How to Start a Business in Hawaii
Thinking of starting a business in Hawaii? You’ve got the right idea. With its sublime weather, rich culture, and low crime rate, Hawaii is an excellent place to live and work. Starting a business in Hawaii is simple—just sell an item or a service, and you’re a sole proprietor. But what if you’ve got something bigger and better in mind? Learn how to go beyond sole proprietorship, protect your assets, and meet legal requirements with our extensive guide to starting a business in Hawaii.
Ready to Start a Business in Hawaii?Let's Get You Started
Pick a Business Structure
Name Your Business
File Formation Paperwork
Draft Internal Records
Get Hawaii Business Licenses
Organize Your Money
Get Business Insurance
Understand Your Tax Burden
Build Your Business Website
File a Hawaii Annual Report
Apply for Trademarks
1. Pick a Business Structure
It doesn’t take much to start a business in Hawaii. Giving surf lessons to tourists? You’re a sole proprietor. Peddling homemade crafts around Oahu with a friend? You’ve got a general partnership. However, there is a disadvantage to this approach. Neither of these business structures offers liability protection. Your business debts and legal obligations are your personal responsibility. So if your business gets sued, your personal assets (car, house, surfboard) could be on the line.
To get liability protection, you need to register your business with the state as a separate entity. Creating this divide between your personal and business interests will help safeguard your personal assets if something goes wrong in your business. LLCs and corporations are the two most common business types that provide liability protection.
Hawaii Limited Liability Company (LLC)
Many small businesses form LLCs because this structure offers great flexibility. As an LLC owner, you can run day-to-day operations yourself or hire management. You also have more tax classification options than other business entities. To start a Hawaii LLC, you’ll have to file Articles of Organization for Limited Liability Company with the Department of Commerce & Consumer Affairs.
Corporations are bound by a more restrictive management structure than LLCs. Managing a corporation involves shareholders, a board of directors, and strict record keeping. While limiting, these layers of accountability also make corporations more appealing and dependable in the eyes of donors and investors. To form a Hawaii corporation, you’ll need to file Articles of Incorporation with the Department of Commerce & Consumer Affairs.
Can an LLC be just one person?
Yes! A one-person LLC is called a single-member LLC. Single-member LLCs are one of the most common kinds of businesses in the country. For the most part, single-member LLCs are just like multi-member LLCs, but there are some slight differences in how they file taxes and protect personal assets.
Read all about Single-Member LLCs.
What about a Hawaii nonprofit?
If the purpose of your organization is to benefit the public or serve a specific group’s shared interests, you can start a Hawaii nonprofit corporation. To officially form your Hawaii nonprofit, you’ll need to file Articles of Incorporation for a Domestic Nonprofit Corporation with the Department of Commerce & Consumer Affairs. You will also have to register as a charity with the Attorney General’s Tax and Charities Division if you plan to solicit financial contributions in Hawaii.
Want to learn more? Check out our Nonprofit Guide.
2. Name Your Business
You must conform to certain naming conventions when naming a business in Hawaii. If you’re a sole proprietor, your business name will simply be your name (“George Smith”) unless you get a DBA. With a DBA, you can do business under a more descriptive name, like “George’s Sunset Cruises.”
If you own an LLC or a corporation, your business name must meet Hawaii’s legal requirements. It must:
- Properly identify the business entity by using a term like “LLC” for a limited liability company or “Inc.” for a corporation.
- Be unique in the state of Hawaii.
- Not use words like “senate” or “police” that might cause your business to be mistaken for a government agency.
- Not use words like “charity” or “nonprofit” that suggest a false business purpose (unless your business is a charity or nonprofit).
- Not use words that describe a service that requires a professional license, like “dentist” or “law,” unless you provide that service.
Find out if your desired name is available in Hawaii by searching the Hawaii Business Entity Database.
Can I reserve a business name in Hawaii?
Absolutely. You can reserve your desired name for up to 120 days through Hawaii Business Express. If you want to cancel your reservation, you can compose and submit a letter of cancellation. Otherwise, your reservation will simply expire when your 120 days are up.
What is a DBA?
A DBA is any name your business uses other than its legal name. In Hawaii, DBAs are called trade names. In most cases, your business is required to operate using its legal name. If you own an LLC or a corporation, the legal name of your business is the name on record with the state. If you’re a sole proprietor, your business’s legal name is your own name. The exception, of course, is if you register a trade name.
