Do you want to form a limited partnership (LP) in Hawaii, but you’re not familiar with the formation process?
A limited partnership can be a great alternative to a general partnership, but the LP is definitely more difficult to form compared to the more casual nature of the general partnership. In this guide, we’ll discuss all the crucial details of forming this business type in Hawaii.
There are several significant differences between the general partnership and the limited partnership (LP), starting with the roles of the partners themselves. With a general partnership, the partners split profits evenly and take equal responsibility when it comes to liability ― general partners are personally liable for the company’s debts and settlements.
With a limited partnership (not to be confused with the LLC), there is at least one general partner and one limited partner, which is the term for a partner that does not have managerial responsibilities, and their liability is limited to the amount of money they invested in the partnership.
Sometimes, you’ll hear limited partners referred to as “silent partners” due to their lack of direct involvement in the day-to-day operations of the company.
Another major difference is that the general partnership is not a formal business structure, which means you don’t even need to file formation documents with the state of Hawaii, or pay any sort of formation fee. The general partnership is simply formed when the partners begin transacting business together.
On the other hand, a limited partnership does have a formal formation process with the Hawaii state government, and there is also a formation fee involved.
Whereas the state of Hawaii allows general partnerships to operate under the individual names of the partners, that is not the case for limited partnerships, which must have a distinct business name.
Your limited partnership’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
All limited partnerships established in Hawaii are required to include the words “Limited Partnership” or the abbreviation “L.P.” or “LP” in the business name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a realtor, put the phrase “real estate” in your LP name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your limited partnership’s name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LP is to not get too attached to any one business name until you have either reserved the name with the state of Hawaii, or you’ve officially formed your business.
Before attempting to reserve a name, you’ll want to do a preliminary name search using the Hawaii Business Express service in order to see whether the name is already registered to another entity. If it’s available for use, you may claim it by filing an Application for Reservation of Name. After submitting the document, the business name will be reserved for a period of 120 days.
Every limited partnership in Hawaii is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Hawaii Secretary of State,
A registered agent is the agent for service of process for a business, as identified by the business in its business filings. A registered agent must be an individual or entity authorized to transact business in this State and must be physically present in the State. In general, the duty of the registered agent is to receive service of process, notice or demand on behalf of the business the agent is hired to represent and to inform the business of such service.”
Without a registered agent in Hawaii, you could lose your good standing and the state also has the right to dissolve your LP if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend designating a registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
At this point, it’s time to legally form your new limited partnership.
Establishing a limited partnership in Hawaii requires the filing of a document known as the Certificate of Limited Partnership. To complete the form, you’ll need the following details:
To submit the Certificate of Limited Partnership, you may either complete the document as a PDF file, print it, and mail it to the Department of Commerce and Consumer Affairs, or you may submit it conveniently online through Hawaii Business Express.
Cost to Form an LP: The state of Hawaii charges a filing fee of $25 to form a limited partnership.
Processing Time: Although there is no standard processing time for the Certificate of Limited Partnership document, inquiries regarding wait times may be directed towards the State of Hawaii Department of Commerce and Consumer Affairs.
While not legally required by the state of Hawaii, a limited partnership agreement outlines some of the key operating principles of the business. Even though you don’t have to submit it to the state to form your LP, it’s still a vital document that describes the exact nature of the agreement between the general partners and limited partners.
The information included in a limited partnership agreement does vary depending on the nature of your business, the size of your company, and some other variables. In general, it’s good to get the following information down in writing:
Limited partnerships require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LP functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LP for free through the IRS.
All Hawaii businesses (including limited partnerships) are required to register for General Excise Tax (GET). Outside of GET, it’s likely that you’ll be required to pay several other industry-specific taxes depending on what goods or services the business offers.
Determining your Hawaii state tax liabilities may seem initially overwhelming; fortunately, the state has plenty of resources to help new businesses research and register for all necessary taxes. One such resource is the state’s Tax Guide for New Businesses.
Tax filings may be done online conveniently through Hawaii Tax Online.
Depending on where in Hawaii your business is located, you may also need to pay local taxes.
Hawaii has four counties: Kauai, Hawaii, Maui, and Honolulu. To confirm your limited partnership is meeting all local tax requirements, you’ll want to check the taxation standards of the county in which your business operates.
Firstly, all businesses in Hawaii are required to obtain a General Excise Tax license from the Hawaii Business Registration Division. This can be done online through the Hawaii Business Express. In addition to the GET license, you’ll likely need to acquire other industry-specific licenses.
If you’re a member of any specified professions, it’s also likely you’ll need to obtain a professional or vocational licensing in order to operate lawfully within the state. A few specified professions include veterinarians, chiropractors, and accountants.
Lastly, you’ll need to meet all local licensing requirements for the county in which your limited partnership operates. Hawaii, Honolulu, Maui, and Kauai each have their own individual business license requirements.
If you would rather have a professional take care of your formation paperwork for you, you have a couple of options. The less expensive choice is to hire a business formation service to create your limited partnership.
While some service providers stick to less complicated business entities like limited liability companies, some also provide LP formations ― namely, LegalZoom and BizFilings. Currently ZenBusiness does not have this offering but does have regular LLC formation and business incorporation.
If you want the maximum possible degree of expertise, you should also consider hiring a business attorney to form your limited partnership. This is certainly a more expensive route, but if you want the peace of mind that every step is completed correctly ― and that all of your options have been thoroughly explored ― hiring a lawyer is a great option.
We highly recommend that you establish a business bank account so that your business and personal finances are maintained separately. This is important because it helps protect your personal assets, and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
If your Hawaii limited partnership has any number of employees, you’ll need to abide by the state’s employer insurance requirements. Employers are required to pay unemployment insurance taxes (UI) which you may register for through the Department of Labor. Generally, employers must also obtain workers’ compensation insurance, which may be researched through the Workers’ Compensation Page of the state website. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Limited partnerships do not file business tax returns. Instead, the income is passed through the business entity to the partners, who then claim their share of profits or losses on their personal tax returns. Still, LPs do need to file an annual information return with the IRS, in which you report your business income, deductions, gains, and losses for the year.
Hawaii dictates that all limited partnerships formed within the state must file an annual report with the Department of Commerce and Consumer Affairs in order to remain in good standing. This can be done conveniently through the Annual Business Filings system.
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.
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