How to Incorporate in Hawaii vs. How to Start a Hawaii LLC

A Guide to Choosing the Best Business Entity in Hawaii

Now that you’ve decided to start a business in Hawaii, you’ve probably realized one of the most important decisions you’ll make is which business structure you should choose for your new business. The most common business entities in the country are the Limited Liability Company (LLC) and corporation, and have as many differences as they do similarities. This Hawaii formation and incorporation guide will help you to understand both business entities so you can make the right decision for your business. Here you’ll learn the details of starting an LLC and a corporation and the advantages and disadvantages of both entities.

After figuring out which business structure suits your needs best, your next step is hiring Active Filings to get you where you need to be in the quickest amount of time. Our starter package begins at $25 (plus state fees). Hire us and you’ll quickly understand why Active Filings is America’s most reliable business incorporation service.

 

Hire us to form your LLC or Corporation in Hawaii!

LLCs vs. Corporations

Here are the main characteristics true of all LLCs and corporations to help you start your decision-making process:

  • Maintenance
    Maintaining a corporation will need a high level of maintenance. Corporations are strict, and have legal obligations on duties like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance. On the flip side, LLCs only require a minimal amount of maintenance. LLCs require little paperwork, have flexibility in decisions, and low annual upkeep. An LLC will be the best choice if you have a small to medium-sized business and will need a low amount of maintenance.
  • Tax structure
    An LLC requires less tax-related paperwork since its not a separate taxable entity from its owners and members. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return. For higher income LLCs, the tax rate is usually lower than a corporation. Corporations default to a tax structure called a C corporation, and require more complex paperwork. The C corporation is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits and losses (dividends). C corporations are typically taxed at a lower rate on profits, have tax deductibles such as health care and travel, and and can retain its earnings to be reinvested into the company’s growth.
  • Investors
    Corporations are exceptionally better at gaining investors. Investors are more comfortable handing money over to a familiar and reputable business structure like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. In contrast, investors can own a percentage of an LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. Consider a corporation if you are serious about gaining investors.
  • Prestigious title
    The “LLC” or “Inc” ending on your business name gives it a level of status and prestige. These endings convey permanence and encourage trust from potential investors or clients. The appearance of a business starts with its name, and while both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. Keep in mind the LLC has surpassed corporations in popularity in most states, and their prestige can only continue to grow.

 

HI LLCs vs. HI Corporations

Now that we’ve walked through the main characteristics between LLCs and corporations, next is to dig into specifics of why a Hawaii LLC or Hawaii corporation would be better for your business. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details should be taken into consideration when choosing your business entity. The information in this section will provide these specifics for the Hawaii LLC and the Hawaii corporation.

  • Hawaii Corporate Income Tax
    Hawaii’s corporate tax rates are moderately priced compared to other states, and are fairly low if your corporation has an annual income under $25,000.
    Hawaii’s corporation income tax is imposed on any corporation doing business in Hawaii, and is taxed at marginal rates. In Hawaii, after a corporation gains over $25,000 in taxable revenue, a certain amount will be subtracted out based on taxable revenue brackets. The Hawaii corporate net income tax rates are as follows:
    4.4%: $0 to $24,999
    5.4%: $25,000 to $99,999 minus $250
    6.4%: $100,000 + minus $1,250
  • Hawaii General Excise Tax
    Hawaii has a gross receipts tax called the General Excise Tax (GET), since the state doesn’t have a sales tax for consumers and instead passes the tax on to the businesses. A lot of businesses will pass on the GET to consumers, making the GET appear like a sales tax, and providing a perk for businesses that want to lessen their tax burdens.
    Hawaii requires corporations to apply for a GET license on the Business Registration Division (BREG) website before paying the GET tax. This license has a one-time $20 fee.
    Unlike many states, Hawaii does not have a true privilege or franchise tax.
  • Hawaii Personal Income Taxes
    Hawaii imposes a progressive personal income tax, with 12 tax brackets. This tiered tax system is especially beneficial for small or new businesses, providing a notably low tax rate on low-income.
    The Hawaii personal income tax brackets are as follows:

    Tax Bracket Tax Rate
    $0.00+ 1.4%
    $2,400.00+  3.2%
    $4,800.00+ 5.5%
    $9,600.00+ 6.4%
    $14,400.00+  6.8%
    $19,200.00+ 7.2%
     $24,000.00+ 7.6%
    $36,000.00+ 7.9%
    $48,000.00+  8.25%
    $150,000.00+  9%
     $175,000.00+  10%
     $200,000.00+  11%
  • Hawaii LLC Interest Foreclosure Vulnerability
    A Hawaii LLC is not protected as well as LLCs in most states, and the corporate veil can be pierced enough to foreclose on an LLC. In most states, creditors have one remedy against the debtor of an LLC, which is a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, if the LLC makes a distribution. For Hawaii LLCs, this same charging order and same lien can be placed, except a court can also “order a foreclosure of the interest” (§425-129.b) on the LLC.
  • Hawaii LLC Events of Dissociation
    A couple unique provisions for Hawaii LLCs state certain events of dissociation, or events that cause a person to no longer be a member of an LLC, that can occur for members. A “transfer of distributional interest” (§428-502) is a statute stating that when a member transfers all of their distributional interest, besides for the reason of a foreclosing charging order, they are no longer a member of that LLC. Also, when a member transfers interest for a creditor, becomes a debtor in bankruptcy, or is unsuccessful in opposing a petition seeking the appointment of a trustee of a member’s property, they are no longer a member. (§428-601). This provides the LLC more control within their own business.