To get a trade name for your business, you’ll have to file an Application for Registration of Trade Name form ($50) with the Department of Commerce & Consumer Affairs.
What about trademarked names?
It’s a good idea to check with the US Patent and Trademark Office (USPTO) to make sure your business name hasn’t been trademarked by someone else. If it has, and you use it anyway, there’s a chance that the business could come after you for infringement.
3. File Formation Paperwork
As a sole proprietor or part of a general partnership, you won’t have to file formation paperwork in Hawaii. However, you also won’t have the liability protections of an LLC or corporation. (You will still need to get a Hawaii business license, though.)
To form a Hawaii LLC or corporation, you’ll need to file paperwork with the Hawaii Department of Commerce & Consumer Affairs. This is the step that makes your business entity official.
- To form a Hawaii LLC, file Hawaii Articles of Organization.
- To start a Hawaii corporation, file Hawaii Articles of Incorporation.
Before you can complete these forms, you’ll need to secure the services of a Hawaii registered agent to handle legal notices for your business. You’ll also have to provide information about your business along with your registered agent’s name and address on the forms you submit to the Hawaii Department of Commerce & Consumer Affairs.
Note: The information you list in your articles will become available to the public. The names and addresses you provide will be posted online on the Hawaii Business Entity Database for anyone to find.
What is a registered agent?
A registered agent is the person or entity that receives legal mail on behalf of your business. Your registered agent must have a physical address in the state and must be available during regular business hours to accept service of process. Because many business owners travel or are mobile during the work day, it’s common practice to hire a registered agent service to make sure this important task is covered.
How can I keep my information off the public record?
The best way to keep your private information off the public record is to keep it off of these formation documents altogether. While you’ll be required to include the name(s) and address(es) of initial members or managers for an LLC, you can keep your personal address off the public record by hiring a registered agent service, like Northwest, and using their address instead.
4. Draft Internal Records
So far in this guide, we’ve dealt with public forms that you’ve had to file with the Hawaii Department of Commerce & Consumer Affairs. Now, it’s time to organize your internal records. These are the documents your business will keep on record within your company.
Though these documents are internal, you’ll likely need to show them to third parties like the bank or—if you start a nonprofit—the IRS.
Here are the major internal documents you need to organize for LLCs and corporations:
Hawaii LLC Operating Agreement
This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint officers. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including dissolution.
Drafting an operating agreement is hard, and the internet is full of shabby templates that have been copy and pasted from who knows where. So we had our attorneys draft a Hawaii LLC Operating Agreement template that you can use as a solid foundation.
Hawaii Corporate Bylaws
Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things. Unlike operating agreements, corporate bylaws are required by law in Hawaii (see HI Rev Stat § 414-36).
As with operating agreements, you can find plenty of bylaws templates online. But bylaws are pretty serious, so you don’t want to just use the first template you come across. Our attorneys drafted a Hawaii Corporate Bylaws template you can use to get started.
Starting a nonprofit? Learn about Hawaii nonprofit bylaws.
5. Get Hawaii Business Licenses
Every business in Hawaii will need a tax license. Depending on your industry and jurisdiction, you may also need additional licenses or permits to operate in The Aloha State.
Hawaii State Business Licenses
Hawaii has a universal tax license, which you’ll need to pay Hawaii state taxes and set up payroll for any employees. Most businesses will also need a General Excise Tax (GET) license. Business activities subject to GET include retailing, providing services, farming, and more. You can get a complete list of qualifying activities through the Department of Taxation.
Depending on your industry, you may need additional state-level licenses or permits to operate legally. For example, if your company is doing road work on a state highway, you’ll need to get a Permit to Perform Work Upon State Highways.
Not sure about which licenses and permits you may need? You can find a list a state-level license- and permit-issuing agencies through the Department of Commerce & Consumer Affair’s Business Action Center.
Professional and Vocational Business Licenses
If you work in a field that requires specialized training or education, you’ll need to get a professional or vocational license from the state’s Professional & Vocational Licensing Division (PVL). The PVL oversees licensing regulations, programs, and boards for over 50 professions and vocations, from accountancy to veterinary medicine. You can find a list of all license types on the Department of Commerce & Consumer Affairs, Professional & Vocational Licensing website.
