How to Start an LLC in Hawaii

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All aspects of business, like establishing a Hawaii limited liability company, involve state laws, regulations, and paperwork. You need to initiate your LLC correctly. To help, follow this step-by-step guide to say ‘aloha’ to your new business.

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The types of businesses in Hawaii that are as prevalent as seashells are those in the hospitality industry, real estate, rentals, leasing, and related industries, retail, and healthcare. All of these industries are directly or indirectly related to tourism. Most other businesses in Hawaii support these primary industries by supplying products, services, or other functions.

You can’t run an LLC without a way of operating it. You must first create the entity so you have a foundation for running your business. It starts with basic elements like selecting a name for your LLC, finding a registered agent, and writing an operating agreement.

1

Name your LLC

Thinking of a name? Look in the state’s business directory to see if it’s listed. You can’t use a business name that’s already in use.

There are 135,567 small businesses in the State of Hawaii. That can make it challenging to pick a unique business name that is distinguishable from everyone else. Yet, that is what Hawaii requires.

Hawaii has some specific rules about naming businesses.

  • They must have certain words like corporation, company or LLC in the name.
  • It can’t be confused with another business, even if it has a different name. That means it can’t be similar to another name and can’t sound the same even if it’s spelled differently.
  • The state also has specific rules related to using the Hawaiian language and names of locations like Diamond Head and Pearl Harbor in names.

Hawaii runs its business registrations differently from other states. All business registrations in Hawaii are filed through the State of Hawaii Department of Commerce and Consumer Affairs (DCCA), Business Registration Division rather than the Secretary of State.

Hawaii’s business registration forms are simple to use, can be done online, and require minimum information to fulfill statutory filing requirements.

Hawaii has a free search tool where you can conduct a name search. You can see if your preferred name is taken by simply searching for it in the online business directory. If the name comes up in the search, the name is taken and you need to think of something else.

Name availability will likely be a challenge, so be sure to have several names in mind.

It is also a good practice to search for a matching domain name and social media handles. Take a second to Google the business name too, just to make sure the name doesn’t have any bad press associated with it.

The State of Hawaii says it’s the responsibility of the person filing for business registration to make sure the LLC name is unique.

Want to reserve a business name? Visit the state website to file a name reservation to hold a name.

2

Select a registered agent

Business registrations require the name and contact information of a registered agent. This is someone who can receive legal documents, like service of process documents, for the business. For that reason, it’s important to make sure a registered agent has a street address within the state and is available to accept documents during business hours.

The business entity’s owner can be a registered agent. It can also be any Hawaiian resident or business located in the state or a foreign LLC that does business in the state.

You can also hire a registered agent service. For a fee, the service will serve as your company’s registered agent. All official mail is collected, scanned, and uploaded to your personal dashboard so you can see any information that’s sent to you.

If you prefer to appoint a person as a registered agent, the person must:

  • Be at least 18 years old
  • Have a physical street address
  • Be a resident of Hawaii or be registered to do business in Hawaii
  • Have regular business hours

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3

File Articles of Organization

One of the most important things you can do is file Articles of Organization; it’s what makes your LLC an official business.

Articles of Organization contain necessary information about your business structure and the people in it. It is a legal form and can be used in court for liability cases or other types of lawsuits. It is also used to address LLC tax liability.

You can file online or submit paper filings either in person, by email, by fax, or through the mail. However, there are strict rules about how the filings look. They must be on standard-size printer paper, be typed or printed, be legible before turning them into the state, and must be signed in black ink.

This is the information that needs to be on the Articles of Organization:

  • The business name
  • The business’s physical location
  • The business mailing address, not a P.O. box
  • A description of the business
  • The registered agent’s name and street address
  • Officers in the business and their addresses
  • The management structure
  • Clarification on whether the business will issue stock and how it will do it

Those who want to fill out and submit their LLC formation documents can do it here.

Filing fee 

The filing fee for filing Articles of Organization for either a domestic limited liability company or an LLC in Hawaii is $50. You can get expedited service for an additional $25. Certified copies of a filing cost $10 plus 25 cents a page. There is also a $1 State Archives fee you will need to pay. There is no cost difference for submitting paper filings.

The State of Hawaii accepts credit and debit card payments and checks if you submit paperwork in person or through the mail.

Hawaii processing time 

Hawaii gets business filings reviewed and approved quickly and is similar to other leading business states. Most of the time, it takes three to five days to review and approve a filing. Expedited filings can be completed in one day.

4

Create an LLC operating agreement

To open a business, you need an operating agreement to function properly. Hawaii doesn’t require LLCs to have an operating agreement, but you should still create one for a host of reasons.

The primary reason you need an operating agreement is that it sets rules so you don’t need to rely on state law for governance. Those who don’t have an operating agreement or who have one that doesn’t address all specifics are, by default, governed by state law.

An operating agreement is a baseline for how you want your LLC to run. It shows who owns the business, how much each member owns, who makes the decisions, and reestablished protection under the limited liability status. It also prevents misunderstandings between LLC members.

Operating agreements should include: 

  • Your LLC activities
  • Voting rights and decision-makers
  • Procedure for transferring member interest
  • Initial contributions
  • The procedure for handling profits, losses and distributions
  • Management methods, structure
  • Compensation to LLC members
  • Bookkeeping methods
  • A process for dissolution

There are many details involved in starting a business. It’s important to have everything in order, not just so you can prepare for this, like federal taxes and state taxes, but also so you can stay in good standing with the state. Here’s a look at what you should do to get your LLC up and running.