 

Hawaii LLC or Hawaii Corporation? Final Answer.

Choosing either a Hawaii LLC or Hawaii corporation for your business boils down to considering the size of your business, level of maintenance you require, priority of investors, and the most beneficial tax structure for the future of your business.

The Hawaii LLC is the ideal solution for small to medium-sized businesses. LLCs in this state are less expensive and tedious to form and maintain than corporations, and provide easy management, flexibility and liability protection. Hawaii LLCs stay true to design in their low maintenance and simple tax structure. If investors are not one of your top priorities, and you’re looking for liability protection for your business, the LLC is your answer.

The Hawaii corporation is the solution if your business will be growing substantially and investors will be key for that growth, and you have the means for the amount of paperwork required. A Hawaii corporation remains true to character in its extra paperwork, steps to start and maintain, and involved yet beneficial tax structure.

How to Incorporate in Hawaii

Starting a corporation in Hawaii, also known as incorporating, is achieved by filing the Articles of Incorporation with the Hawaii Business Registration Division (BREG) within the Hawaii Department of Commerce and Consumer Affairs (DCCA).

You can file the Articles of Incorporation in the following ways:

  • Online at the BREG website (recommended)
  • By postal mail
  • In-person at the BREG office
  • Email
  • Fax

There is a $51 filing fee ($50 filing fee plus the $1 State Archive fee) to file your Articles of Incorporation. There is an optional $10 fee if you’d like a certified copy, and an optional $25 fee if you’d like 3-day expedited services.

To complete your Hawaii Articles of Incorporation, you need to include the following information:

Your Hawaii corporation’s name must contain the word Corporation, Incorporated, or Limited or the abbreviation Corp., Inc., or Ltd.
Your corporation name cannot already be in use, cannot sound similar to the name of any other company in Hawaii, and cannot be geographical locations or have the word “partners” (and words such as “bank” or “university” will require further approval from the Commissioner of Financial Institutions).

Your mailing address can be either a street address or PO Box.

Enter your Hawaii registered agent’s name, state, and street address. All Hawaii corporations are required by law to have a registered agent physically located in the state to accept service of process on behalf of the corporation.

If you hire Active Filings to form your Hawaii corporation, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.

Enter the number of common shares the corporation will have the authority to issue (must be all of the same class). In the technology industry, larger numbers of shares are more common, such as 10 million. Other industries use much lower numbers, such as 1,000 – 1,500 shares.

List the name and complete street address of each incorporator in your corporation.

How to Start an LLC in Hawaii

Forming an LLC in Hawaii can be performed by filing the Articles of Organization with the Hawaii Business Registration Division (BREG) with the Hawaii Department of Commerce and Consumer Affairs (DCCA).

You can file the Articles of Organization in the following ways:

  • Online at the BREG website (recommended)
  • By postal mail
  • In-person at the BREG office
  • Email
  • Fax

There is a $51 filing fee ($50 filing fee plus the $1 State Archive fee) to file your Articles of Organization. There is an optional $10 fee if you’d like a certified copy, and an optional $25 fee if you’d like expedited services (3 day wait time).

To complete the Hawaii Articles of Organization, you must include the following information:

Your Hawaii LLC’s name must contain the word: Corporation, Incorporated, or Limited, or the abbreviation of one of the words, Corp., Inc., or Ltd.

Your LLC name can’t already be in use, and can’t include words that could confuse your business with a government agency. Restricted words, such as bank or university, may require additional paperwork to be accepted.

Your mailing address can be either a street address or PO Box.

Enter your Hawaii registered agent’s name, state, and street address. All Hawaii LLCs are required by law to have a registered agent physically located in the state to accept service of process on behalf of the LLC.

If you hire Active Filings to form your Hawaii LLC, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.

List the name and complete street address of each organizer in your LLC.

Specify whether your LLC will exist perpetually or exist for a specified period of time.

Specify whether your LLC will be manager-managed or member-managed, and list the names and full addresses of the management.

Check the boxes regarding the liabilities of your company.

Hawaii Annual Report Requirement

Completing annual maintenance tasks and taxes will let your business maintain good standing and stay updated with the state of Hawaii.

  1. File your annual report
  2. File your Hawaii business taxes

Below, we’ve listed the instructions and resources you’ll need to help you take care of your annual maintenance.

What is a Hawaii annual report?

A Hawaii annual report, also referred to as an annual statement, is a form filed with the BREG. The report is meant to update or confirm the records for your business, and lets your business remain in good standing.

