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Creating an LLC in Hawaii
Hawaii is a very good place to create a Limited Liability Company (LLC). The Aloha State levies no personal property tax, no stock transfer tax, and no unincorporated business tax. It is also one of the few states that do not impose a tax on inventories, furniture, equipment, or machinery. In addition, except for a tax based on net income, no state tax is levied on goods manufactured for sale out of state. And goods and services exported to overseas locations are exempt from the General Excise Tax.
Additionally, Hawaii offers several programs to help businesses obtain loans, grants, and other investment resources, as well as to seek and encourage investments from sources both in and out of the state.
So, let’s dive into how to start an LLC in the state of Hawaii step by step.
Table of contents
- Creating an LLC in Hawaii
- Choose a Business Entity for Your Hawaii LLC
- Hawaii State Filing Fee
- Create a Business Name
- Hawaii LLC Registration
- Get Your Employer Identification Number or EIN
- Assign a Registered Agent for your LLC in Hawaii
- Open a Business Bank Account
- Tax and Regulatory Requirements
- Getting Started with Your Hawaii LLC
Choose a Business Entity for Your Hawaii LLC
To understand how to start a business in Hawaii, you need to understand entity formation. Limited Liability Companies (LLCs) and Corporations are the most popular business types.
Business formation is important because it sets your company apart as a professional company and not just a hobby.
A corporation is a legal entity created separately from those who own and operate it. A corporation’s debts and taxes are separate from its owners, thereby offering the greatest personal liability protection of all business structures. The two most common types of corporations are S and C corporations.
Limited Liability Company
LLCs are the most popular business structure, blending the aspects of corporations, partnerships, and sole proprietorships into a simple and flexible business entity. Like corporations, LLC formation protects the owner’s personal assets and also shields them from personal liability similar to a corporation. They also possess the “pass-through” tax benefits of a partnership.
There are two types of LLCs. LLC run by just own person (single-member LLC) and LLCs run by multiple people (multi-member LLCs)
Forming an LLC in Hawaii can be difficult and confusing, especially as a first time business owner. But with a company like Inc Authority in your corner, you’ll not only have your LLC formed for you, but you’ll also get expert guidance beyond business formation, so you never have to wonder or worry about what to do next!
What About DBAs?
DBAs (which stands for “doing business as”) grant business owners the ability to conduct business under an assumed name. A DBA is also referred to as a fictitious business name and is an authorization by the state for your business to operate under an assumed name.
For sole proprietors and owners of LLCs, DBAs offer an affordable way to gain legal recognition for the secondary name of your choice.
- Sole proprietors: For sole proprietors starting a new business, DBAs are a budget-conscious way to gain legal status and work under a creative company name.
- LLC owners: If the name on your LLC paperwork and your business name differ, DBAs offer the opportunity to operate as an LLC under a different legal name.
A DBA provides privileges like the ability to open a bank account, create enforceable contracts and establish federal employer tax status (getting an EIN). It’s possible to file multiple DBAs, allowing a single LLC to operate different businesses under the same legal umbrella. If you’re starting a business or expanding your LLC in Hawaii, get the proper legal recognition early on to start off on the right legal footing.
Hawaii State Filing Fee
The Hawaii Department of Commerce and Consumer Affairs Business Registration Division charges $50 to file the Articles of Organization. You can reserve your LLC name with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division for $10. When you compare this cost to Massachusetts’ $500 filing fee, you’ll realize how lucky you are to be in such an affordable state.
Create a Business Name
Under Hawaii law, an LLC name must contain the phrase “Limited Liability Company” or the abbreviation “L.L.C.,” or “LLC.” “Limited” may be abbreviated as “Ltd.,” and “Company” may be abbreviated as “Co.”
Your LLC’s name must recognizably different from the names of other business entities already on file with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division.
Names may be checked for availability by searching the Business Registration Division business name search database. You may reserve a name by filing an Application for Reservation of Name with the Business Registration Division. You can file online or by postal mail. The reservation fee is $10.
Using a Trade Name
You don’t have to use your LLC’s official legal name registered in your Hawaii Articles of Organization when you do business. Instead, you can use a trade name, also called a fictitious business name, DBA, (short for doing business as), or assumed name.
To do so in Hawaii, you should start using the name to identify your business. You should also register your trade name with the Hawaii Department of Commerce and Consumer Affairs. You may register online or postal mail the Application for Registration of Trade Name (Form T-1). There is a $50 filing fee. Registration is not mandatory and does not confer ownership rights, but it does gives others notice that you are claiming the name.