Local Business Licenses
Depending on what type of work you do and where your business is located, you may also need county or city business permits. Many licenses are issued at the county level, including all liquor licenses. In Hawaii and Maui counties, you’ll need a license to do certain jobs, like working as a pawnbroker or auctioneer. Check with your local jurisdiction to find out if you need a local license.
Learn more about How to Get a Business License.
How do I get a Hawaii business tax license?
You can apply for all Hawaii tax licenses through either the Department of Taxation’s website, Hawaii Tax Online, or the Department of Commerce & Consumer Affair’s Hawaii Business Express online portal. You can even register for all of your tax licenses at the same time.
For industry-specific licenses and permits, you’ll have to go through the state agency responsible for overseeing your industry. The Departments of Agriculture, Health, Transportation, and Commerce & Consumer Affairs all issue state-level licenses and permits. Each department has its own licensing process and fee schedule.
How much does it cost to get a Hawaii business tax license?
The cost of a tax license depends on the license type. A Hawaii Business Tax License and a General Excise Tax (GET) License are both $20, while a state liquor tax license (not to be confused with a county-level liquor license) is only $2.50.
How do I get a professional or vocational license in Hawaii?
Requirements and fees for professional and vocational licenses vary by field and licensing agency. As a massage therapist, for example, you must meet education, training, and examination requirements in addition to submitting your license application and fee. You can find a complete list of all license types and qualifications and file licensing applications online through the Department of Commerce & Consumer Affairs, Professional & Vocational Licensing website.
How do I get a local business license?
The process of getting a local license or permit varies by type and jurisdiction. For example, if you need a new liquor license for a tour or cruise vessel in Honolulu county, you’ll apply through with Honolulu Liquor Commission, and the fee will be $375.
6. Organize Your Money
The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too.
Open a Business Bank Account
To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.
Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.
How do you set up a business bank account?
Do I need a business bank account to accept credit card payments?
Probably. Payment processors require you to provide them with a bank account. This is where they’ll deposit funds from transactions. Most of the time, this needs to be a business bank account.
Some payment processors may let you get away with listing a personal bank account, but it’s not a great idea. Mixing your business finances with your personal finances erodes the separation between you and your business, weakening your liability protection. It also turns tax season into a nightmare.
Learn more about Payment Processing.
Set up Payroll
Are you planning to hire employees or independent contractors? You’ll need to set up payroll in Hawaii. Here’s what you’ll have to do:
- get an EIN
- register for a Hawaii Unemployment Insurance (UI) account number
- find your Employer UI Contribution Rate
- determine whether you’re hiring employees or independent contractors
- prepare the forms your employees will fill out
- choose a payroll service or software
- decide on a payroll schedule
- report all new employees to The Child Support Enforcement Agency (CSEA), New Hire Reporting
Setting up payroll in Hawaii is complex. You can simplify the process with a reliable payroll service or software that automatically withholds payroll taxes, files state and federal returns on your behalf, and pays your employees by check or direct deposit.
When reporting new hires to CSEA, contact the Employer Services Section of the Unemployment Insurance Division and request a determination before you exclude independent contractors as employees. If, for some reason, these new hires are later classified by the state as employees, you could be on the hook for delinquent contributions plus penalty fees and interest.
What forms do my employees need to fill out?
Your new employees will need to fill out a W-4 to determine how much you’ll withhold and an I-9 to verify that the employee is eligible to work in the US.
What’s the difference between an independent contractor and an employee?
It’s important to understand the difference between an independent contractor and an employee. That’s because for employees, you’ll need to withhold and pay income, social security, and Medicare taxes. Independent contractors pay these taxes on their own.
An independent contractor is self-employed—how they complete their work is not directly controlled by an employer. An independent contractor may perform the same kind of work for other businesses, and can do the work when and how they choose.
An employee, on the other hand, performs their work how and when their employer chooses.
If you’re unsure, you can file Form SS-8 with the IRS and let them decide.
Learn everything you need to know about hiring independent contractors.
How do I get a Hawaii Unemployment Insurance Account Number?
