Planning to start your business in Hawaii? Great idea! An LLC opens the door to significant tax savings and protects your personal assets from legal liability. Hawaii offers excellent tax benefits to startups and small businesses through various schemes, such as its Enterprise Zones program.
It’s a great destination to incorporate your LLC, and given the tourist inflow into the State each year, you have a lot of business opportunities to explore. However, the procedure for setting up an LLC in the State may seem confusing and complicated. We are here to break it down for you and walk you through the process step by step.
Name your Hawaii LLC
A business is known by its name and its products. A good name will help your LLC to have brand value in the market. It will also help the customers quickly identify your business from among the competition.
Therefore, names should indicate what your business is and be catchy to attract the attention of potential customers. The State of Hawaii has detailed guidelines for naming an LLC
Naming Guidelines
§16-36-15 of Hawaii Administrative Rules lays down the law for naming your business. The essential requirement is that the name should not be ‘substantially identical to a registered name of another entity.
For instance, two entities cannot have names; one has numbers spelt out, and the other has numbers written in numerical format. Thus, you cannot register 36-China Town LLC while Thirty Six-China Town LLC exists.
Similarly, the use of homophones is not allowed. This means that your company cannot have a name that sounds like the name of another. For example, Right Properties LLC and Wright Properties LLC.
Merely using words like “an”, “on”, “at”, etc. is not enough to distinguish a name from a preexisting one. You cannot add the terms Hawaii or Hawaiian to distinguish your company’s name. E.g. Swift LLC and Hawaiian Swift LLC.
You can use names already in existence if substantial distinguishing additions are made to convey a different meaning.
The nature of the entity must be indicated in the name. So your company’s name must include phrases like Limited Liability Company or a form of its abbreviation.
Terms like “bank”, “savings and loan”, “trust company”, etc. which give the impression of a financial institution, cannot be used unless the entity has been authorized to operate as a financial institution in the State. Alternatively, the entity should have been approved by the commissioner of financial institutions.
Terms that can cause your company to be confused with State agencies like treasury, post office, FBI, etc. cannot be used. Thus you cannot name your company Ferrero Bridal Institute and abbreviate it as FBI.
Terms related to professional services like an attorney, university, etc., require additional paperwork and a licensed practitioner of the area to be a member of the LLC.
Does Your Business Require a DBA?
DBA, or “Doing Business As”, is a trading name that your company can use as an alias. It is not mandatory to have a DBA. An LLC can conduct business with its original name as well. It is mainly registered for introducing a branding strategy or diversifying into a different sector.
For example, two Entrepreneurs, Mr. Phil Knight and Mr. Bill Bowerman, started a Blue Ribbon Sports company. However, they decided to conduct business with another brand name. This name is known worldwide as Nike. Nike is the DBA they chose to make their business world famous. So, if you want to create a brand name that is different from the name of your LLC, you should file for a DBA.
Option 1: Apply for a DBA Online
Apply online
– OR –
Option 2: Apply for a DBA by Mail
Download form
Mail to:
Department of Commerce and Consumer Affairs,
Business Registration Division,
P.O. Box 40,
Honolulu, Hawaii 96810.
Doing a Name Search and Name Reservation
The laws of Hawaii require that the name of your LLC be different from that of any other company. Before picking a name for your LLC, you should perform a name search for your business. You’re good to go if no other substantively similar names have already been picked!
If you have decided on a name, you can reserve it for 120 days by filling out the application online or mailing the application.
Option 1: Reserve Your Name Online
Apply online
– OR –
Option 2: Reserve Your Name by Mail
Download form
Mail to:
Department of Commerce and Consumer Affairs,
Business Registration Division,
P.O. Box 40,
Honolulu, Hawaii 96810.
Registering your business domain
You may not be thinking of launching your website now, but you might want that later. The address of your website is how customers find you online. So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available. You can check if your business name is available as a domain and register it to reserve it, so the option is always available.
You can check currently available domain names.
Choose a Registered Agent in Hawaii
A registered agent will be the point of contact between your business and the State, ensuring you receive all legal correspondence and communicating on behalf of your LLC.
The State of Hawaii requires that all LLCs have a registered agent. You can appoint a registered agent by nominating their name in the Articles of Organization of your LLC.
