After deciding to launch a business venture in Hawaii, the next step is to figure out how to structure the company. The business entity structure will determine the obligations of the company, as well as how it will be managed. Two of the most common business structures in the United States are the C Corporation (C Corp) and limited liability company (LLC). These two share some similarities, but they also offer different things. Weighing the pros and cons of both structures can help companies choose the best option suitable for their needs, is it starting a Hawaii C Corp or LLC?
Similarities Between Hawaii C Corp and LLC
As stated earlier, these business entity structures share some similarities. Here are some of them:
- State Registration – Forming a Hawaii C Corp or LLC requires proper registration with the Secretary of State. That includes the submission of formal paperwork and payment of filing fees.
- Asset Protection – C Corps and LLCs both offer limited liability for business owners. That means that the owners will not be held personally liable for any of the actions, debts, and obligations of the company. Even if the company incurs debts or faces a lawsuit, the personal assets of the owners will not be affected.
Deciding which business structure is more suitable for a company may be a bit hard. But, knowing the differences between the two may help. Generally, C Corps and LLCs differ in terms of the following:
- C Corporation – Forming a C Corp in Hawaii requires the filing of the Articles of Incorporation with the Business Registration Division of the Department of Commerce and Consumer Affairs. Additionally, a C Corp should also appoint members of its Board of Directors to oversee the business operations. The board will have to adopt bylaws that will govern the procedures of the C Corp. They will also elect the officers.
- LLC – Hawaii LLCs have to submit a completed Articles of Organization form to the Business Registration Division of the Department of Commerce and Consumer Affairs. As for the procedures for the management of the company’s operations, an LLC may create an operating agreement. While the operating agreement is not a requirement, it will help protect the company and its owners.
- C Corporation – Owners of C Corps are called shareholders. Others may know them as stockholders. The name is because these owners have shares of stock in the corporation.
- LLC – Meanwhile, the owners of an LLC are called members. They have an equity interest in the assets of the company. These will depend on their investment when they joined the LLC.
- C Corporation – Generally, C Corps have a higher level of maintenance requirements compared to LLC’s. Companies with this structure have stricter legal obligations. These include the meeting of shareholders and directors, appointment of the members of the Board of Directors, election of officers, conducting annual meetings, taking minutes of meetings and keeping them with the internal records, and issuance of shares.
- LLC – An LLC does not need to observe the same formalities and practices that a C Corp has to do. There is no need to conduct annual shareholders meetings, elect the Board of Directors, or maintain well-detailed minutes of meetings.
- Profits and Losses
- C Corporation – Profits of C Corps are taxed at a corporate level. Aside from this, the business income that shareholders get from the company will also be taxed. That means a C Corp experiences double taxation.
- LLC – The default tax treatment of an LLC is as a pass-through entity. That means it will not be taxed at a corporate level. Instead, the members report and pay for business profits and losses on their individual tax returns.
- Self-Employment Taxes
- C Corporation – Shareholders of a Hawaii C Corp are not considered self-employed. So, they will not be paying self-employment taxes.
- LLC – On the other hand. LLC members are self-employed and should pay these taxes based on their share of the profits from the business.
Registering the Business Entity with the State
Once a company figures out which of the two is the most appropriate business entity structure, it will have to proceed to the business formation process in the state. Doing this will not only formally register the business with the state but will also ensure the legality of its operations.
Here is a simple step-by-step guide:
Step 1: Choose an appropriate name.
The company’s name is important as it establishes its brand. It is also the first thing that most people would encounter. So, it is best to come up with a business name that reflects both the vision and values of the company.
Aside from that, it is also necessary to make sure that the company name follows the naming guidelines of the state. It has to include a proper designator. That would depend on the business entity structure. For instance, a C Corp can include the term Corporation, Incorporated, Company, or, Limited. An abbreviation of any of these words, such as Corp., Inc., Co., or Ltd, will suffice. As for an LLC, it needs to include the phrase Limited Liability Company or any of its abbreviations like LLC or L.L.C.
The name of a business entity should not include any word that could confuse it with a government agency. Some restricted words may also require additional paperwork.
Additionally, a business name should be distinguishable. So, a company can not use a name if another entity in the state already registered it. To ensure the availability of a company name, a business entity search on the database of the Department of Commerce and Consumer Affairs may be necessary.
Step 2: Appoint a registered agent in the state.
Whether a company decides to register as a C Corp or an LLC, it needs to nominate a registered agent. The agent will serve as the general point of contact between the company and the state. They are in charge of receiving legal mail and government correspondence on behalf of the company. Find out more about what to look for in a registered agent through this article.
An individual registered agent should:
- be at least 18 years old,
- be a resident of Hawaii,
- have a physical street address in the state, and
- is available at the said address during regular business hours.
A commercial registered agent should:
- be authorized to transact business in Hawaii, and
- is available at the listed address during regular business hours.
Step 3: File formal paperwork
As stated earlier, the filing of paperwork is necessary to formally register a C Corp or LLC in Hawaii. The form will depend on the business entity structure.
Step 4: Complete other requirements.
The company may need to obtain an Employer Identification Number (EIN) from the Internal Revenue Services (IRS). This number is necessary for tax filing purposes, hiring employees, and opening a business bank account.
Depending on the industry, business activities, and location of the primary place of business, a business entity may also need to obtain business licenses and permits from local government agencies.
For C Corps, additional obligations will apply. These include the adoption of bylaws, the appointment of the members of the Board of Directors, the election of officers, holding of the initial organizational meeting, and the issuance of stock.
C Corps and LLCs in Hawaii are also required to submit annual reports. This filing comes with a $15 fee. Check out our article on Hawaii Annual Report to find out more.
Whether a company chooses to form a Hawaii C Corp or an LLC should be based on the specific circumstances and needs of the business. It is important to understand both options and weigh the pros and cons of each structure properly.
Then, the company should complete the business formation process set by the state. While the paperwork and fees may be based on the structure, they both involve the completion of multiple tasks. Those who think they need help in handling the requirements should contact a reliable third-party organization like DoMyLLC. Our team of experts can help streamline the whole ordeal. We can also serve as a registered agent. Additionally, we offer personalized solutions to suit the needs of our clients.
Business Filing Section