If you’ve made it to this page then you’re either considering forming an LLC, or you’ve already made the decision to form an LLC and need more information. Congratulations! Starting an LLC is an exciting business milestone.
I’ll walk you through the steps to start an LLC in Hawaii, but first I’m going to explain what a Limited Liability Company (LLC) is and why a business owner may choose to form an LLC rather than choosing another business structure (such as a sole proprietorship).
(If you want to skip to the ‘how to form an LLC’ section, click here)
Table of Contents
What Is A Hawaii LLC?
A Hawaii LLC is a Limited Liability Company formed in the state of Hawaii that is governed by the laws, regulations, and statutes of the state of Hawaii.
Why choose An LLC?
You’ll likely find many advantages to owning a Hawaii LLC over the years, but these are what many small business owners cite as the reasons they chose to form an LLC in Hawaii.
1. Limited Liability And Asset Protection
The first reason that small business owners choose to form an LLC in Hawaii rather than choosing another business structure is Limited Liability and asset protection. Simply stated, the owner of a Hawaii LLC cannot be held personally responsible for the debts and liabilities of the Limited Liability Company.
If your Limited Liability Company faces legal trouble, is sued, or goes bankrupt, the creditors of your Hawaii LLC aren’t legally allowed to list things like your house, car, funds in your personal bank account or any other personal assets you’ve acquired as a means to fulfill your LLC’s financial obligations to them.
During the past two years, Americans have endured their share of unexpected events and natural disasters. We’ve seen large-scale flooding, wildfires, hurricanes, tornadoes, and a worldwide, viral pandemic, just to name a few. This has illustrated to all of us (even those who aren’t business owners) that even the most successful business can be toppled overnight by one unexpected event.
Furthermore, the business market has always been very volatile, and businesses come and go. So, knowing that if your LLC in Hawaii goes out of business you won’t become homeless and destitute because of Limited Liability and asset protection is a priceless piece of reassurance.
The next reason that a business owner may choose to convert their business entity to an LLC in Hawaii is when you form an LLC you have the option to keep your personal information safe.
When you start a business in Hawaii, you’re required to register a name and address to be listed on the public record with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division. If your business entity is structured as a sole trader or sole proprietorship, you’ll be forced to list your name and address here, which means anyone who searches your business name will have access to this information.
Cybercrime has become increasingly popular during the past decade, and hackers and cybercriminals are now proficient in all areas of their craft. They can now steal your identity and rack up thousands of dollars in debt using small bits of information (like your name and address) before you’re even aware it happened.
When you start an LLC in Hawaii, you can choose to utilize an LLC formation service. They will register their information with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division on behalf of your business. You’ll maintain ownership of your Hawaii business and keep your information off the public record and away from people who would use it in their miscreant activities.
Because the business world is so heavily reliant on technology these days, it’s advisable to take advantage of any cyber-protection you can get. This protection can keep both you and your Hawaii LLC safe, and provide you with a lot of peace of mind. The two LLC formation services that I recommend most highly are Northwest Registered Agent and ZenBusiness.
The third most common reason cited as the reason many business owners chose to form a Hawaii LLC is the taxation benefits that Hawaii LLCs enjoy.
The benefits of forming an LLC are most apparent when you compare a Hawaii LLC to a business entity that chose the corporation structure rather than the LLC structure. Corporations experience “double taxation”.
A corporation’s profits are taxed at corporate rates. Then the profits, which have already been taxed, are disbursed to corporate shareholders in the form of dividends. This means that the profits are taxed twice before shareholders have access to them, thus the term “double taxation”.
Profits of a Hawaii LLC are taxed quite differently, however. The profits of Hawaii LLCs are taxed at company rates (not corporate rates). They’re then paid out to LLC members in the form of personal income, which is taxed differently from dividends. Personal income is taxed, but not immediately, upon receiving it. So a Hawaii LLC avoids “double taxation” entirely.
But wait, there are even more tax benefits that make starting an LLC a good idea!