You can register for your Hawaii Unemployment Insurance (UI) account number through the Hawaii Department of Labor and Industrial Relations online portal. Once you’ve registered, you’ll be able to figure out your business’ Employer Unemployment Insurance (UI) Contribution rate, which starts at 3% for new employers but can go up to 5.8%. Your UI account number and rate will both be necessary when you set up payroll.
7. Get Business Insurance
Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is on the hook to pay. Business insurance can help cover the costs.
Do you need to purchase business insurance in Hawaii? It depends on your industry and how many employees you have. For example, you’ll need commercial auto insurance if you run a trucking company. When it comes to liability insurance, it’s really up to you. If you’ve invested significant funds and time in your business, supplemental insurance will help protect your business assets.
Here’s a rundown of the most commonly purchased types of business insurance:
Workers’ Compensation Insurance
Workers’ compensation insurance protects your company’s workers by covering medical costs and lost wages for anyone injured on the job. In Hawaii, you’re required by law to get workers’ compensation insurance if you have one or more employees, not including independent contractors and their subcontractors. There are also a few exceptions for positions like student workers, ministers, and workers paid on commission. Of course, you can always provide coverage to workers in these excluded positions if you wish.
Unlike some other states, Hawaii doesn’t have a workers’ compensation fund, so you’ll need to purchase coverage through an insurance carrier. You can contact the Department of Commerce & Consumer Affairs to receive a list of carriers. If your business is qualified and you would like to insure yourself, you can apply to do so by submitting a Form WC-1 Application for Self-Insurance Authorization to the Department of Labor and Industrial Relations, Disability Compensation Division.
This covers the costs of claims against your business for injuries or damages to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Whether or not you need it depends on whether your business is likely to be sued and how many assets your business needs to protect. If it’s just you and your computer in your basement, you might feel comfortable skipping liability insurance. Or maybe you won’t. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.
Do business owners need workers’ compensation insurance in Hawaii?
In Hawaii, workers’ compensation insurance is only required for employees. LLC members who own 50% or more of their business, corporate officers who own 25% or more of a corporation, and any individual who owns 50% or more of a corporation are all considered business owners, rather than employees. You can voluntarily cover yourself and other business owners, especially if there is any risk of injury on the job. Some health insurance plans will deny work-related injury claims, so workers’ compensation insurance can provide you with an additional financial safety net.
Do I need business insurance for my home-based business?
Probably. That’s because you can’t count on your homeowners’ or renters’ insurance policy to cover damages related to your business. Most insurance companies offer a home-based business insurance plan.
8. Understand Your Tax Burden
Doing business in Hawaii means you’ll have to pay federal, state, and possibly local taxes. Income tax rates are comparatively high in Hawaii, while property tax rates are comparatively low. Without sales tax, the state makes a large amount of money through the General Excise Tax (GET) business tax.
- LLCs. Single-member LLC? By default, you’re taxed similar to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. As an LLC member, you’re responsible for your own federal taxes, paid at the 15.3% self-employment tax rate on all earnings up to $147,000. An LLC can file paperwork with the IRS to be taxed as an S-Corp or C-Corp instead.
- Corporations. Corporations are taxed as C-Corps by default. This means that corporations pay the 21% federal corporate tax rate and the applicable Hawaii corporate tax rate.
To pay your federal taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.
Do I need an EIN if I’m self-employed?
If you’re operating a sole proprietorship or single-member LLC that doesn’t employ anyone else and you don’t need to file excise or pension plan returns, you don’t legally need an EIN.
However, you can still get one—and you probably should. Otherwise, you’ll have to use your own social security number to do business. Plus, you’ll likely need an EIN to open a business bank account.
How do I get an EIN?
To get an EIN, you can either apply online or file form SS-4 by mail with the IRS. Getting an EIN is free.
Check out our guide to applying for an EIN.
What is an S-Corp?
An S-Corporation is a federal tax election. Registered business entities like LLCs and corporations start out with a default tax status, but can file paperwork with the IRS to be taxed as an S-Corp. Like LLCs, S-Corps are taxed as pass-through entities. Like corporations, S-Corps can make distributions that aren’t subject to the 15.3% self-employment tax.
Learn more about the S-Corp tax election.
What is a C-corp?
