The Limited Liability Company (LLC) structure is one of the most preferred forms by many startups because it’s flexible and easy to operate. It also protects your personal assets against liabilities and debts.
LLC combines the attributes of a partnership and a corporation. They’re authorized under the state statute, but the rules and regulations vary from one state to another. Forming a limited liability company in Hawaii is easy. Here’s a step-by-step guide:
What is an LLC?
A Limited Liability Company (LLC) is a pass-through business entity that protects its owners from personal responsibility in the case of lawsuits or fraud against the company. It is a hybrid business structure that provides the features of a partnership, sole proprietorship, and corporation.
Unlike S Corps, LLCs allow for an unlimited number of owners, and any entity or individual can be a member of an LLC except banks and insurance companies.
In addition, LLCs don’t pay taxes on their profits directly. Instead, profits and losses are passed through to members who report them on their personal tax returns.
Note: Formation laws vary from state to state. For that reason, it’s best to check with the state of California to find out all of the steps that are required in forming your specific business
Who Should Form an LLC?
LLCs are becoming more popular compared to other forms of business.
This particular structure is ideal for companies that:
- Want to limit the personal liability of themselves and their partners or investors
- Need a formal agreement between two or more members
- Want to separate business assets from personal assets of the owners
5 Steps to forming an LLC in Hawaii
1. Name LLC
Choosing a name for your business is the first and most crucial step when starting an LLC in Hawaii.
You must follow these name requirements for your Hawaii LLC:
- Adhere to the state naming guidelines: The name you choose must include L.L.C, LLC, or the term Limited Liability Company. Also, your name shouldn’t contain details that can be confused with any government agency like NASA, FBI, Treasury, SEC, State Department, CIA, NTSB, and others.
- Check the name availability: The name you pick shouldn’t be in use. Search for the name on the Secretary of State's website for free to see if it is available.
- Select a name with an available URL: You’ll need the URL to create a website for your business.
Use IncFile to Complete Formation Process
After you decide on a name for your Hawaii LLC, you can use a third-party service such as IncFile to complete the formation process. Or you can complete the rest of the steps yourself.
2. Hire a registered agent
Hawaii requires all LLCs to have an appointed registered agent to send and receive important legal documents on behalf of the business. A registered agent can help bridge the gap between you and the State and are responsible for handling all of your business's legal paperwork like government correspondence documents, lawsuits, tax forms, and more.
The agent must be an individual or business entity registered in Hawaii. The agent must also be a full-time resident of Hawaii. You can appoint yourself to act as the registered agent, an employee, or a business entity that is licensed to operate in Hawaii.
IncFile will act as your registered agent for FREE for the first year when you form your LLC using their Gold or Platinum Plans.
3. File LLC Articles of Organization
The Articles of Organization are legal documents that must be filed with the state in order to legally form your LLC.
You need to file form LLC-1 with the Department of Commerce and Consumer Affairs via email, fax, mail, in-person, or online for your startup to operate in Hawaii. You’re will need to form a Foreign LLC if you want to expand your business to the state of Hawaii.
You’ll also need to decide whether your LLC will be manager-managed or member-managed. A manager-managed LLC usually has a large number of members that don’t wish to be involved in the day-to-day business operations. A member-managed LLC, on the other hand, usually has a few members, who are willing to be involved in the daily operations of the business.
Filing fees: A non-refundable state filing fee of $50 and a state archive fee of $1 are charged. The state archive fee may be refundable.
For additional information on where to submit your Articles of Organization, visit the state's website.
4. Create LLC Operating Agreement
An Operating Agreement is a document that indicates ownership and outlines how your business will conduct its operations. Creating an operating agreement isn’t required in Hawaii, but it’s strongly recommended for any business owner to have an operating agreement in place because can help reduce conflict and ensures all shareholders are on the same page.
An operating agreement usually entails:
- Organization: LLC ownership structure, name, location and date of formation, products, and services offered, and members.
- Management and voting structure: Voting rights and the manager.
- Capital contributions: Funding plans for the future and members supporting the LLC.
- Distributions: The profits and losses sharing margin.
- Membership changes: Ownership transfer process and removing or adding members.
- Dissolution: When to dissolve and terms.
5. Obtain Hawaii LLC Employer Identification Number (EIN)
This is the last step in the formation process. An Employer Identification Number (EIN), also known as Federal Tax Identification Number (FTIN) or Federal Employer Identification Number (FEIN) is a nine-digit social security number for your business that is issued by the Internal Revenue Service (IRS).
An EIN allows the IRS to identify and monitor businesses’ tax status and credit history.
In addition, an EIN is required to do the following: File state and federal taxes, open a bank account, or hire employees.
The IRS provides your EIN free of charge, and you can apply by mail, fax, or online. If you are a sole proprietor looking to convert to an LLC, you are required to get a new EIN.