In 2017 the Tax Cuts and Jobs Act was passed, which introduced the Qualified Business Income Deduction (QBID). QBID is a 20% tax benefit specifically for LLCs, so no other business type enjoys this tax discount. This is a great reason to consider forming an LLC in Hawaii.
How To Start An LLC In Hawaii
Now that you know what a Limited Liability Company (LLC) is, as well as some of the reasons that business owners choose to form a Hawaii LLC, you’re better equipped to decide whether forming an LLC is the right move for your business in Hawaii. Here are the steps you’ll need to take when starting an LLC in Hawaii.
*IMPORTANT* If you’ve never formed an LLC before and are nervous about starting a business, or you want someone to guide you through all of the red tape and form filing, then there’s good news. There are professional business services designed to help form and legally establish your Hawaii LLC with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division.
They’re called LLC formation services. They can cost as little as $0 plus state filing fees. (Although my personal favorite formation service is ZenBusiness, which charges $49 plus state filing fees.)
If you’d like to know more about LLC formation services, click here to check out my guide on the best LLC service.
1. Obtain Articles Of Organization Form
The first step you’ll need to complete in the process of forming an LLC in Hawaii is to get a copy of the Hawaii Articles of Organization (Form LLC 1) from the Hawaii Department of Commerce and Consumer Affairs Business Registration Division.
You can get a PDF form of the Articles of Organization (Form LLC 1) here.
This is the primary formation document you’ll need to form your LLC in Hawaii, so all of the other steps will refer to this one.
2. Choose Your Business Name
The first thing you’ll need to fill out on your Articles of Organization form is your business name. However, this is more complicated than it sounds because you can’t just enter the first name for your LLC that you think of.
Under Hawaii state law, each business and LLC in the state of Hawaii must have a name that is unique to the business entity. This means that if another company is using the name you want to use for your LLC, you can’t use it. It’s simple to find out if the name you want is available, however. Simply perform a search for the name using the Business Name Database on the Business Registration Division’s website.
One thing to keep in mind is that Hawaii state law requires you to list the words “Limited Liability Company” in the name of your Hawaii LLC. They can be abbreviated to “LLC”, “L.L.C.”, “Ltd.”, “Company” or “Co.”. These can be used as suffixes at the end of your LLC name, as well. Using the abbreviations as suffixes so that you can still use the business name you initially chose is a bit like adding numbers to the end of an online screen name after you find out that the one you want is unavailable. Once you’ve found a name for your LLC, you will need to file an Application of Reservation of Name (which you can get in PDF form here). Once you’ve filled the form out you can file online or by mail (online form here) along with a payment for the state filing fee of $10. This can be paid with a credit card online, or with a check or money order by mail.
If the LLC name you’ve registered isn’t something you love, you can use what is known as a trade name, fictitious name, or DBA (“Doing Business As”) name. This is the name you’ll use on signs, advertisements, online and is generally the LLC name you’ll present to the world. To use a trade name in Hawaii, you’ll first have to start using the name. You’ll also need to file an Application for Registration of Trade Name form. You can find the PDF here. You can file online or by mail, along with a payment for the state filing fee of $50. If you file online (which you can do here), you can pay with a credit card.
3. Choose A Hawaii Registered Agent
Another thing you’ll need to do when starting a business in Hawaii is to appoint a registered agent for your Limited Liability Company (LLC) in Hawaii. Every LLC in the state of Hawaii is required to have a registered agent.
A registered agent is a person or registered agent service that is available during business hours to accept mail, legal documents, and service of process on behalf of your Hawaii LLC. The choice you make when you appoint a registered agent for your LLC in Hawaii is an important one, so I’ll give you the pros and cons of each choice.