Hawaii LLC Registration
Let’s take a look at how to register a business in Hawaii, including payables such as the cost, government fees, and so on.
File Articles of Organization
An Hawaii LLC is created by filing Articles of Organization For Limited Liability Company with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division. The articles must include:
- the LLC’s name
- the LLC’s address
- the name and address of the LLC’s registered agent
- the names and addresses of all the LLC’s organizers
- the duration of the LLC if not perpetual
- a statement whether the LLC will be managed by members or managers
- the names and addresses of the initial managers if the LLC is Manager-managed, or the initial members if the LLC Member-managed.
- a statement whether the LLC’s members are to be liable for the company’s debts and obligations, and
- signature of the LLC’s organizer.
The filing fee is $50. The articles may be filed online or by postal mail.
Hawaii LLC Operating Agreement
An LLC operating agreement is not required in Hawaii, but it is highly advisable. This is an internal document that establishes how your LLC will be run. It sets out the rights and responsibilities of the members and managers, including how the LLC will be managed. It can also help preserve your limited liability by showing that your LLC is truly a separate business entity. In the absence of an operating agreement, state LLC law will govern how your LLC operates.
Issues that should be defined by your LLC Operating Agreement include:
- Member powers
- Rules for meetings
- Members’ voting rights
- How your LLC will be managed
- Guidelines for losses and profits
- Buyout provisions
Once the operating agreement has been adopted, it will provide protection for the members of your LLC. When the members of your LLC have agreed on the terms of your operating agreement and have signed the document, you should keep the agreement in a secure location.
Inc Authority can remind you to do or do for you if you choose to have us handle the paperwork.
Get Your Employer Identification Number or EIN
The next step you’ll want to tackle is getting your EIN or Tax ID number (TIN). This number is like your business’s social security number, separating you from your business. This protects you from fraud and identity theft.
Additionally, an EIN is required by your bank to open a Business Checking Account, file tax returns, obtain payroll services and credit cards, and pay for any LLC cost that Hawaii laws require.
To apply for your EIN, you’ll need to complete form SS-4, which can be found on the IRS website.
Assign a Registered Agent for your LLC in Hawaii
There are an estimated 38 million home-based businesses in the U.S., so if you’re thinking about starting a small business in your home, you’re definitely not alone.
But did you know that all businesses are required by law to have an address where they can accept service of legal documents (like a service of process) from the state or government agencies during normal business days and hours? Without an office, that would be your street address or P.O. box.
As you can imagine, that’s not always possible (or advisable) with a home-based or foreign-filed business. That’s where a registered agent comes in.
A registered agent is a responsible third-party in the same state as your business who receives official government notifications (usually tax forms and notice of lawsuits) on behalf of your LLC in Hawaii.
Even if you aren’t planning on starting a home-based business or foreign LLC, having a registered agent is still advisable because it will:
- Limit third party access to your personal information
- Ensure that you never miss important documents
- Protect the privacy of owners
- Eliminate junk mail
- Ensure you’re never served with legal papers in front of your clients
- And more!
Setting up a Registered Agent Service
Every Hawaii business must have an agent for service of process in the state. This is an individual or business entity that agrees to accept legal papers on the LLC’s behalf if it is sued. A registered agent may be an individual who resides in Hawaii, or a domestic or foreign business authorized to transact business in Hawaii. The registered agent must have a physical street address in Hawaii.
Learn more about our registered agent services here.
Open a Business Bank Account
To keep your personal and business expenses separate and to stay in good standing with the Internal Revenue Service (IRS), you need to open a business bank account for your LLC or corporation.
Setting up a separate bank account for your company makes it easier to for you do business, manage a cash balance, complete, and file your income tax returns with the Department of Revenue, deduct business expenses for taxes, conduct proper accounting, and execute employee payroll. Bank accounts also provide better protection in the event of legal action.
Additionally, business bank accounts create historical relevance through the relationship established with the bank, and can create unrestricted access to long-term funding options, business credit cards, and other financial solutions.
Types of Business Bank Accounts
Not all business bank accounts are created equal. That’s why it’s important to distinguish between the good, the bad, and the best business bank accounts.
A business checking is the most common type of business bank account and the first one you’ll want to open for your business. This because business check accounts allow you to:
- Accept deposits (over-the-counter cash, checks, credit card, and electronic deposits).
- Pay for business-related expenditures (payroll, taxes, business insurance, vendors, lenders, and everything imaginable that you’ll need to operate your business).
- Keep detailed records of all expenses and income.
- Protect your money. This account is Federal Deposit Insurance Corporation (FDIC) insured, meaning you’re covered up to $250,000 by the federal government should anything happen to the bank or your money.
