Hawaii has historically been a challenging place to start a business, partly because of what makes it so incredible in the first place: It’s a remote archipelago. However, the Aloha State has gained favor among entrepreneurs in recent years, thanks to improved access to start-up financing and human capital. Whether your business idea plays on Hawaii’s thriving tourism economy or you dream of hiking in the mountains or strolling along the beach after a 9-to-5 office workday, here’s what you need to know about launching your Hawaii LLC.
What is an LLC?
A limited liability company, or LLC, is a common business entity for small business owners in the US. They’re straightforward and inexpensive to form and provide flexibility and other structural benefits.
LLC owners are called “members.” LLCs owned by a single individual are called single-member LLCs, and those with multiple owners are called multi-member LLCs. An LLC provides personal asset and liability protection for members and is taxed as a pass-through entity.
Is an LLC right for you?
Ask yourself the following two questions to determine whether an LLC is the right business structure for your Hawaii venture:
- Do you have personal assets that need protection? LLCs offer liability protection for members. As opposed to a sole proprietorship, running an LLC means you’re not personally liable. Your personal assets wouldn’t be on the line if your business faces bankruptcy or civil lawsuits.
- Are you looking to limit your tax liability? LLC members pay taxes only on earnings derived from an LLC based on their personal income levels. In other words, LLCs are treated as pass-through businesses, meaning any profit is subject to just a single round of taxation. This is in contrast to so-called double taxation, in which corporations pay taxes on their profits while shareholders also pay taxes on any dividends they receive.
LLCs are ideal if you want to hire a few employees, create business bank accounts, or eventually transition into a corporation. Take the time to compare and contrast common business structures before deciding.
1. Name your Hawaii LLC
A good business name helps build brand recognition. Choose a title that communicates what you do and attracts the right customers. Make it short and memorable—and keep the following LLC naming requirements in mind as you brainstorm:
- Be unique. Your Hawaii LLC name must be different from any other business name in the state—registered or not. Start by searching Hawaii’s Department of Commerce and Consumer Affairs registry to see which business names are in use. Then, conduct a broader search to determine whether another Hawaii business has your desired name. The Department only checks that “no one else has a substantially identical registration” and notes that, “the first person to make active and continuous use of the name is the person who owns the name.” Essentially, if another business uses or has used the same name and is known in the community, they’re granted ownership rights to the name, even if it isn’t registered with the state.
- Include the proper suffixes. Hawaii LLC naming guidelines require the use of the words “Limited Liability Company,” or its abbreviations “LLC” or “L.L.C.,” within official business names.
- Reserve a business name. You can reserve your LLC name before officially registering it through Hawaii Business Express for $10 to $35, depending on whether you prefer an expedited review.
- Adopt a trade name. A trade name in Hawaii, also known as a DBA (short for “doing business as”), is a fictitious business name different from the legal name under which your business is licensed. Like your business name, your trade name must be different from any other business or trade name used in Hawaii. File for a trade name using Hawaii’s Business Express site. It costs $50 to $70, depending on if you’d prefer expedited services.
- Secure a domain name and social media handles. Once you’ve locked down a business name and, if you choose, a trade name, reserve a domain name (URL) and social media usernames that align with your title.
2. Create a business plan
A business plan is a professional document you revisit to assess your business concept, market, and goals over time. While a business plan is optional, it can help keep everyone on the same page when running a multi-member LLC. An effective business plan includes the following elements:
- An executive summary and mission statement
- A detailed company description
- Market analysis
- Your organizational structure
- A list of products or services
- A marketing plan
- A logistics and operations plan
- A financial plan
3. Choose a registered agent in Hawaii
Designate an LLC organizer, known in most other states as a registered agent. Your LLC organizer serves as the public contact between the government and your business. If there are legal or regulatory proceedings against the company they can act on the LLC’s behalf. Your LLC organizer must maintain a physical mailing address—not a PO box—and be physically present in Hawaii. You can appoint yourself as your LLC organizer or hire a registered agent service for a fee.
4. File Hawaii Articles of Organization
Once you have a registered agent, form your LLC in Hawaii by submitting Articles of Organization, also known as Form LLC-1, to the Business Registration Division with the $50 filing fee. Prepare to include the company name, the mailing address of the initial principal office, the registered agent’s name and address, the name and address of each member, the date the LLC was established, the company’s period of duration (which can be indefinite).
5. Get a federal employer identification number (EIN)
After filing your LLC with the Business Registration Division, apply for a federal employer identification number, or EIN, through the Internal Revenue Service (IRS), free of charge. An EIN identifies your business to federal tax authorities and allows you to apply for permits and licenses, hire employees, and open business bank accounts. It’s like a Social Security number for businesses.
6. Get your business licenses and permits
Depending on your industry, you may need to acquire other permits. For example, you may require special permissions if you provide transient accommodations, sell tobacco and alcohol, or operate a travel agency. The Department of Commerce and Consumer Affairs’ Business Action Center provides information on permits and licenses for your industry and lists county government (Hawai‘i, Kaua‘i, and Maui) contact information for additional requirements.
