A step-by-step guide to forming an LLC in Hawaii

Company formation is the process that involves forming a legal entity authorized to take part in business activities. Deciding on the ideal business entity while setting up a business is a crucial decision for entrepreneurs.

This is why entrepreneurs must familiarize themselves with the state's requirements and steps to form their company in that state.

Ideally, it is best to form a Limited Liability Company or LLC in Hawaii for businesses with more than one business founder.

Alternatively, a Hawaii nonprofit corporation is ideal for religious, educational, scientific, literary, and charitable causes.

How to Form an LLC in Hawaii

Choose a Name for Hawaii LLC.

Hawaii law requires companies to contain the phrase "Limited Liability Company," "L.L.C.," "LLC," "Limited," "Ltd.," "Company," or "Co."

LLC owners must choose a name that is not identical or the same as other companies already recorded with the Hawaii Department of Commerce and Consumer Affairs Business Registration Division.

Furthermore, the name of the LLC must not include words like attorney, lawyer, bank, etc., or terms that are used to describe any government agency.

A desired name for a limited liability company can be reserved for about 120 days by submitting proper documents and a small fee of $10.

Checking the Hawaii LLC naming guidelines will be helpful for more information on choosing a name.

Choose a Registered Agent

Appointing a registered agent is essential to create and operate an LLC in Hawaii. An LLC's registered agent is responsible for receiving significant legal documents on behalf of the LLC.

The registered agent must be available and on-site during business hours to receive such documents.

Ideally, a registered agent of an LLC in Hawaii must have a physical address in Hawaii.

A registered agent may be an individual, like the founder of the LLC, an employee, or a registered agent service.

Prepare and File Articles of Organization

Business owners need to file the Articles of Organization to form an LLC in Hawaii.

The Articles of Organization outline the key and essential information about the LLC, making it official.

To prepare the Articles of Organization, the following information is required:

• The name and address of the LLC.
• Name and address of the registered agent.
• The names and addresses of the LLC's founders.
• Organizational Structure.
• The primary members' or managers' names and addresses, depending on the organizational structure, i.e., manager-managed or member-managed.
• Declaration conveying whether or not the members are accountable for the debt and liability of the LLC.
• The duration for which the LLC will be in operation, if not perpetual.
• Signature of the LLC's founder.

To file Articles of Organization, a fee of $50 needs to be paid. Business owners can file the Articles of Organization online or by mail.

Prepare Operating Agreement

An operating agreement outlines how an LLC will operate. It is an internal record that specifies the members and managers of the LLC, their rights and responsibilities, and how the LLC should be run.

Hawaii law does not mandate business founders to prepare an operating agreement to form an LLC; however, it is recommended to prepare one. State LLC laws may govern the LLC without an operating agreement.

An Operating Agreement may include the following particulars:

• Name and address of the LLC.
• The time period for which the LLC will be in operation, if not perpetual.
• The registered agent's name and address.
• The company's purpose.
• Members of the LLC and their contributions.
• Management clauses.
• Profit and Loss share.
• Terms of Indemnification and Liability.
• Protocols for adding or dismissing members of the LLC.
• Details of Articles of Organization.

Obtain EIN

Employer Identification Number, or EIN, is a nine-digit number the IRS provides. It can be obtained free of cost by filing an application on the Internal Revenue Service website or by mail.

An LLC with two or more members must obtain an EIN from the IRS. Alternatively, obtaining an EIN is mandated if a single member forms an LLC in Hawaii but has employees or is taxed as a corporation.

An EIN is required for the following reasons:

• To hire employees
• For filing state and federal taxes
• Opening a bank account for the company

File Annual Reports

Hawaii LLCs are required to file an Annual Report on a yearly basis for a filing fee of $15. An annual report may be filed online or by mail.

Failure to file an Annual Report can cost a $10 yearly penalty fee. In addition, it may lead to the dissolution of the LLC if not filed for about two years.

Annual Reports must be filed with the Business Registration Division in the quarter that has the registration anniversary date.

Obtain the Necessary Licenses and Permits.

Once the LLC is formed, certain licenses and permits may be required to start the business operations. LLCs must abide by federal, state, and local regulations to operate a business in Hawaii.

For instance, all businesses operating in Hawaii must obtain a General Excise Tax License.

Business owners can check online for the federal and state licenses and permits required for their business. A county clerk may be contacted to learn about the local permits and licenses required in Hawaii.

How to Form a Hawaii Nonprofit Corporation

Decide on the Board of Directors for the Nonprofit Corporation.

A nonprofit corporation in Hawaii requires a minimum of three directors to be appointed.

The duties and responsibilities of a nonprofit's board of directors include maintaining the mission and purpose of the corporation, appointing new members, analyzing fund allocation, ensuring financial stability, developing and maintaining a positive image of the corporation, etc.

Choose a Name for the Nonprofit Corporation.

Choosing a name for the nonprofit corporation in Hawaii is an important step in forming the nonprofit. The name of the Hawaii nonprofit must not be identical to any other nonprofit existing and operating in Hawaii.

While choosing the nonprofit corporation's name, it is essential to note that the name must not suggest purposes or operations besides what is stated in the Articles of Incorporation.

