LLC vs S-Corp in Hawaii


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

All Posts by Steve Goldstein →
Business Formation Expert  |   Fact Checked by Editorial Staff
Last updated: 
LLCBuddy™ offers informative content for educational purposes only, not as a substitute for professional legal or tax advice. We may earn commissions if you use the services we recommend on this site.
At LLCBuddy, we don't just offer information; we provide a curated experience backed by extensive research and expertise. Led by Steve Goldstein, a seasoned expert in the LLC formation sector, our platform is built on years of hands-on experience and a deep understanding of the nuances involved in establishing and running an LLC. We've navigated the intricacies of the industry, sifted through the complexities, and packaged our knowledge into a comprehensive, user-friendly guide. Our commitment is to empower you with reliable, up-to-date, and actionable insights, ensuring you make informed decisions. With LLCBuddy, you're not just getting a tutorial; you're gaining a trustworthy partner for your entrepreneurial journey.
LLC vs. S Corp in Hawaii

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in Hawaii. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in Hawaii. Before you start Hawaii LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with Hawaii LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in Hawaii.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in Hawaii?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in Hawaii gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in Hawaii?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in Hawaii?

In Hawaii, forming a business is crucial since you need to be adequate in your decision, especially when you think if Hawaii LLC or an S-Corporation in Hawaii is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in Hawaii doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.

– LLCBuddy Editorial Team

Tax Difference Between Hawaii LLC and S-Corp in Hawaii

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in Hawaii is suitable for your business.

Federal Taxes: There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in Hawaii. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in Hawaii are the same in terms of pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners are required to pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in Hawaii are mandated to have double taxation. It means that they must pay federal taxes at the entity level.

Self-Employment Taxes: Most LLC owners choose S-corporation taxation in Hawaii to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes.

Consider the scenario where you are the only owner of an LLC in Hawaii with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a Hawaii S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

Hawaii State Taxes: At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in Hawaii, it costs $12.50 that can be paid to the ID Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $5.

On the other hand, you also need to pay taxes if you form an S-Corporation in Hawaii; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the ID Secretary of State to pay this.

How do Hawaii LLCs and S-Corporations Handle Liability Protection?

In Hawaii, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in Hawaii. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in Hawaii.

  • Insurance business
  • Domestic and International sales corporations
  • Partnerships
  • Corporations
  • Unauthorized Immigrants
  • Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your Hawaii LLC or Hawaii S-Corp.

Which is Easier to File in Hawaii: LLCs or S-Corporations?

Filing an LLC or S-Corporation in Hawaii takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by Hawaii Resident Agent. However, in order to establish an LLC in Hawaii, you must submit a Articles of Organization to the Hawaii Department of Commerce and Consumer Affairs. Your Articles of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the Hawaii S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in Hawaii because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in Hawaii, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Hawaii, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

