A Hawaii LLC Operating Agreement is a document that outlines the company’s internal structure, which includes its management, ownership, policies, and procedures of the business.
This document is legally binding, and therefore, all members must unanimously agree on every issue mentioned in the contract before signing.
Hawaii LLC operating agreement is not a requirement in Hawaii State but is recommended for LLCs. Company members are assured of protection from personal liability if the company is facing bankruptcy or legal issues that might lead to loss of business assets.
This is because there is a separation between the company members and the company itself. Company members with this agreement also enjoy tax benefits.
According to the following supporting state laws, Uniform Limited Liability Company Act (Chapter 428), Operating Agreement Laws (§ 428-103), and State Definition (§ 428-101), LLC members can prepare a Hawaii LLC operating agreement and benefit greatly from having this document.
With a Hawaii LLC operating agreement, company members can highlight their daily operations and refer to the document to solve any internal disputes. In addition, this document ensures the efficient running of a business by offering a clear framework of the company’s operations.
Types of the Agreement
An LLC might choose to prepare two types of Hawaii LC operating agreements based on its member(s). Here are the two types of operating agreements that companies in the State of Hawaii can prepare. Both of these types can be downloaded as Adobe PDF or MS Word.
Hawaii Single Member LLC Operating Agreement Form
This document is used by a company with one owner. The sole proprietor will prepare and use this type of agreement to protect themselves from personal liability in case of legal issues against the company.
Download: Microsoft Word (.docx)
Hawaii Multi Member LLC Operating Agreement Form
This document is used by companies with more than one member as the company’s owner. It helps to outline all the duties and responsibilities of the members and managers of the company.
Download: Microsoft Word (.docx)
Reasons to Make an Agreement
There are different reasons as to why LLC members may choose to have an operating agreement.
The document offers various benefits to the members and the company itself. This makes it worthwhile to prepare and have a Hawaii LLC operating agreement.
Here are some of the reasons/ importance of having an LLC operating agreement in Hawaii:
With this document, you can legitimize your LLC for the sake of third parties like banks, investors, and even lenders. These third parties will only get involved with your LLC if they have a clear breakdown of the company’s operations.
The company can have a written document of policies, rules, and regulations with the LLC operating agreement. This way, your company members have a reference document they can use in case of internal disputes. Also, the document will provide a structure of how the business operations should be handled.
Avoid default state laws
The LLC operating documents protect your LLC from external interference by default state laws that govern LLCs. With this document, you can make your own company decisions like transitioning new members or even distributing profits.
Limited liability status
The Hawaii LLC operating agreement helps to establish the limited liability status of the company as an entity. As a result, if the business faces any legal issues, the business assets are separated from the members’ assets and cannot suffer more losses.
No strict regulations
With the LLC agreement, you can handle your company’s operations without many restrictions compared to other corporations. In addition, this document offers company members a chance to layout their company operations, rules, and regulations, hence more flexibility in running the business.
An operating agreement helps to foster unity among the LLC members. Since all members have to come together, share opinions, and make decisions before signing the document, drafting an LLC operating agreement helps bring cooperation among the LLC members.
Information to be Included
Since LLC operating agreements are unique documents, they tend to vary from one LLC to another. Even though that is the case, some details must be found across all operating agreements to ensure the document’s validity. Here is the information that must be included in the Hawaii LLC operating agreement.
The LLC name should appear in the document as it is in the Articles of Organizations. These two documents must have matching names for purposes of company identification. The name should also contain the abbreviation LLC or Limited Liability Company at the end. With these abbreviations or phrases, your company is identified as an LLC.
The names of all the members that are owners must be well written in the document. Also, the document should specify the percentage of ownership of each member. The percentage can be equal or split based on capital investments from each member. Company members must all agree on how the ownership percentages will be divided.
The Hawaii LLC operating agreement must specify if the business is manager-managed or member-managed for the management structure. A member-managed LLC is managed by the members (owners) who have control of the company’s operations. For the manager-managed LLC, the members hire a manager to handle the company’s operations.
Duties of members
The duties of all members and owners must be included in the document. There should be specific details and explanations of what is expected from each member and owner. Designating duties helps to prevent internal conflicts among the company members. With a manager-managed LLC, the passive duties of the members should also be specified.
Voting powers and policies
The voting power of all members should be well established in the document. This can be determined based on the ownership percentage of each member. The agreement should also stipulate all the decisions made through voting, like approving new members and distributing profits.
The voting policies regarding whether the voting should be based on majority votes or unanimous votes should also be included in the agreement.
