Starting an S corp in Hawaii is a straightforward and strategic step for any entrepreneur. The state provides businesses across various sectors, including tourism and technology, an environment conducive to establishing a corporation. Opting for online incorporation simplifies the process by allowing you to navigate the necessary legal and compliance procedures efficiently and promptly. With MaxFilings, your S corporation can move effortlessly from conception to operation, leveraging the diverse opportunities in Hawaii’s dynamic economy.

Hawaii S corp taxation

Unlike C corps, a Hawaii S corp does not pay income taxes directly. Even though an S corp with multiple shareholders submits tax returns, each shareholder must report their portion of the corporation’s income or loss on their tax returns, similar to sole proprietorships, partnerships, and Limited Liability Companies (LLCs).

IRS Form 2553 must be submitted to the Internal Revenue Service to designate a Hawaii S corp.

MaxFilings is available to prepare and submit an IRS Form 2553 by providing the form and guiding you through completing and filing it with the IRS.

How to form an S corp in Hawaii

Name your business

Your chosen business name must adhere to Hawaii’s regulations, which includes being distinct from existing businesses in the state and including an identifier like “corporation.” Investigate name availability and potential reservations.

Designate a registered agent

Assign a registered agent physically located in Hawaii to receive crucial documents and notifications on your business’s behalf. Note that a registered agent is not required to be your business employee or representative but must be available during standard business hours.

Establish a governing body

Determine a governing structure for your business. Corporations must designate at least one director. A company owner may fill either role, but ownership is not a prerequisite.

Submit Articles of Incorporation/Organization

File the Articles of Incorporation with the Business Registration Division of the Hawaii Department of Commerce and Consumer Affairs to form an Hawaii S corp.

Apply for S corp status with Form 2553

Form 2553 must be filed with the Internal Revenue Service (IRS) to transition to an S corp. Obtain an Employer Identification Number (EIN) before filing. LLCs may need to file IRS Form 8832 to opt for corporate tax treatment before progressing with the S corp election. Timing is crucial when filing Form 2553 to ensure the desired tax year is applicable.

MaxFilings provides pricing that encompasses all state fees. The pricing model is straightforward and does not contain hidden costs, ensuring clarity and transparency in financial engagements.

S corp limitations and eligibility

While S corps offer several advantages, the IRS has specific requirements and limitations:

• Domestic establishment: The entity must be a domestic corporation or another eligible entity.
• Shareholder limitations: Acceptable shareholders are restricted to certain entities and individuals, excluding partnerships, corporations, and non-resident aliens, with a maximum count of 100 shareholders.
• Stock classes: The business can only possess one class of stock.
• Ineligible entities: Certain corporations, such as certain financial institutions and insurance companies, are ineligible.

Why form a Hawaii S Corp?

Forming an S corp in Hawaii provides notable advantages like pass-through taxation, avoiding the double taxation many corporations encounter. This structure ensures that company profits are taxed only at the shareholder level and safeguards shareholder’s personal assets against business liabilities and lawsuits. With the ability to attract investments by having 100 shareholders and simultaneously maintaining limited liability, S corps also enhance a business’s professional credibility. Furthermore, it allows an easier transfer of ownership than other business entities while enabling business losses to offset other income on the shareholders’ tax returns.

Some points to consider when forming a Hawaii S corp

• File official documents with the state to establish a Hawaii corporation and pay applicable state filing fees.
• Submit Form 2553 to the IRS to elect special tax status.
• Recognize a Hawaii S corp as a separate legal entity from its owners/shareholders.
• Adhere to specific business activity limitations applicable to Hawaii S corps.
• Hold and document shareholder and board of directors meetings via minutes.
• Limit shareholder number to 100 and restrict shareholder types (excluding corporations, LLCs, certain trusts, partnerships, and non-resident aliens) for Hawaii S corps.

Raising capital

• Hawaii S corps have enhanced access to additional capital by issuing and selling stock or other financial instruments.
• State and federal securities laws may govern stock sales.
• Selling the corporation’s stock allows for ownership transfers.
• Hawaii S corporations are restricted to having a single class of stock, though voting rights vary.

Taxation

• Hawaii S corps typically experience fewer audits than sole proprietorships and partnerships.
• Shareholders enjoy pass-through taxation, mitigating the issue of “double taxation.”
• While Hawaii S corps file informational tax returns, they don’t pay income tax themselves.
• Shareholders disclose their respective shares of income and losses on their personal tax returns and can use losses to offset additional income.
• The allocation of income and losses is determined based on ownership percentages.
• Salaries paid by the corporation to owners are not subject to self-employment taxes.

Owners & employees

• Limitations may exist for major shareholders concerning specific fringe benefits.
• Owners who are also employees qualify for fringe benefits, including group insurance, retirement and profit-sharing plans, and tax-advantaged stock options and bonus plans.
• Employees often favor corporations due to the potential offerings of stock options and bonuses.
• Corporations exhibit a form of immortality and perpetuity, continuing operations even after the death of a shareholder, unlike some other business structures.

Public perception

The general public perceives corporations as more substantial than sole proprietorships and partnerships.

How much does forming an S corp in Hawaii cost?

Incorporating an S corp in Hawaii involves a $50 nonrefundable filing fee and an additional $1 refundable State Archive Fee, both payable to the State of Hawaii. If you’re seeking assistance with the online incorporation process, MaxFilings can help streamline your filing and ensure all necessary steps are accurately completed with no hidden costs.