How to start your LLC in Hawaii

On the one hand, it might appear that the process is complicated, but it can be simplified into some understandable steps - the choice of the business name to the filing of your annual reports. This is the guide that will accompany you through the whole process and will give you tips and insights on how to make smart choices in the process.

1. Naming Your Hawaii LLC

One of the most crucial initial activities is naming your LLC as it determines your brand. The name of your business must be easy to remember, special and should depict what you are offering in terms of services or products. The first step is to be able to clearly define your business concept since this will be a guide in the process of naming your business. You can consult your friends or colleagues or mentors and brainstorm with them, and then search online to verify domain names and not to have similarities with existing businesses.

It also verifies the name at the US Patent and Trademark Office (USPTO) to guarantee that it is not used in other states.

Registration of Doing Business As (DBA) or trade name is also done by many entrepreneurs who intend to run under a different brand or add product lines. A DBA will enable you to have a bank account under the alternative name that it will be easier to handle various things about your business.

2. Choosing a Registered Agent

All of the LLCs in Hawaii must possess a registered agent. This person or organization takes legal notices, tax documents and other official messages in place of the business. The registered agent should be at least 18 years old, should have physical address in Hawaii (no P.O. Boxes) and should be available within normal working hours.

There are some owners of businesses that perform the functions of a registered agent themselves which is not illegal but most of them prefer professional registered agent service. Such service guarantees that the most important documents are properly processed and your personal address will remain confidential and you can spend your time on business instead of waiting and waiting to receive documents when you are supposed to be at work.

3. Management Structure

The Hawaii LLCs can be member-managed or manager-managed. In member-managed Ltd., each and every member is part of day to day businesses. This is typical with small businesses where the owner is more than a participant. In a manager-managed LLC, business operations are performed by one or more managers who may or may not be a member and the remaining are passive investors.

Selecting the appropriate management structure is significant as it influences the authority to make decisions, responsibilities and the way you write your operating agreement. Hawaii directs you to provide management structure in submitting your Articles of Organization.

4. Registering Articles of Organization

The Articles of Organization is that which establishes your LLC in the state of Hawaii. You submit it to the department of commerce and consumer affairs (DCCA). The form will involve the name of the LLC, the address of the principal office, details of the registered agent, members or managers names of the management and the management structure.

Hawaii DCCA Contact

Location: King Kalakaua Building.
335 Merchant St, Rm 201,
Honolulu, HI 96813

Phone: 808-587-3222
Email: dcca@dcca.hawaii.gov

5. Writing an Operating Agreement

Even though there is no legal requirement of having an operating agreement in Hawaii in regard to LLC, it is strongly suggested that one should be formed. In this document ownership percentages, member responsibilities and voting rights, and profit distribution and addition or removal of members have been defined.

An effectively prepared operating agreement will help to avoid conflicting situations and offer legal coverage, particularly in multi-member LLCs. The single-member LLCs also gain as it provides a formal regulation of the business operations which assists in protecting your liability. Although it is possible to get templates online, it is always a good idea to have a lawyer take a look at your operations agreement or even write it so as to be sure that it is legally binding and it is also specific to your business.

6. Obtaining an EIN

The IRS issues an Employer Identification Number (EIN) which serves as a business Social Security number. It is obligatory in case your LLC consists of more than one member or you want to employ people. Application of EIN is free and may be done online in the IRS site.

EIN will enable you to open a business bank account, file taxes correctly and legally hire employees. In filing, you have to state a responsible party; one person with control or management over the funds and operations of the LLC.

7. Licenses, Permits and Compliance

Depending on the industry in which you operate, you might require federal, state or local permits. As an illustration, food companies require health permits, building contractors require state licensing and all enterprises have to apply to Hawaii General Excise Tax (GET). The GET is not a sales tax, but it is levied on nearly all the business income in Hawaii.

A zoning permit, fire clearance, sign permit or other industry-specific permit may also be necessary to the local governments. Failure to operate with the appropriate licenses may lead to fines, penalty or closure, and therefore it is strongly advisable to seek the services of a business attorney or to refer to a service that will help in establishing compliance.

8. Tax Status

Hawaii LLCs are in default pass-through entities. This implies that the business does not pay income taxes. Rather, the profits and losses are reflected on the personal tax filing of a member. Single-member LLCs are taxed as sole proprietorships and multi-member LLCs as partnerships.

LLCs are allowed to choose the C-Corporation or S-Corporation taxation. The decision to be C-Corp also exposes the profits to corporate tax, yet the retained earnings and dividends distribution. The S-Corp status does not involve one paying both taxes and has a chance of saving taxes on self employment as long as the owner earns a reasonable salary. No matter the type of tax structure, all LLCs are required to register the GET, submit regular returns, and, in case of hiring of employees, withhold state income tax and submit unemployment insurance.

Other Key Steps

After you establish your LLC, you will need a business bank account to practice business and personal finances and apply to a business credit card to develop credit and take a business insurance to secure your assets. Depending on your operations, insurance can be general liability, professional liability, workers compensation, property insurance or owner policies of the business.

The maintenance of the records of all the formation documents, contracts, tax filings, and legal correspondence are important in both compliance and running of operations.

Annual Reporting

Hawaii has an annual report filing requirement on LLCs to be in good standing. The cost is 15 dollars and the payment period varies depending on the quarter during which your LLC was established:

• Jan–Mar: Due Mar 31
• Apr–Jun: Due Jun 30
• Jul–Sep: Due Sep 30
• Oct–Dec: Due Dec 31

After the due date, there is an extra charge of $10 on the late filings. Annual reporting is done either on the Hawaii Business express portal or when using Form C-5 by mail.

Hawaii LLC FAQs