How to Form a PLLC in Hawaii

As a licensed professional in Hawaii you can structure your business as a Hawaii professional limited liability company (PLLC). This will give you protection from several important types of liability. It also may provide certain tax advantages compared to other ways of structuring your business.

What is a Hawaii PLLC?

In Hawaii, a PLLC is simply a limited liability company (LLC) formed specifically by people who will provide Hawaii licensed professional services. LLCs in general are businesses registered with the state that consist of one or more people—called LLC members—who own the business. Like other LLCs, PLLCs protect their individual members from people with claims for many (but not all) types of financial debts or personal injuries.

Note: Hawaii law doesn't use the term PLLC. For this article, a PLLC simply means an LLC formed by licensed professionals providing professional services.

What is a Professional Service in Hawaii?

Hawaii's LLC Act does not mention professional services. By contrast, other states' LLC laws frequently provide specific lists of professional services. These lists typically include, at a minimum, physicians, surgeons, dentists, lawyers, certified public accountants, professional engineers, architects, and veterinarians, but often include other professions, as well. (Hawaii's professional corporation law, which applies to business entities that are similar to PLLCs, indicates that professional service covers chiropractors, medical doctors and surgeons, naturopaths, nurses, optometrists, pharmacists, podiatrists, psychologists, public accountants, veterinarians, and attorneys). In rare instances, Hawaii laws or rules regulating individual professions (such as the law for public accountants) mention LLCs. In sum, if you have any question about whether your licensed or authorized profession is prohibited from forming a Hawaii LLC, you should check the state law and rules regulating your profession as well as consult with a local business attorney.

How Do I Form a Hawaii PLLC?

Assuming you're not otherwise prohibited from doing so, to form your Hawaii PLLC you'll need to:

• have the state license for each professional who will be a member of the company (licenses may be required for either some or all members depending on the profession)
• check with the relevant state licensing board for your profession to see if its approval is required (and, if so, obtain the necessary documentation showing that approval), and
• file articles of organization with the Business Registration Division (BREG) of the Hawaii Department of Commerce and Consumer Affairs (DCCA).

You can file the articles online or download a blank articles of organization form (Form LLC-1) by going to the BREG website. The downloadable form is designed to be used for all LLCs and does not contain any information specifically for LLCs formed by professionals. The current filing fee is $50.

Naming Restrictions

A Hawaii LLC's name must contain "limited liability company" or the abbreviation "L.L.C." or "LLC". "Limited" may be abbreviated as "Ltd.", and "company" may be abbreviated as "Co.". The letters in the name of a limited liability company must be letters of the English alphabet. For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Service and Membership Restrictions

There may be service or membership restrictions on Hawaii PLLCs providing specific types of professional services. Check the regulatory statute and rules for your particular profession and consult with a local business attorney for more details. Also, keep in mind that Hawaii PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.

Operating Agreement

You should make sure you have an operating agreement for your PLLC. Unlike professional licenses, articles of organization, naming restrictions, and service restrictions, this is not a state requirement. However, it is important to have an operating agreement so that other members of the PLLC (if any), as well as outside companies and businesses (for example banks), know what the internal rules are for the company. Depending on your own level of knowledge and expertise, you should consider having a lawyer assist you in preparing this document.

A PLLC Will Not Protect You From All Liability

Forming your professional service business as a PLLC will protect you personally from:

• creditors seeking to collect unpaid debts owed solely by the PLLC
• liability for the malpractice of other PLLC members, and
• people who are personally injured in connection with your PLLC because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your PLLC's offices).

Regarding protection from liability for the malpractice of fellow PLLC members, be aware that, for some professions in some states, PLLC members are required to have a minimum amount of malpractice insurance before they are eligible for such protection. Therefore, it's always a good idea to double check your state's PLLC laws, as well as your state's rules for your particular profession, regarding minimum insurance requirements.

Meanwhile, you are personally responsible if:

• you personally guarantee repayment of a business loan
• you engage in professional malpractice (such as completely botching a patient's treatment or egregiously mishandling a client's case), or
• you intentionally or negligently commit a tort (such as assaulting someone).

Because you are not protected from your own malpractice, you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any minimum insurance requirements.

A PLLC is Different From a Professional Corporation

A PLLC is not the same thing as a professional corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:

• a PLLC, like other LLCs, is comprised of members, but a PC, like other corporations, is comprised of shareholders
• following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PC ownership is based on shares of stock; and
• a PLLC, like other LLCs, is a so-called pass-through tax entity, meaning that in most states (including Hawaii) only the individual members have income tax obligations, while a PC, like other corporations, usually has its own income tax obligations.

The tax differences between PLLCs and PCs can become complicated. For example, a PC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. And, meanwhile, PCs that don't elect special status may be subject to double taxation—in other words, both the PC itself and its shareholders may have to pay taxes on business income.

Hawaii allows professionals to form both PLLCs and PCs, and both PLLCs and PCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both PLLCs and PCs, but PLLCs are simpler to create and operate, many professionals prefer the PLLC structure.

Additional Information

For more information on the requirements for forming and operating an LLC in Hawaii, such as those relating to annual reports and taxes, see Nolo's articles in 50-State Guide to Forming an LLC and 50-State Guide to Annual Report and Tax Filing Requirements for LLCs, along with the other articles on LLCs in the LLC section of the Nolo website.