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Forming an LLC in Hawaii

You are interested in forming a Hawaii Limited Liability Company. A Limited Liability Company (LLC) is a business entity that many small businesses choose as a way to organize themselves when they are just getting started. An LLC has a few advantages for small businesses but may not be appropriate for larger ventures or startups that are seeking investors. In addition, LLCs have a unique business structure that can get very technical.

You should look closely at other business entities like partnerships and S Corporations, before launching a Hawaii LLC.

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Advantages of LLCs:

  • Limited personal liability for members for business debts and lawsuits.
  • Fewer reporting and recordkeeping requirements than other kinds of entities, including corporations.
  • Avoiding the double taxation—business and personal—of corporations if taxed as a pass-through entity.
  • Unlike corporations, Hawaii LLCs do not have to file annual or biennial reports with the state.

Disadvantages of LLCs:

  • An LLC is not a good investment vehicle for outside investors.
  • LLCs and S and C corporations pay commercial activity taxes, unlike sole proprietorships and partnerships.
  • LLC owners may pay self-employment taxes.

Registering Foreign LLCs in Hawaii

Any foreign (out-of-state) LLC that wants to do business in Hawaii must register online with the Department of Commerce and Consumer Affairs. You must have an eHawaii.gov account to do this (see below on how to get one of these accounts).

Step-By-Step: Forming a Hawaii Limited Liability Company

With all of that, you have decided to form an LLC in Hawaii. You have your members, your business plan, and a little startup capital, and you are on your way.

Here is a step-by-step guide for how to create a fully operational Hawaii LLC.

Step I: Name Your LLC

Creating a legally proper LLC name and then protecting it is one of the first actions in LLC formation. This is a process that can be complex and time-consuming but it is essential for the LLC to operate legally in Hawaii.

The first thing you have to do is create a great name. Hawaiian law requires that the business name be unique and different from any other company's name.

So your first task will be to search the Secretary of State Business Center business name availability search page to make sure that your chosen name isn't already in use for an existing business.

This search is just a preliminary step to the state filing. You still need to go through the registration process to get your name approved by the state.

After you have decided on a name, the name you will submit to the Secretary of State must then contain one of these legal suffixes:

  • Limited Liability Company
  • L.L.C.
  • LLC

The name of the LLC cannot use any variation of the word “corporation." It cannot use language considered obscene or that claims a profession or business affiliation that does not exist.

Professional LLCs

Hawaii law does not specifically allow for a professional LLC (PLLC) designation. However, it does allow for Professional Corporations.

Step II: Appoint a Registered Agent

The State of Hawaii requires an LLC to have a Registered Agent for service of process before formally filing with the state. A registered agent is designated to receive process (legal documents) on behalf of the LLC. A Hawaii registered agent can be an individual or a company (domestic or foreign), but it must have a physical Hawaii street address. A forming LLC will often choose a professional registered agent service or may choose the company lawyer. A Hawaii corporation can only have one registered agent; the business itself cannot act as its own agent.

Step III: Create an eHawaii.gov Account

You will be conducting business with the state online through an eHawaii.gov account. Sign up for one now, if you don't already have one. You will then file and get information through the Hawaii Business Express website.

Reserve Your Business Name

Hawaii allows you to reserve your business name through the Hawaii Business Express website for 120 days while the formation process is going forward. Reserving a name is not a guarantee that your name will be approved, but it keeps anyone else from using it for that time.

Step IV: Legally Protect Your Business Name

Next, make sure that no one else can use it in business or on the internet. This means that you have to make sure that no one else is using that name. You do this by doing a name search to make sure that the Internet Domain Name is available. If it is available, grab it immediately (that will only cost a few dollars).

If you want to do business nationally, or you want to operate in several other states, you should trademark the nonprofit's name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. The name is still protected as a common law trademark while that application is pending.

Once you receive your federal trademark, you can register it as a Hawaii trademark or service mark through the Hawaii Business Express website. You may also trademark the Hawaii LLC name with just the state, without a federal trademark.

Now that name is yours, you can keep anyone else from using it, and it conforms to Hawaii law.

Step V: Structure the Business

An LLC has a particular, unique business structure.

To begin with, the stakeholders of an LLC are called “members." There is no stock issued, so they cannot be “stockholders." This is the primary reason that an LLC is not a good investment vehicle for either the founders or potential investors.

There is no number of members required. You can have a single-member LLC-- say, for a one-person office.

Then you should write an LLC Operating Agreement. This is not required under Hawaii law, but it is a good idea, to keep everybody's interests clear.

A Hawaii Limited Liability Operating Agreement should contain the following points:

  • Percentage of members' ownership
  • Voting rights and responsibilities
  • Powers and duties of members and managers
  • Distribution of profits and loses
  • Holding meetings
  • Buyout and buy-sell rules (procedures for transferring interest or in the event of a death)

An LLC may be managed by the members, or it may hire an outside manager.

Step VI: Write and File Your Hawaii Articles of Organization With the State

You are now ready to compose and register your Hawaii LLC Articles of Organization (Form LLC-1)with the Hawaii Department of Commerce and Consumer Affairs, Business Registration Division (BREG) Fill out the online forms and follow the directions, or print them out and mail them in.

Foreign LLCs cannot use this process. They must register separately, as noted above.

Your LLC Articles of Organization must contain the following:

  • LLC name and mailing address
  • Name and physical address of the registered agent. Must have a Hawaii street address.
  • Organizer name
  • Additional members and their addresses
  • Organizer signature(s)
  • There are checkboxes regarding the liability of the members
  • Filing fee of $50, or $75 for expedited service. Regular service takes 7-14 business days. There are more state fees for different services beyond those.

After You File Your Articles of Organization

You will have numerous state and federal requirements for your new LLC after you file with the state.

State Business Licenses

Certain Hawaii businesses require professional and/or business licenses. There will also be local business licenses that you may need to obtain from local governments.

Hawaii Employment Rules

Your LLC will be subject to state rules if it has employees—even if the employees are also members.

All new hires must be reported to the Hawaii CSEA.

You may have to pay unemployment insurance.

Most employers are required to carry worker's compensation insurance.

LLC State and Federal Taxation

You will be subject to both state taxes and federal income taxes. This is a job for your accountant, but here is a brief outline of your tax obligations.

You will be subject to both federal withholding tax if you have employees and, of course, to business income taxation.

LLCs also have very specific requirements for filing taxes. You may choose one of several different tax designations for your LLC, including C or S Corporation, partnership, or pass-through organization with personal liability for the members. Consult with your accountant for the best approach.

You must file to receive an IRS Federal Employer Identification Number (FEIN) on the Internal Revenue Service website if you will have employees. You must also apply for your FEIN if the LLC has more than one member. You will be subject to all federal tax-withholding rules.

Hawaii State Business Taxes

If your company sells goods and collects sales tax, you'll likely have to register with the Hawaii Department of Taxation and file a tax return. If you have employees, you will be subject to withholding tax. You may be subject to the state's General Excise Tax (GET).

Annual Reports

Hawaii LLCs must file an annual report with the Department of Commerce and Consumer Affairs, Business Registration Division, on the Hawaii Business Express website.

Get Help Forming an LLC in Hawaii

Fortunately, forming an LLC in Hawaii can be a straightforward process with FindLaw's Business Formation Service. If you need further assistance, get help from a business organization attorney in your area today.

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