Obtaining Additional Licensing in Hawaii
All the LLCs selling taxable goods in Hawaii must get a Seller’s Permit/General Excise Tax License. You can apply for this license online or by email, and you’ll be charged a $20 fee when applying. This license doesn’t need to be renewed. However, firearms and rebuilding cars licenses expire every year on June 30.
You can use the IncFile to apply for a Hawaii Business License. They charge a fee of $99 for the services and cover local, state, and federal licensing. The permits vary depending on the region and profession you’re in.
Visit the state's website to check out all of Hawaii's business licenses and see which ones apply to your business.
Hawaii LLC Certificate of Status
The certificate of status is also known as the Certificate of Good Standing. It shows that the LLC is well-maintained and was formed through legal channels. You can apply for a short-term or long-term certificate. You’ll be charged $50 for a short-term certificate and $175 for a long-term certificate. This certificate may be required if:
- Requesting loans from lenders or banks
- Obtaining business permits or licenses
- Forming business as a foreign LLC in a different state
Steps after forming an LLC in Hawaii
Here are additional steps to consider taking after forming your business:
Open up a business bank account
A business bank account is essential for the success of your business. It helps you to separate personal assets from business assets. It also makes it easier to prepare taxes, keep records, apply/qualify for loans, credit cards, and more. Also, it protects your personal assets against lawsuits.
Get a business credit card
A business credit card will help you keep track of all your business expenses separately to avoid confusion. It also comes in handy when you’re doing your taxes. Having a business credit card will also help you build your business credit store.
Get an accountant
Getting an accounts expert is crucial. You’ll be busy with other operational tasks, and you may forget to file your taxes, and pay employees or suppliers. An accountant will save you from such hassles and put you in a position to track profits and losses, save on taxes, and avoid fines and penalties.
Get business insurance
As a startup, you may make some legal mistakes that may lead to expensive lawsuits. For this reason, it's necessary to make sure you get the appropriate insurance to protect your business. You can get a registered insurance agent to help you decide on:
- General Liability Insurance Cover: This covers you against public claims of property damage, bodily injury, or personal injury like slander. These can be expensive, and you’ll need a large sum to cover such claims.
- Professional Liability Insurance Cover: Professional Liability Insurance (PLI) is a cover protecting experts like physicians, accountants, and lawyers against negligence claims from clients. You’ll need this cover to protect your professional against such claims. (Only applicable to PLLCs)
- Workers Compensation Insurance Cover: It’s also known as workers' comp and offers cover to employees who fall sick or get injured from a work-related cause. It also provides death benefits, disability benefits, and missed wage replacement.
Use IncFile to Complete Formation Process
You can use IncFile as your third-party service to bypass these steps. The Gold Plan offers to:
- Cover filing state fees
- Preparation and filing of articles of organization
- Unlimited name searches
- Free service of a registered agent for the first year
- EIN tax number for your business
- IRS form 2553
- Operating Agreement
- Bank resolution
- Lifetime company alerts
- Business banking account
- Tax consultation for your business
- Online access dashboard
- Unlimited email and phone support
Hawaii Tax Filing Requirements
All LLCs in Hawaii must report their annual income to the IRS. They’re required to file:
- General Excise Tax: Instead of the Sales Tax, Hawaii imposes a seller’s permit tax on all LLCs.
- Register for Employer Taxes: Business owners are responsible for and are required to file for employee withholding tax and unemployment Insurance Tax.
Hawaii Annual Report
You’ll need to file form C5 with the Department of Commerce. You can file online or by mail, by fax, or in person. You're charged a fee of $12.50 for online filings and $15 for filings via hard copy. The Department of Consumer Affairs will provide a reminder at the beginning of the LLCs filing quarter.
A $10 fine is levied for late filings and may result in dissolution if not filed for two years.
Mailing Address: Department of Consumer Affairs Business Registration Division, P.O. Box 40, Honolulu, HI 96810
Office Address: 335 Merchant St., Room 201 Honolulu, HI 96813
Fax: (808) 586-2733
Federal licensing isn't a necessity for all LLCs. You’ll need it if your business is regulated by the federal government. Examples of LLCs that must be compliant include:
- Fishing and wildlife,
- Firearms and ammunition,
- Tv broadcasting
- Nuclear energy
Federal Tax Filing Requirements
It’s a requirement by the federal government to make an annual report of your income to the IRS.
- Form 1065 Partnership Returns for most of the multi-member LLCs
- Form 1040 schedule C for most of the single-member LLCs.
Most businesses choose an LLC structure because it’s flexible and easy to operate. On top of this, it protects your personal assets from liabilities and debts of your business. If you’re looking to start an LLC in Hawaii, the guidelines discussed will point you in the right direction. If you face complications in the process, consider hiring a third-party service like IncFile to lift the burden off your shoulder.