Follow our free guide to form an LLC in Hawaii
- Pros and Cons of Forming an LLC in Hawaii
- Starting Your Hawaii LLC
- Maintaining Your Hawaii LLC
- Additional Hawaii Resources
Hawaii is more than a tourist’s paradise. Read the pros and cons of forming a business in Hawaii, and steps to start and maintain the company.
Pros and Cons of Forming an LLC in Hawaii
Record-Breaking Tourism Industry
The beautiful islands' nature and culture attract many tourists. Tourism in Hawaii contributes to the state’s economy and generates a majority of the jobs in the form of hotel, recreational activities, restaurants, and more. According to the president and CEO of Hawaii Tourism Authority, the Hawaii tourism industry achieved $16.78 billion in visitor spending, $1.96 billion in generated tax revenue, 9.38 million visitor arrivals, and supported 204,000 jobs statewide in 2017.
Business Exposure to Multiple Countries
Hawaii’s location opens the opportunity for business in the Asia-Pacific region as well as the United States. The USAPC (United States Asia Pacific Council) headquarters are in Honolulu. Hawaii, although still closer to California, is also a reasonable distance away from China and Japan, major manufacturers and suppliers for US businesses.
High Tax Rates
Hawaii has the second-highest individual income tax rate in the country, at 1.4-11% based on income. Hawaii does not have a sales tax, but they impose the GET (General Excise Tax) at 4-4.5%, which is imposed on all business activities including rental income, commissions, retail sales, services, etc.
Because Hawaii is so vastly isolated from the resources that its neighboring continents provide, and also prone to economic disaster, business costs such as rent, supplies, electricity, etc. are more expensive than national average, which will cause you to increase the price of your goods and services as well. Hawaii has repeatedly scored the bottom ranking in Wallethub’s “Best States to Start a Business” list, as one of the states with the highest labor costs, and one of the lowest availability of human capital.
Non-Ideal Living Conditions
Simply put, the living conditions do not seem to be worth the prices that locals have to pay. Weather is unpredictable, and prone to hurricanes, tropical storms, and flash flooding. Restoring from natural disasters is difficult, and the budget is limited because of Hawaii’s already poor infrastructure. The islands are highly criticized for the traffic and limited drinking water supply, causing residents of the island to supply their own water through rain basins.
Cost of Doing Business
- $50 Non-Refundable Filing Fee, plus $1 State Archive Fee / $15 Annual Report
- $20 General Excise Tax (GET) License
Starting Your Hawaii LLC
Starting a business in Hawaii can be done in six simple steps. The process is not that difficult when you have assistance. Here are the steps needed to ensure that your Hawaii LLC comes together correctly:
- Step 1: Name your LLC
- Step 2: Establish Ownership of your LLC
- Step 3: Decide on a Registered Agent
- Step 4: File the Articles of Organization
- Step 5: Create your Operating Agreement
- Step 6: Fill out the paperwork for an EIN
Step 1: Name Your Hawaii LLC
The first step of filing an LLC in Hawaii is choosing a unique business name. Before you solidify a name, there are a few guidelines to keep in mind:
- The official name of your business must end with: Limited Liability Company, Limited Company, LLC, or L.L.C
- Your business name cannot be intentionally misleading to consumers
- The name of your new LLC must not be similar to another organization’s name/trademark
In addition to the guidelines for your LLC name, there are also certain terms that are restricted or require additional paperwork to file.
If you file with any of the following terms, you might be rejected by the state:
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educational or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
LLC business names associated with government and/or financial entities are not always restricted, but additional paperwork may be required.
In this technological age, having an online presence is important. You can easily check domain name availability at a number of online web services sites.
Step 2: Establish Ownership
Owners of an LLC must define which management structure they would like to designate in their company. LLCs generally have two management structures:
- Member-managed (ownership of business is divided among the members and all parties receive portions of the profits)
- Manager-managed (the appointed manager is the main operator and the members are passive investors who are not actively involved in the daily business operations)
After you have selected a name for your business, you then need to choose a management structure and designate the members of the LLC. The rules concerning LLC ownership in Hawaii include:
Required Number of Members
Hawaii requires one (1) or more members to start an LLC.
Member Disclosure Requirements
Both members and managers of the LLC are not required to be listed.
There is currently no age requirement to form an LLC in Hawaii.
There are no residency restrictions imposed on LLC members in Hawaii.
Step 3: Find a Registered Agent in Hawaii
All LLCs in Hawaii are required to appoint a registered agent and record his or her contact information to the government. The contact information must include a physical address; P.O. boxes will not be accepted. This person must be reachable during standard business hours and act as the state’s point of contact for the company.
What is a registered agent?
A registered agent is a person or business who is authorized to accept official government notices (such as the service of process) on behalf of the LLC.
Why do you need a registered agent?
It is required to have a registered agent contact or the state will not accept your LLC documents. Certain materials are time-sensitive and require immediate action. Registered agents also manage the accuracy of your business. In the event that changes need to be made, registered agents can update these changes with the government.
Who can be a registered agent in Hawaii?