FAQs

What are the advantages of forming an LLC in Hawaii?
The advantages of forming an LLC in Hawaii include limited liability protection for business owners, ease of setup and maintenance, flexible management structure, pass-through taxation, and potential for asset protection.
What are the advantages of forming an S-Corp in Hawaii?
The advantages of forming an S-Corp in Hawaii include the potential for tax savings, limited liability protection for business owners, protection of business assets, and more attractive financing options.
What are the requirements to form an LLC in Hawaii?
The requirements to form an LLC in Hawaii include filing Articles of Organization with the Hawaii Business Registration Division, selecting a registered agent, preparing an Operating Agreement, and paying the filing fee.
What are the requirements to form an S-Corp in Hawaii?
The requirements to form an S-Corp in Hawaii include filing Articles of Incorporation with the Hawaii Business Registration Division, selecting a registered agent, preparing by-laws, issuing stock certificates, and paying the filing fee.
What are the taxation rules for LLCs in Hawaii?
LLCs in Hawaii are generally considered pass-through entities, meaning that the profits of the business are passed through to the owners and taxed on their personal income tax returns.
What are the taxation rules for S-Corps in Hawaii?
S-Corps in Hawaii are subject to double taxation, meaning that the profits of the business are taxed at the corporate level and then again at the shareholder level when the profits are distributed as dividends.
What is the filing fee for forming an LLC in Hawaii?
The filing fee for forming an LLC in Hawaii is $50.
What is the filing fee for forming an S-Corp in Hawaii?
The filing fee for forming an S-Corp in Hawaii is $50.
Can a foreign company form an LLC in Hawaii?
Yes, a foreign company can form an LLC in Hawaii.
Can a foreign company form an S-Corp in Hawaii?
Yes, a foreign company can form an S-Corp in Hawaii.
How long does it take to form an LLC in Hawaii?
It typically takes 3-5 business days to form an LLC in Hawaii.
How long does it take to form an S-Corp in Hawaii?
It typically takes 3-5 business days to form an S-Corp in Hawaii.
Is there an annual fee for LLCs in Hawaii?
Yes, there is an annual fee for LLCs in Hawaii of $15.
Is there an annual fee for S-Corps in Hawaii?
Yes, there is an annual fee for S-Corps in Hawaii of $25.
Are there any restrictions on LLCs in Hawaii?
Yes, there are restrictions on LLCs in Hawaii, such as not allowing insurance companies, banks, and other financial institutions to be formed as LLCs.
Are there any restrictions on S-Corps in Hawaii?
Yes, there are restrictions on S-Corps in Hawaii, such as not allowing insurance companies, banks, and other financial institutions to be formed as S-Corps.
What is the process for dissolving an LLC in Hawaii?
The process for dissolving an LLC in Hawaii includes filing a Certificate of Dissolution with the Hawaii Business Registration Division, notifying creditors and claimants, and paying any outstanding taxes and debts.
What is the process for dissolving an S-Corp in Hawaii?
The process for dissolving an S-Corp in Hawaii includes filing a Certificate of Dissolution with the Hawaii Business Registration Division, notifying creditors and claimants, and paying any outstanding taxes and debts.
Does Hawaii allow for professional LLCs?
Yes, Hawaii allows for professional LLCs, but certain professions such as attorneys, accountants, and architects may be subject to additional requirements.
Does Hawaii allow for professional S-Corps?
Yes, Hawaii allows for professional S-Corps, but certain professions such as attorneys, accountants, and architects may be subject to additional requirements.
Are LLCs in Hawaii required to file annual reports?
Yes, LLCs in Hawaii are required to file annual reports with the Hawaii Business Registration Division.
Are S-Corps in Hawaii required to file annual reports?
Yes, S-Corps in Hawaii are required to file annual reports with the Hawaii Business Registration Division.
What are the tax advantages of forming an LLC vs an S-Corp in Hawaii?
LLCs and S-Corps in Hawaii are both taxed at the same rate. However, LLCs offer more flexibility in terms of deductions and expenses, whereas S-Corps require more paperwork and stricter regulations.
Are there particular benefits to forming an LLC instead of an S-Corp in Hawaii?
Yes, LLCs in Hawaii are generally simpler to set up and have fewer formalities than S-Corps. They also offer owners more flexibility in terms of how they structure their business and how they take deductions and expenses.
Are there any special rules or regulations that apply to forming an LLC or S-Corp in Hawaii?
Yes, both LLCs and S-Corps in Hawaii must register with the Hawaii Department of Commerce and Consumer Affairs, which requires filing certain documents and paying a filing fee.
What are the reporting requirements for an LLC and an S-Corp in Hawaii?
Both LLCs and S-Corps in Hawaii must file an annual report with the Hawaii Department of Commerce and Consumer Affairs. Additionally, LLCs must also submit a federal tax return, whereas S-Corps must submit an additional tax return to the Internal Revenue Service.
Is there a minimum number of members or shareholders required to form an LLC or S-Corp in Hawaii?
No, there is no minimum number of members or shareholders required to form an LLC or S-Corp in Hawaii.
Are there any restrictions on who can be a member or shareholder of an LLC or S-Corp in Hawaii?
Yes, members and shareholders of LLCs or S-Corps in Hawaii must be at least 18 years old and be either a US citizen or a permanent resident.
Is there a minimum capital requirement for LLCs and S-Corps in Hawaii?
No, there is no minimum capital requirement for LLCs and S-Corps in Hawaii.
Are there any special requirements for LLCs and S-Corps filing taxes in Hawaii?
Yes, LLCs and S-Corps in Hawaii must file their taxes with the Hawaii Department of Taxation, and they must include a copy of their federal tax return.
Do LLCs and S-Corps in Hawaii need to obtain a business license?
Yes, both LLCs and S-Corps in Hawaii must obtain a business license from the Hawaii Department of Commerce and Consumer Affairs.
How long does it take to form an LLC or S-Corp in Hawaii?
Generally, it takes about two weeks for an LLC or S-Corp to be approved in Hawaii.

Also Read

Why Hawaii LLC Vs S Corp is So Important

First and foremost, a key consideration when deciding between an LLC and an S corp is the tax structure. Both LLCs and S corps offer pass-through taxation, meaning that income is passed through to the owners or shareholders and taxed at their individual level. However, there are some differences in how each entity is taxed. LLCs offer flexibility in how they are taxed, allowing owners to choose between being taxed as a sole proprietorship, partnership, C corp, or S corp. On the other hand, S corps must follow strict IRS guidelines for taxation, which can limit the deductions available to owners. Understanding these differences is crucial for business owners looking to minimize their tax liability and maximize their profits.

Another important consideration when deciding between an LLC and an S corp is the level of liability protection each entity offers. Both LLCs and S corps provide limited liability protection, meaning that owners’ personal assets are generally protected from business debts and liabilities. However, there are some differences in how this protection is granted. LLCs have more flexibility in structuring their management and ownership agreements, allowing owners to have more control over decision-making and liability protection. S corps, on the other hand, have stricter rules on ownership and management, which can limit the ability of owners to protect their personal assets from business liabilities. Understanding these differences is essential for ensuring that the business is properly structured to protect the owners from legal and financial risks.

Additionally, the administrative requirements for maintaining an LLC or an S corp can vary significantly. LLCs are generally easier to set up and maintain, with fewer formalities and reporting requirements. S corps, on the other hand, have stricter rules around record-keeping, conducting annual meetings, and filing annual reports. Understanding these requirements is essential for maintaining compliance with state laws and avoiding any potential penalties or legal issues.

Ultimately, the decision between forming an LLC and an S corp will depend on the specific needs and goals of the business owner. While both entity types offer their own advantages and disadvantages, understanding the implications of each is essential for making an informed decision. Consulting with a legal or financial advisor can help business owners weigh the pros and cons of each entity type and choose the structure that best suits their needs.

In conclusion, the decision between forming an LLC and an S corp is a critical step in starting and growing a business in Hawaii. Understanding the tax implications, liability protection, and administrative requirements of each entity type is essential for making an informed decision that will set the business up for success in the long run. Business owners should carefully consider their specific needs and goals when choosing between an LLC and an S corp to ensure that they are creating a solid foundation for their future endeavors.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in Hawaii, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a Hawaii LLC and S-Corp in Hawaii, read our other business guides.

Leave a Comment