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Limited liability companies offer credibility, legal protection and potential tax advantages. Starting a Hawaii LLC can be an effective way to protect your personal assets and reduce your personal tax liability.
Forming a Hawaii LLC usually makes sense for businesses based on the islands. The state’s filing fees tend to be lower than average, and there aren’t any unusual or onerous filing requirements. You can set up an LLC in Hawaii relatively quickly and at a relatively low cost.
The LLC formation process generally entails six basic steps. You’ll need basic information about members (e.g., names and contact information) and the business (e.g., location, structure) to complete the process.
A detailed explanation of each step follows. Additional information on many aspects of starting an LLC in Hawaii is available from the Department of Commerce and Consumer Affairs’s Business Registration. More general information about LLCs is also available.
Start by naming your limited liability company if you haven’t already. If you have, make sure that the name you’ve chosen complies with Hawaii’s LLC naming requirements and isn’t already taken.
All LLCs registered in Hawaii must have business names that comply with the following requirements:
Once you have a business name that meets all of the regulations and that you like, you can reserve it through the Department of Commerce and Consumer Affairs (DCCA) Business Registration Division’s Hawaii Business Express.
An account is needed to log onto the platform, but you can access many business documents once you have an account. One of the forms is to reserve a business name. Reservations last for 120 days after they’re accepted. A $10 fee ($25 for expedited processing) is charged to reserve a business name.
Alternatively, you can choose your business name when you officially set up the limited liability company. Choosing a name is part of filing your LLC’s Articles of Organization (see Step 2).
While your official business name must have some form of “limited liability company,” the name you regularly use doesn’t necessarily have to contain this or an abbreviation of it. A trade name allows your business to function under an assumed name for marketing purposes.
You can file for a trade name through Hawaii Business Express or by completing an Application for Registration of Trade Name (Form T-1). The form can be mailed to the DCCA Business Registration Division at P.O. Box 40, Honolulu, HI 96810. It alternatively can be dropped off in person at 335 Merchant Street, Suite 201, Honolulu, HI 96813.
The trade name filing fee is $50 ($20 additional for expedited processing).
Trade name is Hawaii’s terminology for doing business as (DBA). The trade name functions essentially as a DBA would.
You can further protect your Hawaii LLC’s name by trademarking the name with the DCCA. Trademarking prevents other businesses from using the name for commercial purposes within the state. In some cases, you may want to trademark your business’s official name, trade name, and/or an abbreviation of either.
You can register a trademark for your name online through Hawaii Business Express, or via mail by completing the Application for Registration of Trademark (Form T-2). The form can be mailed to P.O. Box 40, Honolulu, HI 96810, or it can be dropped off at 335 Merchant Street, Suite 201, Honolulu, HI 96813.
The fee for trademarking a business name is $50 ($20 additional for expedited processing). For more information about trademarking in the state, the DCCA has an extensive three-page packet on the subject.
If you’d like to protect your LLC’s name even further, a federal trademark might be available. Extending trademark rights throughout the country (and not just in Hawaii) can prove wise if your business ultimately intends to expand. If you don’t foresee the business expanding into other states, a federal trademark is probably unnecessary.
Federal trademark applications can be filed with the United States Patent and Trademark Office. The searches required, and the filing process can be more intensive than trademarking in Hawaii is.
Articles of Organization must be submitted to legally establish your Hawaii LLC. These are the foundational documents for forming this type of business (as well as several other types).
Hawaii charges a $50 filing fee when you submit the articles of organization, and the fee isn’t refundable. The fee is payable by credit card or check, depending on how you choose to file.
There’s also a $1 state archive fee for non-online submissions (mail, in-person, fax or email), but this nominal charge can be refunded. Hawaii State Archives will refund the fee if you informally ask them to. You can reach the state archives at (808) 586-0329 or [email protected].
The DCCA’s Business Registration Division has a complete list of LLC formation and other fees.
The process of actually forming an LLC in Hawaii is fairly straightforward, and generally has only two major requirements:
Select states have additional requirements for operating agreements and/or publication. These aren’t requirements in Hawaii, although drafting an operating agreement still is a best practice. (See Create an Operating Agreement.)