While deciding the name of the nonprofit corporation, it will be helpful to check the availability of the name in the Hawaii Business database.

Appoint a Registered Agent

Appointing a registered agent is a mandatory step in forming a nonprofit in Hawaii. A registered agent is responsible for receiving vital legal documents on behalf of the nonprofit corporation.

A registered agent can be any individual or a business entity operating and having a physical address in Hawaii.

The founder of the nonprofit corporation, an individual from the corporation, can fulfill the role. Alternatively, a registered agent service may also be contacted to fill the role.

A registered agent must have an address in Hawaii, or the registered agent service must be a Hawaii-based entity available during the operating hours of the corporation.

Prepare and File Articles of Incorporation.

A nonprofit corporation in Hawaii is required to file the Articles of Incorporation. It can be filed with the Hawaii Department of Commerce and Consumer Affairs for a fee of $25 when filing online.

The Articles of Incorporation is the crucial document required to register a nonprofit corporation.

Articles of Incorporation in Hawaii must include the following information:

• Name and address of the nonprofit corporation.
• The purpose of forming the nonprofit corporation, i.e., educational, charitable, religious, etc.
• Name and address of the registered agent.
• Specifics required for the federal and state tax exemption status.

Prepare Bylaws

Nonprofit corporations in Hawaii must prepare bylaws that are in accordance with Hawaii law. It is a necessary step to acquire 501c3 status.

Bylaws specify the rules and regulations the corporation must follow in various situations. They act as a guide on how certain activities in the corporation should be carried out. For instance, appointing directors, conducting meetings, and handling other significant corporation formalities.

Bylaws simply outline the guidelines defining how the corporation must be operated.

Preparing bylaws and the conflict of interest policy is essential to create a pathway for people to carry out various vital tasks.

Prepare Conflict of Interest Policy

The conflict of interest policy lays out the guidelines for how people must operate for the better of the nonprofit. It limits the nonprofit's board of directors from making decisions based on their interests and benefits.

The conflict of interest policy must be adopted during the first organizational meeting, where the board of directors and officers are elected.

Organize a Board of Directors Meeting.

The organizational meeting or the first board of directors' meeting is held to discuss various important aspects of the organization.

Once the meeting is concluded, the minutes of the meeting should be prepared, and an official records binder must be created. It must store vital documents like the minutes of the meetings, articles of incorporation, bylaws, conflict of interest policy, etc.

The first organizational meeting must address the following:

• Appointing officers.
• Adopting bylaws.
• Adopting conflict of interest policy.
• Establishing an accounting period and a fiscal year.
• Sanctioning the nonprofit's initial transactions, like opening a corporate bank account.

Obtain an EIN

An Employer Identification Number (EIN) is a unique nine-digit tax identification number. It is used for federal and state tax filings. Obtaining an EIN is vital to apply for tax exemption.

EIN, or Federal Tax Identification Number or FTIN, provides the corporation with a unique identifier that the IRS can use.

Obtaining an EIN is necessary for the following:

• Opening a business bank account.
• Hire employees.
• Pay federal, state, and local taxes.

Obtain the Necessary Licenses and permits.

Depending on the purpose of the corporation, a nonprofit may require a number of licenses and permits to carry out operations in Hawaii.

File Annual Reports

Hawaii law requires all nonprofit corporations to file annual reports every year with the Department of Commerce and Consumer Affairs, Business Registration Division.

An annual report must include information such as:

• Name and address of the nonprofit corporation.
• The purpose of the nonprofit corporation.
• Name and address of the registered agent.
• Names and addresses of the directors, officers, etc.
• Date and signature of the person filing the annual report.

Apply for Tax Exemptions.

To be eligible to apply for tax exemptions, a nonprofit corporation must meet the following conditions:

• Appoint a minimum of 3 unrelated directors.
• Obtain an EIN.
• File the Articles of Incorporation.
• Prepare bylaws.
• Prepare conflict of interest policy.

Federal Tax Exemptions

Nonprofits must complete and submit Form 1023 to apply for federal tax exemption in Hawaii.

Filing and submitting Form 1023 requires providing various information, which includes:

• History of the nonprofit organization.
• Structure of the nonprofit organization.
• Financial information of the nonprofit corporation.
• Operations and policies of the nonprofit corporation.

In the case of a small nonprofit corporation, Form 1023-EZ may be filed.

State Tax Exemptions

When a nonprofit corporation receives a letter from the IRS confirming its tax-exempt status, it implies the nonprofit is exempt from federal taxes. This exemption is extended to state taxes too.

However, nonprofits may still apply for exemption from general excise tax since the state does not have sales tax.

For general excise tax exemption, nonprofits need to fill and submit FormG-6.

Final Thoughts

Successfully establishing a company is a crucial journey that involves taking various vital steps. The roadmap to forming a company begins with the decision of the choice of a company suitable to serve the intended purpose, a limited liability company or a nonprofit corporation.

From selecting a business structure to registering with the appropriate authorities, obtaining licenses and permits, and fulfilling tax obligations, each step plays a significant part in building a solid foundation for the company's future and must be carefully executed.

Lastly, staying updated and informed on the rules and regulations in Hawaii can ensure a smooth and successful company formation process.