How
do I file an annual report in Hawaii?

Corporations and LLCs can file their annual reports online or through postal mail at the BREG website.

How much does it cost to file an annual report in
Hawaii?

For LLCs and corporations, the annual report fee is $12.50 if filed online, and $15 if filed through postal mail, including the additional $1 State Archive Fee for all filings. You can choose to expedite a filing in 1-3 days for an additional $25 as well.

When are Hawaii annual reports due?

Your annual report will be due depending on your LLC’s approval quarter:

• LLCs approved in Q1, between January 1 and March 31: Due by March 31

• LLCs approved in Q2, between April 1 and June 30: Due by June 30

• LLCs approved in Q3, between July 1 and September 30: Due by September 30

• LLCs approved in Q4, between October 1 and December 31: Due by December 31

You won’t have to file an annual report the same year you registered your business. If you’re unsure of your business’s registration date, you can find out by going to the DCCA BREG website and looking up your business on the Business Entity and Documents page.

 

Hawaii Business Taxes

Hawaii’s business taxes can be complex, and have many moving parts. For corporations, the state imposes a corporate income tax. For LLCs, the profits are only taxed on the owner’s or member’s personal taxes.

The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Take a look at our Hawaii Business Tax FAQ below:

What’s the Hawaii corporation income tax?

Hawaii’s corporation income tax is imposed on any corporation doing business in Hawaii, and is taxed at marginal rates. However, in Hawaii, after a corporation gains over $25,000 in taxable revenue, a certain amount will be subtracted out based on taxable revenue brackets. The Hawaii corporate net income tax rates are as follows:

4.4%: $0 to $24,999

5.4%: $25,000 to $99,999 minus $250

6.4%: $100,000 + minus $1,250

What tax form does a Hawaii corporation need to file?
A Hawaii C corporation will need to file tax form N-30.

How can I file the Hawaii corporate income tax?
A corporation can file their Hawaii corporate income taxes electronically or by paper form return.

What’s the Hawaii General Excise Tax (GET)?

The Hawaii General Excise Tax is a privilege tax on the gross income of any business operating within Hawaii. The tax percentage you will pay depends on the island where your business is located, and on type of business activity:

  • .15%: Businesses gaining commission from insurance sales.
  • .5%: Businesses involved with wholesale services and goods, manufacturing, producing. This also applies to disabled persons engaging in business activities.
  • 4%: Businesses involved with commission, retail, renting/leasing property, construction or contracting.

What application needs to be submitted for the Hawaii GET license?

To obtain your GET license, file Form BB-1 with the BREG. This form can be mailed in, submitted online, or submitted at the Business Action Center in Honolulu.

What tax forms are used to file the Hawaii GET?

Businesses will need to file Form G-45 and Form G-49 to report and pay the GET. The Form G-45 is for periodic returns, and Form G-49 is the annual return.

How can I file the Hawaii GET?

A business can file their Hawaii GET electronically or by paper form return.

What’s the Hawaii personal income tax?

Hawaii imposes a progressive personal income tax, with 12 tax brackets. This tiered tax system is especially beneficial for small or new businesses, providing a notably low tax rate on low-income.
The Hawaii personal income tax brackets are as follows:

Tax Bracket Tax Rate
$0.00+ 1.4%
$2,400.00+  3.2%
$4,800.00+ 5.5%
$9,600.00+ 6.4%
$14,400.00+  6.8%
$19,200.00+ 7.2%
 $24,000.00+ 7.6%
$36,000.00+ 7.9%
$48,000.00+  8.25%
$150,000.00+  9%
 $175,000.00+  10%
 $200,000.00+  11%

What tax forms does a Hawaii LLC need to file?
Besides the GET, a Hawaii LLC taxed as a partnership (multi-member LLC) will need to file informational return Form 1065, which will include the mandatory Schedule K-1. A single member LLC taxed as a sole proprietorship (disregarded entity) only has to report business profits and losses on their personal income tax return, which will include the mandatory Schedule C.

When are my business tax returns due?

Hawaii corporations must file their returns on or before the 20th day of the 4th month following the close of the taxable year. For calendar year taxpayers, this is April 20th.

For the GET, the frequency of your periodic returns depends on the amount of taxes you have to pay during the year:

  • File Form G-45 semiannually (every six months) if you’ll pay $2,000 or less in GET per year, including the county surcharge.
  • File Form G-45 quarterly (every three months) if you’ll pay $4,000 or less in GET per year, including the county surcharge.
  • File Form G-45 monthly if you’ll pay more than $4,000 in GET per year, including the county surcharge.

These periodic tax returns are due on the 20th day of the month following the close of your monthly, quarterly, or semiannual filing period. For example, the tax return for the semiannual period January through June is due by July 20th.

Hawaii multi-member LLCs must file by the 15th day of the 3rd month following the date its tax year ended. For calendar year filers, the due date is March 15th.

Hire us to form your LLC or Corporation in Hawaii!