A Complete Guide to Starting a Business in Hawaii (2023)

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Hawaii is becoming increasingly attractive as a location to start a business. In 2021, it was ranked by WalletHub as the 23rd best US state to start a business, having historically appeared much farther down the list.

The Aloha State comes with unique perks and challenges as a business hub, even from one island to another. It’s ranked in the top five states for access to human capital and funding—though also in the top five states for highest labor costs.

But let’s face it, lifestyle is pretty important to a lot of people. If you’re ready to get resourceful and handle the occasional logistical challenge in exchange for taking a walk along the beach every day, here are the 8 steps to starting a business in Hawaii.

1. Choose a business idea

Choosing a business idea in Hawaii has some particularly unique considerations. Importing and exporting goods can be expensive so you must have a full picture of what you’re seeking to do. Mistakes or a lack of thoughtful decision-making can be costly for a business owner.

You do also have some perks at your fingertips as a budding business owner in Hawaii, such as a booming tourism industry and closer access to Asian markets than mainland competition. Spend time mapping the details to assess whether your business idea holds up.

2. Name your business

Set on your idea? Your business now needs a business name. While creativity is a substantial consideration, so is deciding on a name that is easy to remember—and maybe something you haven’t heard before. Some considerations when choosing a name:

Is the name available in the state? Double-check your top choices for business names against Hawaii’s Department of Commerce and Consumer Affairs. This will show you what business names have historically been used, or are currently in use, in the state.
Are there any registration considerations? Even after you file to use a business name in Hawaii, you do not technically own it. The state rules that ownership of a business name only becomes effective after it is actively and publicly used. Even if these ownership rights can get murky, registering a business name does mean that no one else can register that same name with the state.
Does it contain the right suffixes? When forming a business in Hawaii, the state requires you to add language to the name that clearly indicates what type of business entity you have. Your choices can be full words, like “Corporation” or “Incorporated,” or an abbreviation of words, like “LLC” or “Ltd.” for a limited liability company.
Is the domain available? Check to see if your top picks for a domain name are available—and buy one or more up accordingly.

Using a DBA in Hawaii

Depending on the nature of your business or industry, you may want to trade under another name. This is known as a DBA, which stands for “doing business as.” In Hawaii, this is known as a trade name, and filing for one gives you permission to market your business with a name that aligns with your goods or services. Sole proprietors have the option to file for a trade name. You use Form T1 to register and the cost is $50, with the option to expedite service for an additional $20.

3. Create a business plan

Your next step is to draft a business plan. A business plan is a master document that you’ll revisit to assess your initial concept, market, and goals. Drafting a comprehensive business plan is crucial if you’re planning on pitching your business to investors to raise capital. However, even if you’re using savings or bootstrapping to get off the ground, a business plan can help you with strategic planning, research, and assessment.

To get a headstart, use a template to organize your thoughts and review example business plans. Elements of a business plan often include:

Executive summary
Organizational structure
Company description
Market analysis
Financial plan
Products and services
Logistics and operations plan

4. Choose a business structure and get started

Among the most popular business structures for up-and-coming small businesses are sole proprietorships, limited liability companies, and corporations. Each structure has its pros, cons, operational requirements, and tax rules. Here’s how they work:

Sole proprietorships

Sole proprietorships are often the most straightforward way to start a business. There is no legal distinction between you and your business, and if you want to do business under a different business name, you only need to file a Form T-1 with the Hawaii Business Registration Division ($50). As sole proprietorships are not separate legal entities and do not offer liability protection, owners risk paying damages from their personal savings if their business is sued or runs into debt. Prepare to pay quarterly income taxes at both the federal and state levels, and to pay taxes at a personal rate. Sole proprietorships are best-suited for low-risk, low-investment small businesses.

Limited Liability Company (LLC)

Limited liability companies, or LLCs, are favorable for small business owners because they tend to be straightforward while providing a degree of personal asset protection, unlike sole proprietorships. To file as an LLC in Hawaii, you have to submit an Articles of Organization, otherwise known as Form LLC-1, to Hawaii’s Business Registration Division. It costs $50 to register an LLC. LLCs provide liability protection for business owners from creditors, meaning your personal assets are protected even if your business is sued or in debt. This business structure is treated like a pass-through entity, so business profits are only taxed as personal income. State and federal income taxes are still filed separately. An LLC is a flexible business structure that you can easily shift into a sole proprietorship if required.

Corporations

A corporation, or C corp, is a formal business structure that is entirely independent from its founders. That way, as a business owner, you have very little exposure to liability—most would fall on the corporation. Corporations are much easier to buy and sell than LLCs or sole proprietorships, making this an option if you’re planning to one day exit from your business. Setting up as a corporation also makes it easier to raise funds from investors and get your startup costs covered.

A corporation pays taxes on its profits as a business. Additionally, shareholders pay taxes on income earned from those profits. This can be seen as being taxed twice for the same funds, and is known as double taxation. You could file a Form 2553 to be viewed as an S corporation, which would eliminate double taxation.

