for LLCs.
Nevada, Delaware, Montana, Michigan and West Virginia all have 1 hour expedited processing. Several states have immediate processing for online filing. And Kentucky and Ohio have 1 day mail processing times.
There are several states with no expedited processing, and Maryland has a snail-slow expedited processing option that takes 7 days. Arizona has online processing in 14-16 days, and New York has mail filings that take 8 months.
So while 7-10 days seems like a long time to wait for online filings, it’s not the longest.
Why is Hawaii a Favorable Place for Forming an LLC?
Hawaii is in a unique location that makes it an excellent jumping off point for business owners who are interested in expanding their businesses to parts of Asia or the Pacific. It also has a diverse business environment and workforce due to the many cultural differences in the state. The government has provided several different programs and incentives to assist small businesses starting out. And the tourism industry gives you the opportunity to have awareness of your business spread across various parts of the globe.
But by far the biggest advantage of forming an LLC in Hawaii is the natural beauty in the state and the uniquely diverse culture which make spending time there a delight.
