Free Hawaii LLC Operating Agreement
A Hawaii operating agreement is a contract establishing the rules, structure, and procedures of your LLC. The operating agreement is legally binding once signed by all members. It determines how your LLC will manage the “big-picture” situations your business is likely to face, including voting procedures, transferring membership interest, allocating profits and losses, and dissolving the business.
Unlike the Hawaii Articles of Organization, an operating agreement is an internal document, so you don’t need to file it with the Department of Commerce and Consumer Affairs. However, an operating agreement is one of your LLC’s most important documents. That’s why Northwest provides a range of free, attorney-drafted operating agreement templates for Hawaii LLCs.
Why should a Hawaii LLC have an operating agreement?
A Hawaii LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.
Hawaii state law doesn’t explicitly require LLCs to adopt an operating agreement. However, creating a strong operating agreement now will likely spare you headaches in the future. Here’s why.
1. An operating agreement is required to open a business bank account.
Some banks require LLCs to have an operating agreement in order to open a company bank account, a step needed to keep your business and personal spending separate and maintain limited liability.
2. An operating agreement can help reinforce your limited liability status.
To preserve your limited liability status, your LLC must be able to prove that it is a separate legal entity from its members. By following the rules and proceedings detailed in your operating agreement, you help to demonstrate that your LLC is its own legal entity and is following protocols. If you ever have to fight a lawsuit, having a thorough operating agreement will be crucial.
3. An operating agreement can help your members come to agreement.
When you go into business with other people, disagreements are bound to arise. It’s important to cement verbal agreements in a written operating agreement so that you have something to refer back to in the case of a dispute.
4. An operating agreement can override Hawaii’s default laws.
If you don’t have an operating agreement, your LLC will be subject to Hawaii’s default LLC statutes. These statutes might not fit the needs of your company. By creating a customized operating agreement, you can exercise more control over your LLC.
Hawaii Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of Donnelly v Jewel of Kahana LLC where disputes erupted among the members of the LLC, and some members demanded to be ‘cashed out’ for their membership in the LLC. Despite conflicting claims on the valuation of the members’ interest in the LLC, the LLC operating agreement clearly outlined the process for determining a disassociating member’s interest. As a result, the reviewing court upheld the arbitrator’s determination and application of the valuation process, resulting in the preservation of the limited resources of the LLC (and the other remaining members). Because the members hammered out their expectations and understanding of how a disassociating member’s interest in the LLC would be valued, valuable resources were preserved.
“On the other hand, the Donnelly case is a prime example of why it is important for members to anticipate and plan for their exit strategies in the event they wish to disassociate. Because the dissociating members in the Donnelly case failed to think that far in advance and never revised or modified the valuation process under the LLC’s operating agreement, their interest was valued at zero dollars, leaving them with nothing.”
What is included in a Hawaii LLC Operating Agreement?
Your operating agreement should demonstrate how your Hawaii LLC will handle all the major situations your business is likely to encounter. You can cover anything in your operating agreement that isn’t counter to Hawaii state law, but you should be sure to include the following topics:
- Membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
Topics that are not allowed to be changed in a Hawaii operating agreement are listed in Hawaii Revised Statute § 428-103.
Is an operating agreement required in Hawaii?
No. Hawaii Revised Statute § 428-103 states that members of an LLC may enter into an operating agreement but doesn’t say that they must. However, if you don’t have an operating agreement, your LLC will be governed by the Hawaii Uniform Limited Liability Company Act.
Do I have to file my operating agreement in Hawaii?
Nope. Your operating agreement is an internal document, so you don’t need to file it with the Hawaii Department of Commerce and Consumer Affairs. Instead, you’ll keep your operating agreement on file at your business location.
Does a single-member LLC need an operating agreement?
Yes. While it might seem like a waste of time to create an operating agreement just for yourself, operating agreements have many important functions for single-member LLCs. You may need an operating agreement to open a company bank account or help fight a lawsuit. Without an operating agreement, you risk the possibility that a court will view your LLC as a sole proprietorship and find you personally liable.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.