Who Can Be a Registered Agent?
A Registered Agent can be an individual or another business entity. The registered agent you appoint must satisfy certain conditions laid down by the State.
The agent you select for your LLC must be:
- An individual State resident (above 18 years) or
- A business entity that has obtained authorization to conduct business in the State.
The registered agent should be available during business hours on all working days.
Individual v. Registered Agent Service?
There is no restriction against appointing yourself, a friend or a family member as your registered agent. However, the registered agent must be available during ordinary business hours to receive correspondence. Further, appointing a registered agent service has some significant advantages.
The registered agent service will use their address, and your personal address will not be publicized in any public legal documents. If you plan to expand your business to other States, you can extend the services of the registered agent to other States and have a presence across the country.
A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
File the Articles of Organization with Hawaii
The Articles of Organization are the documents that formally establish your LLC and provide it with the status of a separate legal entity. You can file the Articles of Organization online or mail them to the Department of Commerce and Consumer Affairs. Once this is completed, your LLC is registered and is recognized in the eyes of the law.
Option 1: File Your Articles of Organization Online
Apply online
– OR –
Option 2: File Your Articles of Organization by Mail
Download form
Mail to:
Department of Commerce and Consumer Affairs,
Business Registration Division,
P.O. Box 40,
Honolulu, Hawaii 96810.
Fee: $50 + $1(State Archive Fee)
Expedient Filing
You can choose to pay an additional expedited review fee of $25.00 to have your application processed faster by the State.
Public Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create an Operating Agreement for your Hawaii LLC
The operating agreement is the document that governs the operations of your company. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
Even though the laws in the State do not mandate an operating agreement, you should have one. Any disagreements regarding the working of the LLC, for instance, on profit distribution, often lead to legal disputes. Therefore, you must have an Operating Agreement that spells out the various aspects of the company’s day-to-day functioning.
Also, an operating agreement offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank.
There are no prescribed templates for an operating agreement in Hawaii. Irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Ownership
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
- Dissolution
Writing The Operating Agreement Yourself vs. Hiring a Service
You can either write your operating agreement yourself or hire a professional. You may also purchase templates that you can customize to draft the operating agreement of your LLC.
It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement.
Limits of Operating Agreement
You cannot include anything prohibited by State or Federal laws in your operating agreement. In addition, Section 428-103 of the 2010 Hawaii Code prescribes certain other restrictions of what cannot be included in your operating agreement, such as varying the rights of third parties, unreasonably restricting access to information or reducing the duty of care owed towards members of the LLC, etc.
Obtain an EIN for your Hawaii LLC
Employer Identification Number (EIN) is a 9-digit number that has multiple functions. This number is allotted by the Internal Revenue Service. The IRS uses the EIN to identify an operating business entity for taxation purposes. It is also necessary to open a bank account and get credit cards, business permits, and loans.
It will also be necessary to open a bank account, file tax returns, and hire employees. The IRS issues an EIN, and you can apply for it online or through the mail.
Option 1: Request an EIN from the IRS
Apply online
– OR –
Option 2: Apply for an EIN by Mail or Fax
Download form
Mail to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
File Annual Reports in Hawaii
Hawaiian law requires businesses to file an annual report. It has to be filed with the Department of Commerce and Consumer Affairs Business Registration Division. The report provides the public with information regarding your business entity and does not contain any financial information. It is used by the authorities to get the latest and updated information about all the business entities operating in the State.
The filing of an annual report is mandated by statute. This also makes you eligible for State contracts. It also places your business in good standing, and timely filing of reports keeps it in good standing.
§428-210 of the Uniform Limited Liability Company Act provides details that go into an annual report. You are required to provide the name of the LLC, principal address, name and address of the registered agent, nature of management and names and addresses of all the members.
The cycle for filing the Annual report depends on the quarter in which your LLC is formed. For example, if the LLC was formed in the first quarter, the annual report is due at the end of the first quarter on 31st March.
If you don’t file your annual report, you will violate Hawaiian law and be liable for penalties. If you fail to file your report two for more than two years, you risk having your LLC shut down by the State authorities.