7. Understand Hawaii state tax requirements
Hawaii’s state sales tax rate is 4%, which you must remit to the state. Some counties and cities, like Maui and Honolulu, impose local surcharges of up to 0.5%, for a maximum possible combined sales tax of 4.5%. (The average sales tax after local surtaxes is 4.35%.) Specific industries, like wholesaling and manufacturing, have lower GET tax rates.
Unless you elect to have your LLC treated as an S corporation, state taxes are applied the same way as federal taxes—once at the personal income levels of LLC members. Learn more about becoming an S corporation through the Internal Revenue Service.
8. Create an operating agreement for your LLC
An LLC operating agreement is a legal document that outlines how your company will conduct business and outlines LLC owners’ roles and responsibilities. Hawaii does not require an operating agreement to form an LLC. Operating agreements typically include:
- Your LLC’s name and primary address
- Date of LLC formation and how long you plan to run the LLC
- Information on the LLC’s registered agent
- Information about the articles of organization
- The business’s purpose and mission statement
- Organizational chart listing members and their respective investments in the LLC
- How profits and losses will be divided among the members
- The process for admitting new members and offboarding outgoing ones
- An overall management plan for the LLC
- Various indemnification and liability provisions
9. Examine business insurance options in Hawaii
If your LLC has employees, you need two federally mandated business insurance policies: unemployment insurance and workers’ compensation insurance. Unemployment insurance is a state-based program that funds benefits for employees out of work by no fault of their own. Workers’ compensation covers a portion of lost wages, medical bills, disability, and death benefits in the case of a workplace accident and protects employers from any related lawsuits.
However, you’ll likely still want additional coverage in case of unforeseen mishaps. Visit Hawaii’s Insurance Division to research insurance providers registered with the state. Some policies you may want to consider include:
- Professional liability insurance. Professional liability insurance—often called errors and omissions insurance—covers damages due to claims of negligence or misconduct.
- General liability insurance. General liability insurance covers general third-party claims against your LLC, including bodily injury and property damage.
- Commercial property insurance. Commercial insurance coverage, also known as business insurance coverage, protects commercial property and assets in case of lawsuits, theft, property damage, and disasters.
10. Understand financial considerations
Your business plan likely outlines how much revenue you need to break even and generate a profit. You may need to obtain start-up capital, rent a brick-and-mortar retail space, commission a professionally designed website, or hire professional services like lawyers or accountants. These costs can quickly add up. Luckily, there are accessible options for obtaining startup funding early. Fundraising options in Hawaii include:
- Angel investors. An angel investor invests in your business for equity, knowing that it may take you time to pay them back—or even lose their investment if the business fails. To find local angel investors, check out Hawaii Angels, which bands together investors from across the state.
- Venture capital. Fundraising through a venture capital firm means a group of professional investors, rather than an individual, administer an investment in your business.
- Business loans. There are many business loans, like micro-loans, commercial bank loans, and Small Business Administration–guaranteed loans. The SBA’s Hawaii office is located in Honolulu.
- Online options. Online loan options, like Shopify Capital, provide start-up funds with the option to pay back the loan incrementally with each sale.
11. Market your LLC
- Market research. Market research is essential to understanding your LLC’s target customer. Take the time to learn who they are and what they want. Then, identify your competition and how your business differs.
- Advertising and promotion. Paid advertising—online or in print—remains a tried and true way to get the word out about your business. Produce ads yourself or hire an agency to do it on your behalf.
- Social media. Most businesses maintain social media presence across several platforms, including Facebook, Instagram, YouTube, and TikTok. Consistently publishing content that aligns with your brand can increase your visibility and help attract consumers.
- Customer retention. Leverage your marketing materials and platforms to build genuine relationships with your customers. Good experiences keep them coming back and encourage them to introduce your business to friends, family, and colleagues.
- Set metrics for success. Create financial goals you want to reach with your marketing strategies, including a target conversion rate (the share of customers who make a purchase).
Starting an LLC in Hawaii FAQ
How much does it cost to start and maintain an LLC in Hawaii?
It costs about $50 to $75 to register an LLC in Hawaii and about $10 to $35 to reserve a business name in the state, depending on whether you choose general or expedited services. To remit sales tax, you must apply for a GET license and pay a $20 one-time fee.
Do you need a registered agent for your LLC in Hawaii?
Yes, you must identify a registered agent (known in Hawaii as an LLC organizer) for your Hawaii LLC. You can appoint yourself or hire a registered agent service. The registered agent must reside and maintain a physical address (not a PO box) in Hawaii.
How do state taxes work for LLCs in Hawaii?
Hawaii LLCs are considered pass-through entities, meaning all taxable profits are passed on to members, who claim them on their personal tax returns. Apart from GET taxes that must be collected and remitted to the state, Hawaii does not collect additional state taxes on LLC profits.