Hawaii is a gorgeous place to live – and a fantastic place to do business. The Aloha State has one of the fastest startup growth rates in the United States, and with sandy shores and beautiful sights, it’s an easy place to attract talent.
Hawaii is home to more than 132,000 small businesses and thousands of large firms. But in Hawaii, small businesses thrive: Small firms make up more than 99.3% of all businesses in the state.
Are you looking to join the ranks of Hawaii entrepreneurs? This guide will walk you through how to start a business in Hawaii, from start to finish!
Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Hawaii business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
First, you must decide on a name to use for your company. This will be the formal legal name that you register your business as – “ABC, Inc” or “ABC LLC”, for example.
It’s important to choose a good name that is relevant to your business, and hopefully memorable for your customers.
However, choosing a “good” business name is not the only factor to consider. The name must also meet all the rules and requirements that Hawaii has set for business names in the state.
One of the main rules is that the name must be unique from other business names already registered in Hawaii. The name must not be “substantially identical” to other business names. You can conduct a Hawaii business name search to determine whether the desired name is available or not.
There are various other rules to comply with, including:
- The name must be unique from other businesses already registered in the state
- LLC names must contain “limited liability company”, or certain abbreviations like “LLC” or “L.L.C.”
- Corporation names must contain “corporation”, or certain abbreviations like “corp” or “inc”
- Certain words and phrases are restricted, and additional written permission must be obtained in order to use them. This includes financial terms like “bank” and “trust”
- Other rules apply. See the Hawaii business name rules for details
When you have selected a name, you can move on to the next step.
Alternatively, if you’re not quite ready to move on, you can reserve the business name by filing a form with Hawaii Business Express. This temporarily reserves the name so you can think about it before moving on to actually registering the business.
Hawaii trade names
Hawaii does allow businesses that are already registered to apply for additional trade names, otherwise known as Doing Business As or DBA names. These are secondary names that you can legally do business under, once they are registered. This allows for more flexibility in branding and marketing your company.
Learn more about Hawaii DBAs here.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole props are single-person operations. Examples include freelancers, gig economy workers and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Hawaii
The next step is to actually register the new business with the state of Hawaii. This process is handled by the Business Registration Division of the Department of Commerce & Consumer Affairs. It’s easiest to do this online, but you can also file by mail.
There are two ways to go about this process:
- Doing the work yourself (see the steps below)
- Using a professional business formation service
If you opt to use a service, you’ll pay a bit extra, but the service will save you both time and hassle. Companies like Northwest Registered Agent, ZenBusiness, and Incfile are all good options. If you use one of these services, they will walk you through each required step, ensuring that everything is handled correctly and accurately.
If you choose not to use a service, the broad steps include:
- Choosing a name for your business
- Choosing a Registered Agent for your business. This agent is tasked with receiving important legal documents on behalf of your company.
- Filing formation documents with Hawaii’s Business Registration Division
- Applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)
- Applying for other necessary permits or licenses
The specific steps that you’ll need to take will vary depending on the type of business you are forming. More on this below.
Form a Hawaii sole proprietorship
Follow these steps:
- Decide if you will operate under your legal name, or use a trade name
- If you use a name other than your own, you will need to register a trade name
- Apply for a business license and/or other necessary permits from local governments (city/county)
- There are no statewide legal filing requirements for sole proprietors in Hawaii, but local jurisdictions may have their own rules and requirements
Form a Hawaii LLC
Follow these steps:
- Name your LLC (follow the Hawaii LLC naming rules)
- Choose a Hawaii Registered Agent (or use a service such as Northwest Registered Agent)
- File the LLC Articles of Organization online, and pay the $50 filing fee. The form can also be filed by mail or by email or fax
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form a Hawaii corporation
Follow these steps:
- Decide on your desired corporate tax structure (S corp or C corp)
- Name your new corporation (follow the Hawaii corporation naming rules)
- Hold an organizational meeting and appoint directors
- File the Hawaii Articles of Incorporation online, and pay the $50 filing fee. This form can also be filed by mail, or by email or fax
- Apply for an EIN from the IRS
Our picks for the best registered agent services
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
- State: Delaware may require certain permits or licenses. Check the Hawaii business registration department and local city/county government websites for details.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business.
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Our picks of the best website builders
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
Hawaii businesses that hire employees must report new hires to the appropriate state or local agency. Rules for new hire reporting can be found here.
Hawaii employers will also be responsible for paying unemployment insurance tax, as well as withholding tax and general excise tax.
Employers will also need to set up a payroll system in order to run payroll and issue paychecks. If you don’t have experience running payroll, it’s worthwhile to use a payroll service to avoid any issues or mistakes.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Hawaii business FAQs
Still have questions about running a business in Hawaii? Here are some answers to frequently asked questions.
What are some business resources in Hawaii?
Business owners in Hawaii have a variety of resources at their disposal. A great place to start is the Hawaii Small Business Development Center (Hawaii SBDC). This resource provides free business advisor services, webinars and training, and many other useful resources. Other good resources include the OneOahu Small Business Resource Network and the US Small Business Administration (SBA). There is also a good database of business resources to explore on Honolulu.gov.
What is the minimum wage in Hawaii?
The Hawaii minimum wage is $10.10 per hour. Mandatory overtime laws also apply for employees working more than 40 hours per week.
Hawaii also has a tipped minimum wage that allows employers to pay slightly less per hour, for employees that earn tips. For most employees, the maximum tip credit is $0.75 per hour (meaning minimum wage for tipped employees cannot be less than $9.35 per hour. More information here.
Keep in mind that individual cities and counties are able to impose their own minimum wage laws. Check with your local city/county governments to ensure that you are compliant with all local laws.
What business taxes does Hawaii have?
There are a variety of taxes that HI businesses must pay. Hawaii does not have a statewide sales tax. However, there is a General Excise Tax, which applies to most business activities, and is 4% for most businesses. There are lower rates for wholesale and select other business activities.
Many businesses will also be subject to unemployment insurance tax, as well as withholding tax and general excise tax. There may be other tax responsibilities, as well. Check with your CPA for details, and browse the Department of Taxation website for more details.
How do I dissolve an LLC or Corporation in Hawaii?
If you end up needing to close your business, you will need to dissolve it. To do this, you must close down all your tax accounts with the state of Hawaii, and file any outstanding tax returns. You must also file dissolution paperwork with the state in order to formally close your Hawaii corporation or LLC. See this guide for more information.
Closing a business can be complex, so you may wish to hire a certified public accountant (CPA) for help with this process.
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