If you choose to take on the role of registered agent yourself, you risk missing a service of process. Unfortunately, the registered agent must be available during normal business hours to receive service of process and mail on behalf of the Hawaii LLC, and most businesses also operate during normal business hours. You can’t be in two places at once to both run your business in Hawaii and serve as its registered agent. If you do drop the ball and miss a service of process, your LLC in Hawaii could be sued and you would have no chance to defend yourself from the suit. Even worse, the Hawaii Department of Commerce could find your Hawaii LLC to not be compliant with the laws regarding Hawaii LLCs and registered agents and you could lose the “good standing” status of your LLC, which would mean you can no longer do business in Hawaii. The only real upside of being the registered agent for your business is that you won’t have to pay any fees to a registered agent service.
If you choose to use a registered agent service, they will not only keep your personal information safe, but also ensure that you’ll receive the mail and service of process that is sent to your Hawaii LLC. The downside is that a typical registered agent service will charge between $99- $299 per state per year. However, given the risks involved with taking on the registered agent role yourself, the fee that you pay for a registered agent service is a small price to pay for peace of mind and protection of your personal details.
If you’d like more information about registered agent services and how they can benefit your Hawaii LLC, click here to read my article about the best Hawaii registered agent service.
4. Choose Your LLC Address
The business name for your Hawaii LLC isn’t the only important piece of information you’ll need to add to your Articles of Organization form. The address you list for your Hawaii business is just as important.
The address you register for your Hawaii business is also listed on the public record. If you’ve decided to form your LLC on your own without a registered agent or LLC formation service, you’ll be forced to list the physical street address of your business. If your Hawaii LLC doesn’t have a physical address, then you’ll need to list your home or home office address here. This will make it easier for hackers and criminals to find your address, which isn’t ideal.
Of course, if you do use a registered agent or LLC formation service, they’ll list an address that can’t be traced back to you or your home.
5. Sign And File Your Articles Of Organization
After you’ve got all the forms filled out and triple-checked for accuracy, it’s time to sign and file the Articles of Organization for your Hawaii LLC. Before filing, check and make sure your Articles of Organization include the names and addresses of each LLC organizer, the LLC’s name and address, whether your LLC is member or manager-managed, and the name and address of your LLC’s registered agent. Once you’ve verified the accuracy of the form, you can file the articles online or by mail with the Department of Commerce and Consumer Affairs, Business Registration Division. If filing by mail, send the Articles to the following address:
Department of Commerce and Consumer Affairs
Business Registration Division
P.O. Box 40
Honolulu, HI 96813
The filing fee you’ll need to pay for either method is $50 and you have the option to pay with a debit or credit card if filing online. You can sign and file the documents yourself if you’re comfortable listing your information on the public record. If you’d prefer to keep your information off the public record, you can use an LLC formation service. They’ll list their information instead of yours while allowing you to retain ownership of your LLC.
Hawaii does offer expedited filing if you would prefer your Articles to be processed at a faster rate for an additional $25 fee.
Processing time for mail filing is typically 7-14 business days, or 3-5 if you file online. With expedited filing, you can expect a processing time of 1-3 business days.
Other LLC Activities
There are still a few other activities you’ll need to complete after you file the Hawaii LLC Articles of Organization. These activities aren’t part of the formation process, but they are important in keeping your Hawaii LLC in good standing with the Department of Commerce and Consumer Affairs.
First, all LLCs in Hawaii are required to file annual reports with the Business Registration Division. Annual reports carry a $15 filing fee and are due in the calendar quarter of your LLC’s formation anniversary month. For example, if your Hawaii LLC was formed in July, then your annual report would be due between July 1st and September 30th. Your LLC is not required to file an annual report the year it is formed. The state of Hawaii will send your LLC a reminder for filing the annual report via mail that states when it is due.
You can file an annual report online or by mail. If filing your annual report by mail, you can obtain a copy of the Domestic Limited Liability Company Annual Report form here.
Depending on where your LLC is operating, you may need additional business licenses or permits to conduct business. You can check with the city or county of your LLC’s primary business location for local licensing requirements. For state-wide business licenses, you can check with the business information website for the state of Hawaii here.
If your Hawaii LLC plans on selling goods, hiring employees, or collecting general excise tax then you’ll need to register with the Hawaii Department of Taxation. You can register online or by mail. Single-member LLCs with employees or multiple-member LLCs that plan on collecting general excise tax or selling goods will also be required to obtain an EIN, which will be covered further below.
