Definition

What is an LLC?

A Limited Liability Company (LLC) is a business structure used by individuals and entities to limit their personal liability. LLCs are popular due to their management style and taxation flexibility. LLCs have become increasingly popular as an entity choice for small businesses. 

Unlike other corporate structures, LLC members are not personally responsible for any business debts or obligations – instead, this responsibility falls on the LLC itself. As a result, LLC members are not personally liable for lawsuits against the business. Additionally, LLCs can provide tax benefits that other corporate structures cannot, such as pass-through taxation and disregarded entity status for single-member LLCs. For these reasons and more, LLCs can be a great way to protect yourself, your business, and your assets.

Advantages

Advantages Of an LLC In Hawaii

Forming a Limited Liability Company (LLC) in Hawaii can benefit entrepreneurs and small businesses. An LLC is a business structure that combines a sole proprietorship’s and a partnership’s pass-through taxation with the limited personal liability of corporations. There are many advantages to forming an LLC in Hawaii, including exemption from income tax, easy tax filing, low-cost formation, and the ability to raise funds. Let’s take a closer look at these benefits.

Disadvantages

Disadvantages Of An LLC In Hawaii

Entrepreneurs looking to start a business may consider forming an LLC in Hawaii due to its favorable tax laws and regulations. However, consider these four potential drawbacks of establishing an LLC in Hawaii before setting up.

LLC Formation

How To Form An LLC In Hawaii

You have an idea for a business venture and want to formalize it in Hawaii. One of the best ways to do this is to form an LLC (limited liability company). Forming an LLC might seem like a long and complicated process, but it doesn’t have to be. Below we will have a complete breakdown of the process of forming an LLC in Hawaii.

1. Choose a unique name for your business
2. Choose a registered agent in Hawaii
3. File your Articles of Organization
4. Create an Operating Agreement
5. Apply for an EIN

Choose a unique name for your business

When forming an LLC in Hawaii, choosing a unique name for your business is important. This ensures that no other business has the same name as yours and allows you to establish a distinct identity. When selecting a name for your LLC, remember that the name must include “Limited Liability Company” or one of its abbreviations, such as “LLC” or “L.L.C.”

The name should be easy to remember and descriptive of the business you are creating. Additionally, it should not include restricted words like “bank,” “attorney,” “university,” or any other words that could confuse customers and mislead them into thinking you are a government agency or licensed professional.

It is also important to ensure that your name does not infringe on any existing trademarks. To do this, perform a trademark search through the United States Patent and Trademark Office. If you find that another entity has already registered a similar name, it is best to choose another name for your LLC.

Once you have chosen a unique name, you must register it with the Hawaii Department of Commerce and Consumer Affairs (DCCA). When registering, ensure the spelling and punctuation are correct, as this will be included in all official documents related to your LLC. After registration, you can start operating your business under the chosen name.

A unique and protected name is essential for any business, particularly when forming an LLC in Hawaii. Taking the time to choose a name that meets all legal requirements will ensure that you have a strong foundation for success.

Choose a registered agent in Hawaii

When forming an LLC in Hawaii, you must appoint a Registered Agent. A Registered Agent is a person or business entity authorized to receive legal papers on behalf of the LLC if it is sued.

Hawaii requires that your Registered Agent have a physical address in the State and be available during normal business hours to accept legal documents. The Registered Agent can be an individual or a corporation authorized to do business in the State.

It is important to choose a Registered Agent that can provide reliable service and is familiar with the requirements of LLCs in Hawaii. The Registered Agent should also be prepared to advise on the formation and management of your LLC.

When selecting a Registered Agent, consider their experience and overall reputation. Make sure the Registered Agent is responsive and willing to answer any questions you may have and that they are familiar with Hawaii’s LLC laws. Additionally, ensure the Registered Agent is willing to provide regular notifications and reminders of filing deadlines.

Finally, you should check to see if the Registered Agent charges a fee for their services and ask about any additional services they may offer. The cost of registering an LLC in Hawaii is typically low, but you should ensure you have the full picture before deciding.

File your Articles of Organization

The Articles of Organization document is the official paperwork that formally creates a Limited Liability Company (LLC) in Hawaii. It includes important information about the LLC, such as its name, address, purpose, and registered agent.

The Articles of Organization should be filed with the Department of Commerce and Consumer Affairs (DCCA) Business Registration Division. The filing fee is $50 for a single-member LLC and $70 for a multi-member LLC. After the filing, the DCCA will issue an Articles of Organization Certificate to confirm the LLC’s formation.

Once the LLC is formed, it will be subject to ongoing compliance requirements. These include filing Annual Reports and paying franchise taxes. The LLC will also need to obtain any required licenses and permits for its activities and may need to maintain a registered office in the state.

Create an Operating Agreement

The Operating Agreement is a legally binding document that outlines the rules and regulations of running a business as an LLC in Hawaii. This document should cover the following areas:

1. Name and purpose of the company: The Operating Agreement should clearly define the name of the LLC and its purpose. It should also include a description of the business activities that will be conducted.
2. Membership: This section should detail the members of the LLC and their respective roles. It should also include information on how members can join or leave the company.
3. Contributions: The Operating Agreement should define the contributions expected from each member and how those contributions will be allocated.
4. Management: This section should include details on how the LLC will be managed and by whom. It should specify who has the authority to make decisions and when and how it will be used.
5. Voting: This section should outline how decisions will be made within the LLC and what kind of majority is required.
6. Distribution of Profits and Losses: This section should define the distribution method of the profits and losses among members.
7. Dispute Resolution: This section should describe the procedures followed if a disagreement arises among members.
8. Dissolution: This section should include information on how the LLC can be dissolved.