- Support dual signatures. If you have a partnership or employees, you may wish to make it required that two signatures be present whenever a withdrawal or deposit is made.
This one should come as no surprise. A business savings account (like a personal savings accounts) lets you safely save money in a bank. You don’t need this right away though, only when you have an abundance of capital sitting in your business checking account, will you need to open a savings account. It allows you to:
- Make saving money a habit. The most successful companies (think blue chips like Wal-Mart, Amazon, General Mills, Hershey’s, and General Electric) all have solid reserves of capital.
- Protect your business during a cash-crunch. Incidentally, 80% of businesses fail because of cash flow problems.
- Save money so that you don’t have to take out expensive business loans.
- Maintain liquidity. With a business savings account, you can liquidate assets to buy equipment, purchase real estate, and make other big purchases for your business.
- Build business credit. Yes, having a business savings account can actually help you establish and build business credit.
Business Certificate of Deposits
A business certificate of deposit (CD) is a term account that offers maximum security and a guaranteed rate of return. You agree to lend your business’s money to the bank for a set period of time at an agreed-upon interest rate. The interest rates are usually higher than you’d receive from a business savings account or interest-bearing business checking account.
Here are the main features of a business certificate of deposit:
- It pays out 1% or more in interest. Some CDs pay over 2% in interest
- You cannot liquidate the account until the term expires. This means you can’t spend the money.
- The longer the term, the higher the interest rate.
- Different banks offer different term limits. Some CD terms are for a week, months, or even years.
Money Market Accounts
This is a lesser-known type of business a bank account and isn’t for every business owner. You’ll want this type of account if you have a lot of money saved, want higher interest rates than a business savings account or interest-bearing business checking account, but still want some access to your money.
Here are the main features of a business money market account:
- Six withdrawals per month.
- Deposit money anytime.
- Deposit as much money as you like.
- Higher interest rates (currently between .1% and 1.6% APY)
- Require a minimum balance.
- Penalties if you withdraw more than six times in a month. Ask your banker what the penalty is if you withdraw more than six times.
How to Open a Business Bank Account
Opening a business bank account is as simple as gathering some information together and completing an application. Here are the steps to open a business checking account:
- Do your due diligence. Research different banks and discover what each one offers. Then decide which one will work best for your business type. An easy way to do this research is to check out some of our business bank reviews.
- Get a tax ID number. You can get one free EIN from the IRS. If you think you already have one, here’s how to look up an EIN.
- Gather your business formation documents (for LLCs and Corporations).
- Gather your business license or business name filing paperwork.
- Call the bank and find out what other items you’ll need to open a business bank account. Every bank has different requirements, so make sure you check with them first before attempting to open a business bank account. Sometimes this information will be listed on the bank’s website.
- Go in person or online to complete all necessary paperwork and submit your business documents.
At Inc Authority, we make getting a business bank account easy. How so? Well, when you form your business with us, you gain access to a free Bank of America business checking account. So, don’t wait! Form your LLC in Hawaii today!
Tax and Regulatory Requirements
Additional tax and regulatory requirements may apply to your Hawaii LLC. These may include:
EIN: If your LLC has more than one member, it must obtain its own IRS Employee Identification Number (EIN), even if it has no employees. If you form a one-member LLC, you still need to obtain an EIN or elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online EIN application on the IRS website. There is no filing fee.
Annual Reports: All LLCs doing business in Hawaii must file an annual report with the Business Registration Division and pay a $15 filing fee. The report may befiled online or you may print out the Domestic Limited Liability Company Annual Report form (Form C5) and file by mail. The state will send an annual report reminder to your LLC.
The annual report is due during the calendar quarter of the anniversary month of your LLC’s formation. For example, if your LLC was formed on July 15, then your report would be due each subsequent year between July 1 and—at the latest—September 30. An annual report is not required to be filed in the year the domestic LLC was organized.
Getting Started with Your Hawaii LLC
Forming a professional LLC or corporation in Hawaii is an exciting opportunity, but like starting any business it can be overwhelming. Why not let the business experts at Inc Authority do all the heavy lifting for you?
We’ll form your LLC or corporation, run a business name check, get your EIN, and make sure you have all the licenses and permits needed to run your business. We can also advise you on the things you need to pay, such as LLC cost, Hawaii state fees, and other payables.
Not to mention we offer a ton of free management and report tools to help make running your business as simple as possible. Please contact us or visit our website today to get started!
Incorporating is the most powerful thing you can do to legitimize your business. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your free LLC today and enjoy the protection due to you and your business under the law.