If your business is operating from another state and wishes to do business in Hawaii, then you’ll need to follow the process for establishing a foreign LLC. To start this process, you’ll need to file an Application for Certificate of Authority with the Department of Commerce and Consumer Affairs, Business Registration Division. When applying, you must also include a Certificate of Existence from the foreign LLC’s home state dated no more than 60 days prior to the registration. The filing fee you’ll need to pay is $50, and this form can be filed online or sent by mail.
If all these forms, annual report filing requirements, and licensing requirements seem overwhelming, there are professional services available to help you. Consider hiring a Hawaii PEO service or subscribing to online legal services if you need assistance with your LLC paperwork.
Hawaii LLC Fee Summary
One question that many business owners ask is “how much does it cost to form an LLC in Hawaii?”. Regardless of whether you use an LLC formation service to help with the process or if you decide to form your LLC on your own, you’re going to encounter a few fees and taxes. Here is a breakdown of the state filing fees as well as the state tax types you’ll encounter when you form an LLC in Hawaii.
Articles of Organization filing fee: $50
Name Reservation filing fee: $10
Registered Agent Fee: $99- $299 per year
Annual Report filing fee: $15
State Personal Income Tax: 1.4%- 11%
State Corporate Income Tax: 4.4%- 6.4%
After Starting Your Hawaii LLC
Congratulations! Your Articles of Organization form has been filed and you’re one step closer to establishing your Hawaii LLC. Take some time to celebrate this victory with a weekend trip or a short vacation, but don’t take too much time off. Even after you file the Articles of Organization for your Hawaii LLC, there’s still a lot of work to do to keep your business in good standing with the Department of Commerce and Consumer Affairs.
Here are the three most important steps you’ll need to take after filing your articles with the Business Registration Division.
Step 1. Create An Operating Agreement
Hawaii doesn’t require foreign or domestic LLCs to adopt or draft Operating Agreements, but it’s in your best interest to do so. Without an Operating Agreement, your LLC will be governed solely by Hawaii LLC laws and regulations. An Operating Agreement can also help preserve your limited liability and asset protection, as it shows that the business is a truly separate entity.
To help you get an idea of how important an LLC Operating Agreement is, think of your business as a computer. The LLC serves as the computer's case, protecting the vulnerable hardware from damage and the elements. The Operating Agreement acts like a computer's operating system by telling the members, employees, and departments of your LLC how they interact with each other and what they should be doing.
*IMPORTANT* Before drafting the Operating Agreement for your LLC, decide if it will use a member-managed or a manager-managed system. This will decide who has the authority to make important decisions for your business and how. Member-managed systems typically rely on a single member or group of members making the high-level decisions for your LLC.
The LLC Operating Agreement should begin with a list of each LLC member and proceed to state their responsibilities, ownership percentages, indicate which members have the authority to make high-level decisions regarding the business, and their percentages of profits and losses. Your LLC Operating Agreement should clearly state the responsibilities and authority of each LLC member, as well as their interactions and relationships with other members and departments of your Hawaii LLC.
Well-written Operating Agreements establish a clear set of procedures and hierarchy within the business structure of your LLC. With a well-written Operating Agreement, there should not be any questions or confusion regarding the responsibilities of each member or department, nor should any member’s authority or responsibilities be vague or unclear. A well-written Operating Agreement should also include procedures for a member leaving the LLC, or the LLC expanding and bringing in new members as your business grows. Failing to establish a process for these occurrences can stifle your growth and create unnecessary tension between LLC members.
While not a requirement of the Hawaii state government, Operating Agreements are essential to ensuring your business is able to operate smoothly on a daily basis. Without an Operating Agreement structured along the guidelines provided here, the growth of your business may be greatly hindered. As previously stated, your LLC’s operations will be solely governed by Hawaii’s laws and regulations for LLCs if you choose not to adopt an Operating Agreement, which may not allow your business to grow at the rate you desire. Adopting a poorly worded or unclear Operating Agreement could further hinder your business and even result in your business failing.