By creating and signing an Operating Agreement in Hawaii, all members of the LLC agree to abide by these rules and regulations. An Operating Agreement is an essential document for any business in Hawaii, as it sets out the expectations of the LLC and provides legal protection for all members.

Apply for an EIN

To apply for an EIN for a Limited Liability Company in Hawaii, you must first provide certain documents and information that demonstrate the LLC’s legitimacy. These include a valid Hawaii business license, articles of organization, registration information from the Department of Commerce and Consumer Affairs in Hawaii, and the names and Social Security numbers. 

Once you have gathered this information, you can apply for an EIN by filling out Form SS-4, Application for an Employer Identification Number. You can either complete this form online at the IRS website or submit it by mail to the address provided on the form. When submitting by mail, a signed original of the form must be included. Once your application is complete, you should receive your EIN within four weeks.

Types of LLC

Which type of LLC is ideal for me?

In Hawaii, there are different types of Limited Liability Companies (LLCs) available for you to consider when starting a business. Here’s a brief overview of the types of LLCs available in Hawaii:

1. Single-Member LLC: This type of LLC is perfect for entrepreneurs or small business owners who wish to run their businesses independently. As the name suggests, a single-member LLC has only one owner or member. It combines the benefits of a sole proprietorship (ease of management) with the limited liability protection of an LLC.
2. Multi-Member LLC: A multi-member LLC is suitable for businesses that have two or more owners. This type of LLC allows members to share the management responsibilities and profits/losses of the business. Each member’s liability is limited to their investment in the company, offering protection to the owners from the company’s debts or legal issues.
3. Professional LLC (PLLC): A PLLC is designed specifically for licensed professionals, such as doctors, lawyers, accountants, architects, and engineers. This type of LLC allows these professionals to form a business together while still maintaining their professional liability. Hawaii requires PLLCs to follow specific rules, such as including the term “Professional Limited Liability Company” or an abbreviation in their business name.
4. Series LLC: Although not as common in Hawaii, a Series LLC is an advanced type of LLC that allows you to create separate series or divisions within a single company. Each series can have its own assets, members, and managers and is legally separate from the others. This structure offers greater flexibility and can be useful for businesses with multiple lines of operation or investment purposes.
5. Foreign LLC: If you have an existing LLC in another state and wish to do business in Hawaii, you’ll need to register as a foreign LLC. This allows your company to operate in Hawaii while still maintaining its original formation in the home state.

LLC Taxes

Applicable LLC taxes in Hawaii

As an LLC operating in Hawaii, taxes must form part of your business strategy. Awareness of the three main types applicable to you can be a key factor for long-term success: franchise tax, sales tax, and corporate income tax – all essential pieces in the puzzle for financial prosperity.

Franchise Tax

In Hawaii, LLCs are subject to the General Excise Tax (GET) and State Franchise Tax. The GET is a 4% tax on gross income, while the Franchise Tax is a flat fee of $50. However, if an LLC has more than one owner or shareholder and has a net income of over $100,000, then it must pay an additional 0.25% of its net income above $100,000. This additional tax must be paid simultaneously with the GET and Franchise Tax. 

Sales Tax

It is important for LLCs in Hawaii to understand the state’s sales tax rules. The state imposes a 4.166% general excise tax (GET) on all retail sales, including goods and services. The GET is imposed on each business transaction, not just on the final sale. 

For instance, a business may have to pay GET on supplies and materials purchased for manufacturing products. The GET rate is the same in all counties and cities but may be subject to additional taxes imposed by local governments.

Hawaii also collects use tax on goods and services purchased from out-of-state businesses but used in Hawaii. The use tax rate is equal to the GET rate, and businesses must pay the use tax on any goods or services purchased for consumption in Hawaii.

Corporate Tax

A Limited Liability Company (LLC) in Hawaii is subject to the state’s corporate income tax of 4.4% on its net income. This tax is imposed on the LLC’s taxable income after subtracting applicable deductions. The members of a Hawaii LLC are considered self-employed and are subject to the self-employment tax, which is equal to 15.3% of each member’s net income. For married LLC owners, each spouse is subject to the self-employment tax. 

In addition to these taxes, an LLC must file form N-1120 with the Hawaii Department of Taxation. This form is due on April 20th each year or on the 15th day of the 4th month after the end of the LLC’s tax year. The form must include information on all income and expenses, as well as any applicable deductions and credits.

Costs

Cost of forming an LLC in Hawaii

In Hawaii, the cost of forming an LLC is relatively straightforward. The state requires a one-time filing fee of $50 plus any applicable franchise taxes and fees. The franchise tax is $5 per member of the LLC, up to a maximum of $500. Additionally, an annual renewal fee of $15 is due on the anniversary date of the LLC’s formation. Any late fees or penalties will also be applied if the filing is not completed on time. 

It is important to note that these fees may vary depending on the specific circumstances of the LLC and its members, so it is important to consult a professional for more specific information. Additionally, other costs may be associated with forming an LLC, such as legal fees, accounting fees, and filing fees in other states. Forming an LLC in Hawaii can be relatively affordable by following the proper procedures and keeping up with all applicable taxes and fees.

Comparisons

Is LLC The Best Entity For Me?

Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.