How to Start a Sole Proprietorship in Hawaii

If you've started selling your homemade jewelry online or running personal training sessions out of your garage, you've likely formed a sole proprietorship already—and you're not alone. When an individual starts a business (sells goods or services) and they haven't filed any legal documents with their state officially registering the business, then they've automatically created a sole proprietorship.

A sole proprietorship is low maintenance. It doesn't typically require you to file any creation documents or submit renewal filings or fees, and you can usually report your income on your personal tax return. But sole proprietors are personally liable for the business's debts and obligations, so you might need to dip into your personal funds to satisfy any debts your business can't pay.

In Hawaii, you can establish a sole proprietorship without filing any legal documents with the Hawaii state government. Though no action is required to legally create a sole proprietorship, you should follow four simple steps to start your business:

1. Choose a business name.
2. File a trade name registration with Hawaii.
3. Apply for licenses, permits, and zoning clearance.
4. Obtain an employer identification number (EIN).

For more information, read our article on how to start a business in Hawaii.

1. Choose a Business Name

In Hawaii, a sole proprietor can use their own legal name or a trade name—also sometimes known as an "assumed business name" or "doing business as" (DBA)—to conduct business. If you plan to use an assumed name or trade name for your business, state law requires that the name be distinguishable from the name of any other company currently registered with the state. (Haw. Rev. Stat. § 482-4 (2023).)

It's also a good idea to choose a name that's not too similar to another registered business to avoid trademark infringement. Under trademark law, your trade name can't be used by someone else in a way that would cause confusion among consumers. So, if you use a name that's the same as or too similar to someone else's trademark and you both provide similar goods or services, then you could be infringing on their trademark. If you find a competitor company already exists with a similar name, then it's best to choose another name.

For example, suppose you want to open a pop-up surf shop under the name Rockin' Reefside Boards and Suits. In your town, another surf shop is called Rockin' Reefs Surf Shop. You probably wouldn't be able to use your name because it's too similar of a name to the other surf shop and it would confuse customers.

To make sure your business name is available, you should run a search in the following government databases:

• Hawaii's business search system, and
• United States Patent and Trademark Office's Trademark Electronic Search System.

For more information, read our FAQ on how to choose and register a business name.

2. File a Trade Name Registration With Hawaii

If you use a business name that's different from your legal name, you can register your trade name with Hawaii. For example, suppose Thomas Magnum wanted to open a private investigation firm under the trade name Tiger Shark Investigations. He could register his trade name with Hawaii because it's different from his legal name, Thomas Magnum.

Unlike some other states, in Hawaii you're not required to register your trade name. But registration might have some potential benefits such as:

• putting others on notice that you're using a particular name
• giving weight to your claim of ownership of a name in a trademark dispute, and
• providing a separate name for a business bank account.

You can file for your trade name registration online using the Hawaii Business Express website. You can also download and complete a Form T-1, Application for Registration of Trade Name from the Department of Commerce and Consumer Affairs (DCCA) and mail it to the address provided on the application. As of 2023, the filing fee is $50. You'll need to renew your registration every five years.

Hawaii provides a helpful guide for anyone considering filing for a trade name registration. The guide answers common questions, such as those about ownership rights and benefits to registration. The guide also provides a list of sources to check in your trade name search.

3. Apply for Licenses, Permits, and Zoning Clearance

Depending on your business activities, you could need to apply for business or professional licenses. Hawaii's Department of Taxation (DOT) requires people planning to start a business in Hawaii to obtain a general excise tax (GET) license. You can register your sole proprietorship and obtain a GET license online. You can also download and complete a Form BB-1, Basic Business Application and mail it in to the DOT. For more information on a GET license, see the DOT's FAQ page.

The DCCA's Professional and Vocational Licensing Division (PVL) oversees licensing programs and professional boards and commissions in Hawaii. You can find a list of these boards and programs as well as an FAQ page on the PVL website. When clicking on each board or program, you can find information on:

• application forms, requirements, fees, and instructions
• licensing laws and rules
• how to check the status of your application or reactivate your license
• renewal deadlines
• the regulating body, and
• related websites.

You might also need to comply with local regulations, building permits, and zoning laws. Check with your city and county governments for more information.

4. Obtain an EIN

Sole proprietors who wish to have employees need to obtain an EIN. This is a nine-digit number issued by the IRS for tax reporting purposes. All businesses with employees are required to report wages to the IRS using their EIN. You can register for an EIN online with the IRS.

Sole proprietors without employees aren't required to have an EIN. Instead, you can use your Social Security number to report taxes. Nevertheless, you might want to obtain an EIN. Some banks require an EIN to open a bank account, and having an EIN can reduce the risk of identity theft.

In Hawaii, businesses are required to report taxes and file various employee reports. You might need to use your EIN when registering your business to report taxes through the DOT. You'll receive a Hawaii Tax Identification Number that you'll use for state taxes once you receive your GET license.

You can also find more information on tax licenses and permits your business might need by visiting the licensing section of the DOT website.

Next Steps for Sole Proprietors

You should consider taking the following additional steps once you've started your sole proprietorship:

• Open a business bank account for your sole proprietorship. Using your trade name and EIN, set up a bank account to keep your business and personal finances separate. You should keep your business income and expenses separate from your personal funds so you can easily distinguish your business's financial profile for tax purposes. For instance, you can more easily report business deductions on your tax return if you've created a separate account.
• Obtain general liability insurance. Because sole proprietors are personally liable for all debts and obligations of the business, a business liability insurance policy can offer financial protection against unforeseen events. You should also consider other types of insurance for your business, including property and auto insurance. For more information, read our article on the types of insurance your small business might need.
• Report and pay taxes. Depending on your specific business activities, you could be required to report such items as sales tax and use tax. If you have employees, you must report and pay employment taxes on a periodic basis. More information related to sales and use taxes and employment taxes can be obtained by registering with the DOT. (For more information, see our section on business taxes and deductions.)

To find out how to form a sole proprietorship in any other state, see our 50-state guide to establishing a sole proprietorship.

Consulting a Small Business Attorney

You might not need to submit paperwork to start a sole proprietorship in Hawaii. But your specific circumstances could require you to file forms at the state and local level and comply with various rules and regulations. As a business owner, it's important to understand what steps you need to take to legally start and operate your sole proprietorship.

If you have business experience and only need to meet a few requirements to establish your sole proprietorship, you can probably do the work yourself. But if you need specific guidance or run into a complicated issue when starting your business, you should talk to a small business lawyer. They can help you register your business name, file your taxes, and obtain licenses and permits.