A C-corporation is the default federal tax election assigned to corporations. Most corporations are taxed as C-corps, but LLCs can also apply for C-corp tax designation by filing paperwork with the IRS. C-corps file federal corporate income taxes and state corporate income taxes. C-corps can pay their shareholders in distributions, and the shareholders report those profits on their personal tax returns.
Learn more about the C-corp tax election.
Hawaii State Business Taxes
On top of federal taxes, you’ll need to pay Hawaii state income taxes. LLC owners must pay Hawaii individual income tax, while corporations are required to pay corporate income tax. Individual income tax rates in Hawaii range from 0% for those with an annual income of $50 or less to 11% for those making over $200,000. The corporate tax rate ranges from 4.4% to 6.4% based on yearly income.
In addition, business owners must pay all applicable business taxes, including the General Excise Tax (GET). GET is a privilege tax—basically, a tax for the privilege of doing business in Hawaii—and is taken out of your gross income before you make deductions. GET applies to most businesses in Hawaii, with a tax rate of 0.5% for business activities like wholesaling and manufacturing and 4-4.5% for activities like retailing, providing services, and leasing property. You can take GET out of your gross income, or you can visibly pass on the tax to your customers by charging them more. If you choose to do the latter, you must specify the exact dollar amount or percentage being added to the original price for GET and the customer must agree to pay it.
Depending on your industry, you may be subject to other state business taxes. Find out which taxes apply to your business through the Department of Taxation.
Local Hawaii Business Taxes
If your business owns property, you’ll need to pay real property taxes at the county level. To find your tax rate, contact the department in charge of real property taxes in your county.
9. Build Your Business Website
If you want Hawaiians to find your business, they have to be able to find you online. This means you’ll need a website, a business email account, and social media accounts. Don’t worry if you’re not especially tech-savvy—you don’t have to be a web developer or an influencer to establish a robust online presence. You’ll just need the following:
- Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
- Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“firstname.lastname@example.org”).
- SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
- Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.
10. File a Hawaii Annual Report
All LLCs and corporations are required by law to file annual reports with the Department of Commerce & Consumer Affairs, Business Registration Division. These reports contain basic information about your company, such as your business address and the name and address of your registered agent. Annual reports keep your information up-to-date with the state and the public.
You can file your annual report online for a fee of $12.50 plus a $1 state archive fee. Alternatively, you can submit your report by mail for $15 plus the $1 state archive fee.
The due date for your annual report will depend on which quarter you registered your business with the state. If you registered during the first quarter, your report is due by the last day of the first quarter of the following year. The same rule applies if you registered during the second, third, or fourth quarter. So, if you formed your business on September 12th, 2022, your annual report would be due on September 30th, 2023 at midnight, which is the end of the third quarter.
Read more about How to File a Hawaii Annual Report.
What if I don’t file an annual report in Hawaii?
Not filing your annual report on time can have negative consequences for your reputation and finances. For each year a report is delinquent, you’ll be charged a $10 late fee. Your business also will lose good standing, meaning that you’ll become ineligible for state contracts. You can restore your good standing by filing all past-due reports and paying all late fees.
11. Apply for Trademarks
A trademark is a design, symbol, word, phrase—or any combination thereof—that represents a brand’s goods or services exclusively. Only some businesses register trademarks.
You can apply to register your trademark with the State of Hawaii or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in Hawaii is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in Hawaii.
You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.
Our attorneys can review your application, offer advice, and prepare and submit the application for you—check out our Trademark Service.
How do I register for a trademark in Hawaii?
If you’d like to register a trademark in Hawaii, you’ll need to file an Application for Registration of Trademark with the Department of Commerce & Consumer Affairs, Business Registration Division and pay a $50 fee. As part of your application, you must include a description of your trademark and how you use it. You’ll also need to attach a specimen—an example of your trademark in actual use.
Keep in mind that registering your trademark in Hawaii doesn’t protect your trademark in other states.
Can I register a trademark before I use it?
No. But you can file an application with the USPTO under Intent-to-Use status. This gets your application in line before you’ve actually used the mark, which could be helpful if you’re worried someone else might register your mark before you’ve had a chance to use it.
For your trademark to become official, you’ll eventually need to show proof that you’re using it. An Intent-to-Use application buys you some time to do that.
Learn more about filing an Intent-to-Use Trademark.