5

Get your EIN

Sole proprietorships aren’t required to have a federal employer identification number or an EIN, but most LLCs are. This is like a social security number for your business. It’s required for tax purposes. You need it to fill out a loan application and hire employees too.

You can apply for an EIN online through the Internal Revenue Service, IRS.

It’s not required for every business to have an EIN. You need an EIN if your business:

  • Has employees
  • Has several members in your LLC
  • Plans on filing federal business taxes
  • Was bought by you from another business owner or if you inherited it
  • Offers a Keogh plan or solo 401(k) retirement plan

It’s easy to get an EIN by visiting the IRS website.

6

Open business bank accounts

One of the best business practices is to open business bank accounts instead of using your personal account for all transactions. Businesses are required to keep their business money separate from personal money. 

Having business bank accounts makes that easy to do and prevents you from having problems with the IRS or state revenue department. It also makes it easier to manage your personal taxes.

Consider setting up a business savings account too. Savings accounts make it easier to have money on hand in case you have a bad month, save for future capital expenses, and provide a backup account so you don’t have overdrawn checks or bank fees.

Growing startups need a credit card too. A credit card is a great way to preserve your cash and pay for things like inventory or other operational expenses. It helps with cash flow and some credit card companies have helpful rewards for businesses.

7

Review LLC tax rules in Hawaii

Forming an LLC requires certain knowledge of state tax laws.

Hawaii has a graduated corporate income tax rate with the amount you pay based on the revenue received. The lowest amount is 4.4% for businesses doing $25,000 in yearly business. Businesses that generate more than $100,000 in annual revenue pay 6.4% minus $1,250.

The State of Hawaii requires that tax returns be filed by the 20th day of the 4th month after the end of the tax year for the business. Those businesses that run on a traditional calendar year must file their tax returns by April 20.

Hawaii doesn’t have a sales tax, instead it has a GET. The Department of Taxation explains how it works.

8

File an annual report

The State of Hawaii requires all businesses to file an annual report yearly. This is how the state learns of any changes in the business and gives business owners a chance to make corrections or changes in LLC members, the registered agent, or other things. It is filed on the Department of Consumer Affairs website.

Hawaii is different from other states in its pricing for annual report filings. The state only charged $5 for domestic business filings and $25 for foreign business filings. It is one of the cheapest fee rates in the country.

It is also different in the deadlines for filing annual reports. Most states have one deadline for all businesses to file. In Hawaii, the reports are required to be filed in the quarter where the business has a registration anniversary date. For instance, those filing for business registration in April have from April 1 to June 30 to file their report.

Filing your annual report in Hawaii can be done by going to the Business Registration Division website under the DCCA.

9

Get insurance for your LLC

While LLCs have personal liability protection, it’s still good practice to purchase an additional liability policy. An LLC does safeguard your personal assets like your home, bank account, and car, but an insurance policy provides an additional layer of protection.

Liability insurance protects the business, the business owner, and LLC members in case the business is ever sued for an accident happening on the property or within the scope of doing business. It also protects you if there is wrongful death or harm caused by one of your products or services.

The State of Hawaii does require businesses to have worker’s compensation insurance if they have any full or part-time employees. Workers’ compensation insurance protects businesses if an employee is injured on the job. 

Another type of insurance that should be bought to cover the business is property insurance. This will cover the building, your equipment, and your inventory to help you rebuild should a fire, flood, or theft harm your business location. 

Additional resources to help you set up a business in Hawaii

Entrepreneurs who need guidance about setting up an LLC in Hawaii have a wealth of resources. Look to those listed below for help in getting your business started.

FAQs

Is it hard to start a business in Hawaii?

Even though Hawaii has many organizations to help startup businesses, it can be a challenge to start a business there. It is more expensive in Hawaii, and some LLC owners have trouble shipping or receiving items on an island.

What’s the benefit of starting an LLC in Hawaii?

An LLC is fairly easy to form and doesn’t have complicated employment taxes. The LLC owner pays taxes on his or her personal tax return. This type of business offers personal liability protection too.

What is a good business to start in Hawaii?

Tourism is hot in Hawaii, so any business that caters to visitors tends to do well. Businesses that offer tour guides, boat transportation services, vacation rental services, and real estate advertising, for example, could fare well in Hawaii.

What is the most profitable business in Hawaii?

The First Hawaiian Bank is the most profitable business in the state. It ranked number one in both 2019 and 2020. Others on the list include the Bank of Hawaii Corp., Hawaiian Airlines, and Hawaiian Electric Industries.

Who employs the most people in Hawaii?

Hawaii has several large companies that employ many people. The largest employer is Altres Industrial which employs more than 10,000 people. Others include Kapiolani Medical Center, Pearl Harbor Naval Shipyard, and Hawaii Health Systems Corp.

Who can I get to help me write a business plan in Hawaii?

The Hawaii Small Business Development Center offers workshops and other support for writing business plans. There are branches throughout the state, including one in Oahu.

What is the average employee pay in Hawaii?

The average yearly salary in Hawaii is $51,729, which is about $25 an hour. That state ranks 39th out of 50 in the U.S. of wages, according to ZipRecruiter. Salaries do vary by occupation.

Does Hawaii charge a franchise tax?

Hawaii does not impose a franchise tax or a privilege tax on its businesses.

Are there one or two industries that always do well in Hawaii?

Most of Hawaii’s serious business earnings revolve around tourism, real estate, and construction. Those three industries are linked because tourism creates more need for real estate development and, in turn, that creates more demand for construction. 

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