Profit distributions among members should be determined to ensure that each member is aware of the amount they are meant to receive. This can be done on an equal basis or depending on the ownership percentage. The profit distribution method chosen by the members must be included in the agreement.
Since LLC members can hold meetings based on their schedules, the document should have all the meeting details, unlike other corporations. This includes when, where, and why the meetings are being held.
Also, there should be precise scheduling of meetings to avoid inconveniencing members. There should also be consequences for members who miss these meetings. With precise specifications, all members will feel duty-bound to attend.
The Hawaii LLC operating agreement should have a succession protocol in case of the death or retirement of a member. There should be a plan on how to replace such members for smoother transitions. Based on the succession protocol, their shares and profits must also be designated to their relatives or other members.
Buyout and buy-sell rules
Whether a member is leaving or a new one is joining, there should be rules for these transitions. For example, the new member should be aware of the capital investment to join the LLC. The other members should also have clear guidelines on what happens to the leaving member’s shares and voting power.
If a company dissolves, there should also be plans for this process in the operating agreement. The agreement should decide whether the decision to dissolve the company should be a unanimous or majority vote.
From what happens to the pending projects to the person responsible for filing the Articles of Termination with the State of Hawaii to stop tax payments, there should be instructions for the dissolution process.
Changes to the operating agreement
The Hawaii LLC operating agreement can be modified. There should be instructions on the issues that can lead to the modifications and how these changes will happen. Changes may include receiving new members, changing the company’s budget, or even changing the members’ roles.
This clause helps protect the agreement from absolute termination if a section of the agreement is found to be invalid or illegal. With the severability clause, only the section with the mistake is removed, and the rest of the document remains useful.
To prepare a Hawaii LLC operating agreement, you can choose to download a template. A template will help to guide you in drafting a document that has all the information required. Also, it makes the process faster and easier. The structure is already provided with templates, and you only have to fill in the required details.
You can access free and downloadable Hawaii LLC operating agreement templates given here. We have both the multi-member and single-member Hawaii LLC operating agreement templates. Choose what suits your company and prepare your operating agreement.
How to Form the Agreement?
When forming an LC operating agreement in Hawaii, here are the steps to follow to ensure you create a legal and valid document that will contain beneficial information for your company.
LLC members need to appoint a registered agent to handle all the company’s affairs on their behalf. The agent must be a resident of Hawaii State and have permission to operate their business in the state.
The registered agent will choose an LLC type based on the company and the filing method they prefer. The LLC types can either be foreign or domestic and can be filed online or through the mail. Domestic LLC is formed within the state, while foreign LLC is formed outside the state.
The registered agent should not forget to file the Certificate of Existence in the case of foreign LLC applications.
Whether online or through the mail, a filing fee of $50 must be paid for completing the filing process. For online, the payment will have to be made at a particular step before the filing process continues.
For mail, evidence of payment must be attached with the other documents and sent to the
‘Department of Commerce and Consumer Affairs to the address: Department of Commerce and Consumer Affairs, Business Registration Division, PO Box 40, Honolulu, Hawaii 96810.
At this step, the operating agreement should now be drafted. Although it is not a requirement in Hawaii State, the operating agreement is essential for companies as it offers an outline of their operations, policies, and internal structure. Based on the company members, LLC members can either prepare a single-member or a multi-member Hawaii LLC operating agreement.
Employment Identification Number
The final step is acquiring the Employer Identification Number (EIN). It is a requirement by the IRS for tax purposes. With an EIN, a company can handle all its tax reports, get loans, hire new employees, legally pay employees and open a bank account meant for the company’s use.
Frequently Asked Questions
A Hawaii LLC operating agreement is not a requirement in the state. However, LLC members are advised to have this document to ensure they have an outline of their daily operations and a business structure that will help to avoid future internal disputes.
A single-member LLC can also prepare an operating agreement in Hawaii State like a multi-member LLC. Sole proprietors of such companies need protection against personal liability in case the business becomes bankrupt or faces any litigation issue. Also, single-member LLCs can get better funding since parties like investors and lenders require companies to have this document.
You can write your LLC Operating Agreement in Hawaii. Use templates to guide you in customizing a Hawaii LLC operating agreement for your company. In addition, you can seek legal counsel to ensure you draft a valid and legal operating agreement.
You do not need a lawyer for an LLC Operating Agreement in Hawaii. However, it is advisable to consult a lawyer to avoid making mistakes and forgetting other details in the document.