Starting a Business: First Steps
A great place to start the logistics of starting a business is at the State of Hawaii’s Business Action Center (BAC), a division within the State government’s Department of Commerce and Consumer Affairs. For more than 20 years, the knowledgeable and friendly staff at the BAC has provided entrepreneurs with the personalized assistance needed to start a new business in Hawaii and keep up with business registration, tax, and other filing obligations. To help simplify the process the BAC has also provided steps to starting a business on their website. The office works closely with personnel from the Department of Commerce and Consumer Affairs, the Department of Labor and Industrial Relations, Hawaii Compliance Express and the Department of Taxation to facilitate the filing process for you. They make it their business to know the regulatory laws to help you comply, so that you can concentrate on operating your business.
Ready to start your business in Hawaii? You will most likely need to register your company and decide on which type of business organization is best for you. The pros and cons of each type of organization can be quite nuanced. We recommend companies seek legal counsel when appropriate.
For reference, the following business organization descriptions are taken from the SBA (Small Business Administration) website.
The sole proprietorship is a simple, informal structure that is inexpensive to form; it is usually owned by a single person or a marital community. The owner operates the business, is personally liable for all business debts, can freely transfer all or part of the business, and can report profit or loss on personal income tax returns.
Limited Liability Company (LLC)
The LLC is generally considered advantageous for small businesses because it combines the limited personal liability feature of a corporation with the tax advantages of a partnership and sole proprietorship. Profits and losses can be passed through the company to its members or the LLC can elect to be taxed like a corporation. LLCs do not have stock and are not required to observe corporate formalities. Owners are called members, and the LLC is managed by these members or by appointed managers.
Partnerships are inexpensive to form; they require an agreement between two or more individuals or entities to jointly own and operate a business. Profit, loss, and managerial duties are shared among the partners, and each partner is personally liable for partnership debts. Partnerships do not pay taxes, but must file an informational return; individual partners report their share of profits and losses on their personal return. Short-term partnerships are also known as joint ventures.
C Corporation (Inc. or Ltd.)
This is a complex business structure with more startup costs than many other forms. A corporation is a legal entity separate from its owners, who own shares of stock in the company. Corporations can be created for profit or nonprofit purposes and may be subject to increased licensing fees and government regulation than other structures. Profits are taxed both at the corporate level and again when distributed to shareholders.
Shareholders are not personally liable for corporate obligations unless corporate formalities have not been observed; such formalities provide evidence that the corporation is a separate legal entity from its shareholders. Failure to do so may open the shareholders to liability of the corporation’s debts. Corporate formalities include:
- issuing stock certificates
- holding annual meetings
- recording the minutes of the meetings
- electing directors or ratifying the status of existing directors
- Corporations should always be assisted by a qualified attorney
Sub Chapter S Corporation (Inc. or Ltd.)
This structure is identical to the C Corporation in many ways, but offers avoidance of double taxation. If a corporation qualifies for S status with the IRS, it is taxed like a partnership; the corporation is not taxed, but the income flows through to shareholders who report the income on their individual returns.
So where do you go to file the necessary forms for incorporation, business taxes, company name, etc? The following resources will assist you in establishing your business in Hawaii.
Resources for Establishing Your Business
Business Action Center
Business Registration Division
Hawaii Compliance Express
Hawaii Department of Commerce & Consumer Affairs
Hawaii Department of Labor and Industrial Relations
Hawaii Department of Taxation
United States Small Business Administration