Setting Up a Business Partnership in Hawaii

Determine which type of partnership structure best suits your business needs in Hawaii. Options include General Partnership (GP), Limited Partnership (LP), or Limited Liability Partnership (LLP). Each has different liability protections, tax implications, and filing requirements. Consider consulting with a business attorney to understand which structure aligns with your business goals and risk tolerance.

Create a comprehensive partnership agreement that outlines the rights, responsibilities, and obligations of all partners. Include provisions for profit and loss sharing, management responsibilities, decision-making processes, dispute resolution, partner withdrawal procedures, and dissolution terms. This document is essential even though Hawaii doesn't legally require it, as it prevents misunderstandings and provides a framework for resolving disputes.

File a Certificate of Partnership with the Hawaii DCCA Business Registration Division. For LPs and LLPs, this registration is mandatory. While general partnerships aren't required to register, doing so establishes your business as a legal entity and provides certain legal protections. The filing can be completed online through the Hawaii Business Express website or in person at the DCCA office.

Prepare the Certificate of Partnership document that includes the partnership name, principal place of business, names and addresses of all partners, purpose of the business, and partnership term. For LPs, you must also designate general and limited partners. For LLPs, you must include a statement of qualification. This document will be filed with the Hawaii DCCA.

Determine which state and local licenses and permits your partnership needs to operate legally in Hawaii. Requirements vary based on your business activity, location, and industry. Start with a basic business license from your county, then research industry-specific permits. Hawaii's Business Action Center can help identify required licenses.

Fill out the business license application for your county in Hawaii. Different counties may have different forms and requirements. Be prepared to provide information about your business activities, location, partners, and other relevant details. Some licenses may require inspections or additional documentation.

Apply for an EIN from the Internal Revenue Service (IRS). This federal tax ID is required for partnerships to file taxes, open business bank accounts, and hire employees. You can apply online through the IRS website for free and receive your EIN immediately.

Fill out IRS Form SS-4 or use the online EIN application. You'll need to provide information about your partnership, including the legal name, mailing address, principal business location, responsible party, and reason for applying. The responsible party must be an individual with control over the entity and its assets.

If your partnership will operate under a name different from the partners' names or the legal partnership name, register a trade name (also called a DBA or 'doing business as') with the Hawaii DCCA. This registration is required by Hawaii law and protects your business name within the state.

Prepare a Fictitious Business Name Statement (trade name registration) if your business will operate under a name different from the legal partnership name. Include the fictitious name, partnership's legal name, business address, and partner information. In Hawaii, this is filed with the DCCA Business Registration Division.

Register with the Hawaii Department of Taxation to obtain a General Excise Tax (GET) license. Unlike many states with sales tax, Hawaii has a GET that applies to almost all business activities. You'll need to file periodic GET returns and may need to register for other state taxes depending on your business activities.

Fill out the Hawaii General Excise Tax License application (Form BB-1). This form registers your partnership for Hawaii's GET, which functions similarly to a sales tax in other states. You'll need to provide your business information, ownership details, and business activities. The license requires a one-time fee and must be displayed at your place of business.

Open a separate bank account for your partnership to maintain clear separation between business and personal finances. This separation is crucial for liability protection, tax purposes, and professional credibility. Bring your EIN, partnership agreement, and certificate of partnership to the bank.

Prepare a banking resolution that authorizes specific partners to open and manage the partnership's bank account. This document should specify who can sign checks, make deposits, and access online banking. The resolution should be signed by all partners according to the decision-making procedures outlined in your partnership agreement.

Formalize each partner's initial capital contributions to the business. Document all cash, property, services, or other assets that partners contribute, along with the agreed-upon value of non-cash contributions. This documentation is important for tax purposes and for determining ownership percentages.

Create a document that details each partner's capital contributions to the partnership. Include the type of contribution (cash, property, services), the agreed value, the date contributed, and how the contribution affects ownership percentages. This agreement should be signed by all partners and kept with your important partnership documents.

Develop detailed operating procedures that govern the day-to-day operations of your partnership. These procedures should expand on the framework established in your partnership agreement and cover areas such as accounting practices, record-keeping requirements, meeting schedules, reporting procedures, and operational policies.

Create a buy-sell agreement that outlines what happens to a partner's ownership interest if they die, become disabled, retire, or want to sell their share. This agreement should include valuation methods, payment terms, and funding mechanisms (such as life insurance). A well-crafted buy-sell agreement prevents disputes and ensures business continuity during ownership transitions.

Secure appropriate business insurance for your partnership. Consider general liability insurance, professional liability insurance, property insurance, and workers' compensation insurance (if you have employees). Hawaii law requires workers' compensation insurance for all businesses with employees, including partnerships.

If your partnership will have employees, ensure compliance with Hawaii's employment laws, which include minimum wage requirements ($12.00/hour as of 2023), prepaid healthcare requirements, temporary disability insurance, and other protections. Hawaii has some of the most employee-friendly laws in the nation, so thorough research is essential.

Set up systems for maintaining required business records. Partnerships must keep financial records, meeting minutes, tax documents, licenses, permits, and other important papers. Hawaii law requires businesses to maintain certain records, and good recordkeeping is essential for tax compliance and potential legal disputes.

Establish a schedule for regular reviews of your partnership's compliance with Hawaii laws and regulations. This should include reviewing license renewal dates, tax filing deadlines, annual report requirements, and changes to relevant laws. Consider setting up calendar reminders or working with a compliance professional to ensure nothing is missed.