The Articles of Organization should be filed with the Department of Commerce and Consumer Affairs – Business Registration Division. You can submit the articles several different ways:
If submitting a paper form (mail, fax or email), the form must be completed in type or black ink, but scans and photocopies are accepted. More information can be found on the DCCA’s Business Registration – Domestic Limited Liability Company page.
The purpose of a registered agent is to serve as the official contact for your LLC. They may receive tax notifications, service of process notifications, and other important communications from the state or other entities.
You may choose an individual or a commercial registered agent service to act as your LLC’s registered agent:
More information about a registered agent is available from the DCCA’s Business Registration Division.
The purpose of an operating agreement is to clearly explain the legal structure of an LLC. A well-drafted agreement will detail roles, ownership stakes, and the general operations.
The ownership section of an operating agreement should list each owner and what responsibilities and privileges they have. Contribution requirements, disbursement payments, management changes, ownership changes and dissolution are some main points to cover.
Non-ownership issues, such as the general carrying out of operations, can also be detailed. So can miscellaneous items that owners would like to address when forming the LLC.
Hawaii doesn’t require LLCs to draft an operating agreement, but creating one is recommended. Some of the issues covered in an operating agreement (e.g., management structure) are questions on the Articles of Organization.
Additionally, a thorough operating agreement can head off any disagreements that might arise later over owners’ contractual obligations.
Since Hawaii has no operating agreement requirement, there isn’t an official list of what should be covered by an operating agreement. If the Articles of Organization are used as a guide, however, ownership, duration, management and individual liability should all be included. So too should details such as those mentioned above (i.e., contributions, disbursements, etc.).
Per federal tax regulations, all LLCs in the United States need to obtain an employer identification number (EIN). An EIN may alternatively be referred to as an FEIN or FTIN at times.
An EIN acts as a unique identifying number for an LLC, similar to how a Social Security number (SSN) is a unique identifying number for individuals. You’ll use an EIN to identify your LLC when filing taxes (both federal and state), hiring new employees, and opening new financial accounts.
You’ll obtain an EIN from the IRS (and not Hawaii or another agency). The number is obtained by submitting IRS Application for Employer Identification Number (Form SS-4), which you can do several different ways:
There is no fee regardless of how you choose to apply. The fastest option is online during the allotted hours, as this will result in the immediate issuance of a number.
You can alternatively use a service to conveniently take care of obtaining an EIN. We offer a hassle-free service, taking care of the entire process and quickly obtaining a number for your LLC.
Once your LLC is officially formed and has its own EIN, the business will need to comply with a host of tax requirements.
LLCs are known as “pass-through” businesses, as they don’t actually pay taxes on revenue. Instead, they pass any revenue taxes onto business owners (and others) in the form of income tax.
This isn’t to say that LLCs don’t pay other taxes, however, and they also commonly remit taxes to the Hawaii Department of Taxation and the IRS.
The amount that’s taxed at these rates depends on whether an LLC is taxed as an LLC or an S Corp. You can choose between the two options, which is a somewhat more recent choice that the IRS has allowed:
The Federal Insurance Contributions Act (FICA) assesses taxes to fund Medicare and Social Security. The combined FICA tax rate is 7.65%, which breaks down into a Medicare tax of 1.45% and a Social Security tax of 6.2%.
The S Corp taxation option is more complicated than the simple LLC setup, and you should be prepared to pay additional bookkeeping, payroll and accounting fees if you opt for S Corp tax status. Avoiding the 7.65% FICA tax could result in significant savings if owners receive sizeable disbursements simply on account of their ownership interest.
FICA taxes only apply to federal taxes, and thus choosing S Corp status won’t actually impact how Hawaii taxes salary and disbursements at the state level.
Because this is a somewhat complex decision, you should consult an accountant before opting for S Corp status. An accountant will know how to evaluate which option is best for your LLC’s situation. (Should you need to change the taxation selection, you can do so annually.)
Income tax is paid on all money earned from your LLC, regardless of which taxation option is chosen. Both salaries and profits/distributions are subject to income tax.
Federal and state income taxes both follow a tiered system, where higher rates are changed on higher incomes:
Which federal and state forms are filed to report income from an LLC depend on the LLC’s structure and owners:
Owners of LLCs can have an accountant or other qualified tax professional file income taxes arising from a business. Alternatively, individuals can complete and submit the forms themselves.