The requirements to be a registered agent are as follows:
- Yourself (the owner)
- A friend of family member
- A resident with a physical address
- An LLC or corporation that is licensed to conduct business in Hawaii
Please Note: Registered agents must have a physical address in Hawaii.
Why you may not want to be your own registered agent
Registered agent information is available for public record. For business owners who do not want to disclose their personal information, choosing to be your own registered agent is not ideal.
Tip: Avoid the hassles that come with being your own registered agent and choose Swyft Filings to fill the registered agent needs for small businesses in Hawaii. Find more information here.
Step 4: File the Articles of Organization
The Articles of Organization is the legal document required to register an LLC in Hawaii. The document must include the following information:
- The name of the LLC
- The location of the business
- The name(s) of the members or organizer filing the paperwork
- The name and location of the registered agent
- The chosen management structure
- Period of duration (how long it will remain in existence)
Additional Hawaii Filing Requirements
For the period of duration, you may select “At-will” if you do not have a set closure date. The date of registration will be the date that the Articles of Organization is filed. All filing fees are non-refundable.
Step 5: Create an LLC Operating Agreement
While an Operating Agreement does not need to be included in the filing documents, this agreement is still considered a vital necessity for any successful business to determine the structure of your company.
What is an LLC Operating Agreement?
The LLC Operating Agreement is an agreement between the members of the LLC that establishes how the operations and finances will function.
Why do I need an LLC Operating Agreement?
Because the LLC Operating Agreement defines the roles of the business’s members and provides direction for daily operations, the document ensures stability and structure to the LLC and reduces future disputes. If you are already experiencing disputes due to ownership, multiple investors, complex operations, or other issues pertaining to the business, consider finding assistance for a written agreement.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC operating Agreement, most documents include the following the information:
- Designation of the members/managers
- Initial capital contributions of the members
- Voting designations and percentages
- Member transfer/addition rules and restrictions
- Distribution of profits
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Add structure to your LLC now.
Step 6: Obtain an EIN
The state of Hawaii requires an EIN for any business that has/will have employees. Additionally, most banks and financial institutions require the EIN to open any accounts.
What is an EIN?
The EIN (Employer Identification Number) is also known as a Federal Tax ID and is a nine-digit number that is assigned to your business by the Internal Revenue Service (IRS). This is necessary to properly identify your company with the government, much like a social security number.
What business entities need an EIN?
The types of business entities that need an EIN include:
- LLCs with employees (even if owned by one person)
- LLCs with more than one member
- Partnerships (LLC or C-corp)
Please Note: A sole proprietorship is the only business entity that is not required to have an EIN.
Why is an EIN necessary?
The more common reasons you would need an EIN are:
- Hiring employees
- Opening a bank account in the U.S.
- Filing your company’s taxes
- Paying independent contractors
Please Note: If you collect revenue of any kind through a business entity, you will need an EIN.
Swyft Filings offers EIN services for small businesses in Hawaii. Find more information here.
Maintaining Your Hawaii LLC
Now that you have officially filed your Hawaii LLC, there are still steps to maintain the company’s compliance with government regulations. The next few steps are:
- Step 1: Register for the necessary taxes in Hawaii
- Step 2: Apply for the required permits and licenses
- Step 3: File the Annual Report for your LLC
- Step 4: Request a Certificate of Good Standing
Step 1: Register for Hawaii State Taxes
All business entities in Hawaii must register to do business in Hawaii. Additionally, you may apply for a professional or vocational license, register your trade name, and register trademarks and service marks.
Step 2: Obtain Business Licenses and Permits
Hawaii does not have sales tax, but the state requires a General Excise Tax (GET) license for LLCs to conduct business in Hawaii. Certain types of organizations might be eligible for GET exemption, according to the Hawaii Revised Statutes in chapter #237. Tax rate varies for the following industries:
- 0.15% for Insurance Commission
- 0.50% for Wholesaling, Manufacturing, Producing, and Use Tax on Imports for Resale
- 4% for all others*
*If you are conducting business in Oahu, you are subject to an additional 0.50% for their County Surcharge Tax.
Tip: If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: File an Annual Report
LLCs formed in Hawaii are required to file an annual report with the Department of State. The purpose of the annual report is to keep your business’s information and status updated with the state.
Due Date: All filings are due by the end of the quarter in which the LLC was originally filed. Quarter-end dates are:
- March 31
- June 30
- September 30
- December 31
Implications of Late Filings: Late filings will incur a $10 late fee annually.
Swyft Filings helps you stay compliant by providing stress-free solutions. File your annual report with us today.
Step 4: Obtain a Certificate of Good Standing
The final document you need is the Certificate of Good Standing, and an essential part of business verification.
What is a Certificate of Good Standing?
The Certificate of Good Standing is an official statement from the government agency that confirms your entity has met all the necessary requirements including fee payments, annual report, and taxes to conduct business in Hawaii.
Why should I obtain a Certificate of Good Standing?
The Certificate of Good Standing is necessary for due diligence when you need to renew specific licenses, move the business across state lines, verify bank or financial information, and even sell a business.
For the most part, any time you need to show your business is properly filed and fully compliant, you will likely need to present a Certificate of Good Standing.
Swyft Filings can create a Certificate of Good Standing for your Hawaii LLC. Click here for more information.