You can file your annual report online using the Hawaii Business Express Portal. You may also download the form and mail your application to the Department of Commerce and Consumer Affairs, Business Registration Division, P.O. Box 40 Honolulu, HI 96810. The filing fee is $15.
Tax Liability For Your LLC
Depending on the number of members in your LLC or how you have chosen to treat your LLC for taxation purposes, it may be taxed in four different ways:
Sole proprietorship: a business owned by a single person
Partnership: a business owned by multiple people
C – Corporation: income is split or segregated for taxation
S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
If an LLC is a single-member LLC, the IRS considers it a disregarded entity and ignores your tax structure. The LLC will be taxed like an individual. The LLC’s income will be reported to the owner’s personal income at the end of the year.
You will have to fill out specific forms for this purpose. You will have to fill out this form specifically for reporting the income from your business. If you pay a salary, you must fill out this self-employment tax form. You will fill this form in case of supplemental income like rentals and other investments.
A multi-member LLC is taxed as a partnership by default unless the LLC elects explicitly to be treated as a Corporation through Form 8832. If the LLC files as a partnership, you must complete Form 1065.
If the LLC files as a corporation, it must fill Form 1120. Those LLCs that opt for S-Corporation have to fill out Form 1120S. Each owner or member of the LLC will have to show their pro-rata share of the LLC’s income, credits, and deductions on Schedule K-1 in the same form.
State Tax Liability
The State of Hawaii does not levy a sales tax on goods. Instead, there is a General Excise Tax levied on the businesses. Businesses can pass on this tax to their customers. Physical property is subject to excise tax. Digital goods and services are also taxed.
For charging excise tax on behalf of the government, you will need a seller’s permit. You can register for the seller’s permit Online. A fee of $20 will be charged. However, if your business is a resale business, you do not need to pay the excise tax and can exempt yourself with a resale certificate. You can download it from the Hawaiian Department of Revenue.
Tax can be collected on sales which can be broadly divided into 4 categories:
- Store Sales – When the business sells in the exact location, you will charge the State tax of 4%, county and city tax.
- In-county sales – When the business sells to some other city but in the same county, you will only collect the State tax of 4% and the respective county tax.
- In-State sales – When the business sells to another county, you will only collect the State tax of 4%.
- Outside sales – When the business is shipping its goods outside the State, you need to pay the tax if you have a physical business location, an employee, a drop-shipping facility, a marketing affiliate, etc., in that State.
You can file your General Excise Tax return online.
Miscellaneous Taxes
If you’re an employer, you will need to register for Unemployment Insurance Tax with the Department of Labor and Industrial Relations. You will also need to register for Employee Withholding Tax on behalf of your employees.
Permits and Licenses
Before your LLC can finally start its operations, there is another important step to be taken. Depending on the nature of your business, you may require certain Federal and State licenses and permits.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are Agriculture, Alcoholic beverages, Aviation, Firearms, ammunition and explosives, Fish and Wildlife, Commercial fisheries, Maritime transportation, Mining and drilling, Nuclear energy, Radio and television broadcasting, and Transportation and logistics.
At the State level, your LLC should get a General Excise Tax License if it sells certain specific physical products or services. You can apply for this license by visiting the Hawaii Tax website.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Hawai’i County, certain businesses are required to have a specific city license. To know more about local licensing requirements, get in touch with the office of your city or county government.
For more information regarding;
Business Bank Account & Phone Number
When starting a business, separating your personal and professional finances is crucial. This helps in keeping records and in tax assessments. Further, If your personal and company assets are mixed, the protection of your personal assets in lawsuits against your LLC could be in jeopardy.
A separate phone number for your business is a good practice since it protects your privacy. You can register for another phone number in the company’s or any member’s name. Alternatively, you can have a virtual phone number that records your voicemails and forwards the call to your number.
Final Thoughts
Hawaii offers excellent benefits, especially to small businesses and startups. For instance, under the Hawaii Enterprise Zone program, you are eligible for general excise and other tax exemptions if you locate your business in a designated enterprise zone. Do ensure you check your eligibility for these programs and apply accordingly.
With the last step, you will complete all the procedures required to form an LLC in Hawaii. However, if you are hesitant about any procedure, you can always use a professional service that suits your needs. Enjoy your new LLC!