Hawaii doesn’t have a statewide sales tax, but instead uses a general excise and use tax. General excise tax tends to be broader, and can be assessed on almost all business activities. Products, services, commissions, rental incomes and more are all usually subject to this tax.
The statewide general excise tax (GET) is 4% for most transactions, except wholesale transactions are taxed at a lower 0.5% rate. Oahu additional adds its own 0.5% surcharge on local non-wholesale transactions, using revenues from the surcharge to fund the city’s mass transit. There isn’t any federal general excise or sales tax.
Because the state’s general excise tax is so broad, your LLC will undoubtedly be responsible for collecting it and remitting it. The tax might be remitted monthly, quarterly or annually. It can be paid through Hawaii Tax Online or by mailing in the appropriate general excise and use form, and most businesses remit payments either monthly or quarterly.
Should you choose the LLC taxation option, FICA taxes will be replaced by self-employment tax.
Self-employment tax encompasses both the individual’s and the business’s Social Security and Medicare tax responsibilities. Traditional employees pay 7.65% FICA tax, and their employers pay 7.65% FICA tax. Since your LLC doesn’t actually pay any FICA tax, the burden is passed onto you in the form of a doubled self-employment tax.
The self-employment tax rate is 15.3%, which includes 12.4% Social Security tax and 2.9% Medicare tax.
Should you need to pay self-employment tax, quarterly payment of your estimated self-employment tax may be required. Estimated payments can be made through Hawaii Tax Online, or mailed along with an Individual Income Tax Payment Voucher. Mail-in payments are sent to Hawaii Department of Taxation, Attn: Payment Section, P.O. Box 1530, Honolulu, Hawaii 96806.
Should you choose the S Corp taxation option, FICA taxes will be assessed on your reasonable salary at a rate of 7.65%. These are paid by your LLC.
Payroll taxes don’t apply if you choose the LLC taxation option, as the 7.65% is already included in self-employment tax.
Hawaii doesn’t charge any other state taxes, but there is an annual report fee of $12.50. The annual report can be filed online through Hawaii Business Express. The platform has a specific page for finding your business and filing the report.
After completing all initially required filings, your LLC should be officially formed. There are some additional details that should be attended to at this time, so you can ensure the smooth operation of your business.
Business finances should be maintained apart from personal finances for several reasons.
On an accounting level, separate business finances make it easy to see a business’s revenues, expenses and profitability, which in turn makes it easier to give owners correct distributions. Should your business ever be audited, separation will also be helpful when answering questions.
Maintaining separate finances also lends your business an air of credibility when receiving or making payments, and sometimes can help maintain the LLC’s corporate veil.
To maintain separate finances, your LLC will need its own bank account.
A business bank account can be opened quickly online or in person, and there usually isn’t a fee for opening. Most banks allow you to open an account with only a small deposit, which remains yours to use as the LLC needs. You might also consider opening a business savings account if you have a larger initial deposit or expect to build a cash reserve.
All Hawaii LLCs are required to file an annual report along with a $12.50 fee. A late fee is assessed if annual filing doesn’t get completed on time, and failing to make an annual report for two years in a row can result in automatic dissolution.
The annual report is filed through Hawaii Business Express’s Annual Business Reports page. Payment can be made with a credit card when submitting the annual report.
Financial processes can be put into place once your LLC has a business checking account. You’ll need processes for receiving payments, making payments, paying employees and issuing disbursements, and all of these transactions must be recorded.
You should consult with a tax advisor, certified public accountant (CPA) or tax attorney.
A knowledgeable tax professional will be able to ensure that your LLC is taking advantage of all legal tax strategies and benefits, and they can help you streamline the various payment processes that are needed. They’ll also know how to best document transactions for internal record keeping and potential audits.
Depending on what your LLC does and where it’s located, you might have to secure licenses and/or permits. While Hawaii has some license and permit requirements, most of these are regulated by local municipalities.
A nearby attorney who helps businesses in the area should be familiar with all locally required licenses and permits. Someone in the municipal or county government will also know whether anything is required.
If you need any licenses or permits, be prepared to pay a small fee when obtaining them. It’s not uncommon for local governments to charge $100 or less for most, but some may have higher fees. Again, an attorney or government worker will know the exact fees for your area.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.