Poorly written Operating Agreements can often cause confusion and conflict between LLC members. Operating Agreements with unclear procedures or divisions of responsibility and authority can cause excess friction and lead to conflicts or disputes between LLC members and departments, which can be very bad for your business.
To clarify: The rules and guidelines established by your LLC Operating Agreement will decide the procedures and specifications for the daily operations of your business, so it’s important to make sure that the procedures and guidelines you include in the Operating Agreement are clearly worded and direct. Poorly written or unclear Operating Agreements can can hold your business back and create undue hardship, whereas a clear and well-written agreement will ensure your LLC thrives.
If you haven’t written an Operating Agreement before, there are a few options available to assist you.
Northwest Registered Agent offers a free template for an Operating Agreement on their website. IF you need assistance with the wording or structure, some LLC formation services will assist with drafting your LLC’s Operating Agreement as part of their services. If you want to form your Hawaii LLC on your own and simply want qualified legal assistance, then consider using an online legal service to help you get it right the first time.
Step 2. Apply For An Employer Identification Number
Another important task to complete after filing your Articles of Organization is applying for an Employer Identification Number.
If your Hawaii LLC plans on hiring employees, collecting general excise tax, or has more than one member, then you’ll be required to apply for an EIN, or Employer Identification Number. Single-member LLCs are only required to obtain an EIN if you plan on hiring employees or you choose to have the LLC taxed as a corporation.
An EIN functions like a social security number and is used to identify your business when filing state tax and federal tax paperwork. Though LLCs typically don’t pay federal tax, you’ll still need an EIN if you hire employees to identify your business when they file their own tax returns.
To apply for an EIN for your Hawaii LLC, you’ll need to register with the Internal Revenue Service via their website here.
Step 3. Open A Business Bank Account
The next task you’ll need to accomplish after filing your Articles of Organization is opening a bank account dedicated to your LLC.
Many first-time business owners overlook opening a separate bank account for their LLC, but it’s an important step to ensuring the smooth operation of your business in Hawaii. There are several reasons to avoid using your personal bank account for your business transactions.
The first reason is that opening a dedicated business bank account is massively helpful when filing taxes. Many small business owners assume they’ll be able to remember which transactions were related to their business when filing tax documents. But unless you plan on keeping a detailed ledger listing each business transaction you’ve made that year, it can be overwhelmingly difficult to remember which transactions were personal when it comes time to file your state tax returns.
The second reason you should avoid sharing your personal bank account with your business account is that you leave your personal finances vulnerable in the event of a lawsuit. Even though Hawaii LLCs have limited liability and asset protection, if you run business transactions through your personal account, that can leave all the money in the account vulnerable if you become the target of legal action. Using your personal account for business transactions can blur the distinction between yourself and your business, jeopardizing the personal asset protection that forming an LLC in Hawaii grants you.
So to make your tax filing easier and ensure you enjoy the full benefit of the limited liability and asset protection your Hawaii LLC provides, it really is in your best interest to open a dedicated business bank account.
To open a bank account for your Hawaii LLC, you’ll need a bank kit. A bank kit is a collection of documents typically including a copy of your Articles of Organization, LLC Operating Agreement, and your EIN as well as your company’s initial resolution. Basically, you’ll need to collate all of the formation documents that you’ve been obtaining and filing so far.
If you’d like to get someone to gather all of these documents for you, consider hiring an LLC formation service. Many LLC formation services in Hawaii create bank kits as part of their services.
You’ve already taken a huge step towards starting a business in Hawaii when you decided to form a Hawaii LLC today, so congratulations!
If you chose to forgo a Hawaii LLC formation service, then these are the five steps you’ll need to take as you begin your Hawaii business adventure:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
While all the red tape and legalese you’ll have to learn can be overwhelming, the sense of pride and accomplishment you’ll feel by completing all of these steps on your own is worth the extra effort. So again, congratulations on making the decision to begin your business journey.