This option is ideal if your business idea is well developed, ready for fundraising, and projected to pull in steady profits. To file as a corporation in Hawaii, you would need to submit Articles of Incorporation, otherwise known as a Form DC-1, to the Business Registration Division. It costs $50, with an option for expedited service for an additional $25.

Getting a federal employer identification number (EIN)

For most business options, you’re going to have to apply for a federal employer identification number (EIN). The EIN identifies your business to file permits and licenses, hire employees, and pay taxes. An EIN is also necessary to open a business bank account. You can apply for an EIN number for free online through the IRS. If you’re a sole proprietor and would prefer to use your own Social Security number to report your tax payments, an EIN is not required.

Incorporating in Hawaii

If you’re set on becoming a corporation in Hawaii, you’ll have to file Articles of Incorporation with the Business Registration Division. It costs $50 to file, with an option to pay an additional $25 for expedited services. Some elements to expect to fill out when you file Articles of Incorporation are:

Name of the corporation
Business address
Name of the registered agent in Hawaii
Name and address of each incorporator
Number of common shares

5. Obtain business licenses and permits

No matter what type of business you have in Hawaii, you have to file for a General Excise Tax (GET) license to collect what are effectively sales taxes. Every new business in Hawaii, including sole proprietorships, must file for a GET license and remit a maximum of 4% of gross profits to the state.

To apply for a GET license, file Form BB-1 with the Hawaii Department of Taxation. Depending on your industry, you may need to pay additional taxes. You can apply for the licenses to pay for them by using Form BB-1. Some industries that require the payment of additional taxes include transient accommodations, sales of tobacco and alcohol, and travel agencies.

6. Examine business insurance options in Hawaii

Business insurance is not legally required to open a business in Hawaii, but if you have employees, there are two federally mandated types of business insurance you need: unemployment insurance and workers’ compensation insurance.

Unemployment insurance is a state-based insurance program that companies must pay into to fund employees who are out of work through no fault of their own. Workers’ compensation insurance provides pay to workers who are injured while they are on the job and must be out of work to medically recuperate. It is likely, however, that you’ll still want insurance coverage for disasters or emergencies to protect your business. Examples include:

Professional liability insurance. This type of insurance protects your business in the case that a client or customer sues you because of a professional error.
General liability insurance. Often called slip-and-fall insurance, this insurance protects your business in the case someone is injured in your place of business and tries to sue you for damages.
Commercial property insurance. This type of insurance protects your place of business in the case that expected physical damages occur that are out of your control.

Visit Hawaii’s Insurance Division to research and review insurance providers that are registered with the state, and find a provider that’s right for you.

7. Understand financial considerations

Your business plan is going to be the go-to document in assessing how much capital is needed to get your business up and running. With so many options, it may take time to evaluate which fundraising path is right for you. Common ones are:

Bootstrapping. This is when you use your own money to fund your business. From there, you reinvest your profits from your business to help it grow.
Funding from friends and family. Raising money through a loan or an investment from friends and family is a common way to get a business off the ground. Before asking them for startup capital, spend time breaking down how you’re planning to pay them back.
Angel investors. An angel investor is someone who invests a sum into your business for equity, with the knowledge that it may take you time to pay them back. Hawaii’s own Hawaii Angels brings together angel investors from across the state for founders to pitch to for seed investments.
Venture capital. Fundraising through a venture capital firm means that a firm of professional investors are the ones who administer an investment, not a specific individual.
Business loans. Other types of funding come from micro-loans, commercial bank loans, and Small Business Administration (SBA) guaranteed loans. There are even online options, like Shopify Capital, to provide access to startup funds while helping you pay back your loan with small amounts at a time.
Crowdfunding. Depending on your business and the amount of capital you’re looking to raise, crowdfunding is an ideal option if you have a product and are looking to pre-sell so you can use that capital for manufacturing.

8. Market your business

Marketing helps you gain knowledge on your target customer base and assess how you’re going to reach and sell to them. Key steps to take for your marketing plan include:

Market research. Who is your competition? Clearly define what makes you stand out from them—and why a customer should choose your business instead.
Defining your customer base. Spend time defining your customer base by plotting the specifics of your target demographic.
Determining content strategy. Whether you’re planning on utilizing videos, blogs, or certain social media platforms regularly, determine what your initial benchmarks for success will be for user engagement.
Creating financial targets. Analyze which marketing strategies are effective and which ones are not, to help you define your financial goals.

Starting a business in Hawaii FAQ

How much does it cost to start a business in Hawaii?

It costs $50 to register a business with the Business Services Division in Hawaii. A General Excise Tax (GET) license is required to conduct business, which costs $20.

What licenses do I need to start a business in Hawaii?

All businesses, even sole proprietorships, need a GET license to remit sales tax to the state of Hawaii. Various industries may require additional licensure as well, which you can review on Form BB-1.

Is Hawaii a good place to start a business?

Hawaii is an excellent place to start a business if you’re seeking to balance your work and lifestyle. Keep in mind that taxes and the cost of imports will be higher than many other states in the US.

What businesses thrive in Hawaii?

Industries like construction, tourism, logistics, and health care have a prosperous outlook in Hawaii.

A Complete Guide to Starting a Business in Hawaii