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.
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.
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.
Assuming you're not otherwise prohibited from doing so, to form your Hawaii PLLC you'll need to:
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.
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.
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.
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.
Forming your professional service business as a PLLC will protect you personally from:
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:
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 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:
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.
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.