Sat 02 Apr 2016 | By:

Pros and Cons to Starting a Hawaii Corporation

Pros and Cons to Forming a Corporation

The startup process is one of the longest and most challenging procedures that you need to go through to be able to realize your dream of building a Hawaii small business.

On top of your to-do list should be incorporation because without it, you’ll not be able to safeguard your Hawaii startup or protect yourself from liabilities. The incorporation process alone is quite complicated as it needs so many documents and requires so many steps.

To get started, you need to choose a legal entity that best fits your business; one of the most beneficial is starting a Corporation in Hawaii. A corporation, like an LLC can give both business owners and businesses numerous advantages and benefits.

Before you decide to incorporate under corporation and learn how to start a corporation in Hawaii, it’s best that you know the pros and cons of running a corporation. Starting off with the pros!


Pros to Starting a Corporation in Hawaii

1) Limits Liability

This advantage applies to business owners. Once you incorporate your business, it will be recognized by the state of Hawaii as a separate and independent entity with its own rights and transactions. Therefore, if it encounters financial or legal problems as it operates, you will not be held accountable for its liabilities.

While you are protected against liabilities, your Hawaii small business will also be treated fairly, allowing it to airs its side. Its right to due process will also be respected and it will go through the normal process when it is sued or faced with a credit investigation.

2) Transferable Ownership

While the ability of a corporation to transfer stocks/shares and ownership can be a disadvantage, generally, it can do greater good than harm. This is especially true during unexpected situations like the death of an owner, the sudden withdrawal or selling of shares/stocks and among others.

Once these unfavorable circumstances happen, you can ensure your business’s operations by transferring ownership from one person to another. As long as you are able to meet certain technical requirements of the governing legislation, you’ll be able to immediately endorse a share certificate in favor of the new share owner.

3) Tax Benefits

Income tax laws in the state of Hawaii are lenient when dealing with corporations. However, your Hawaii Corporation must qualify as a small business with active income so that it can take advantage of small business deductions and income taxes at a lower rate.

Corporations are also subject to fewer restrictions when reporting capital losses. Due to this, business transparency is highly evident in corporations, lessening strict audits compared to other types of entities. If you evaluate the overall situation, corporations can gain from substantial tax savings.

4) Perpetual Existence

Perpetual existence simply means ensuring the lifetime survival of your business even when unexpected events occur, such as the death of a co-owner, or a shareholder selling, transferring or withdrawing his/her shares of stock.

Unincorporated businesses and even other forms of entities such as sole proprietorships and general partnerships will immediately be shaken by these unfavorable situations; however, if you form a Hawaii Corporation, your business will remain intact even when it has outlived its owners.

5) Established Management Structure

According to Hawaii state law, all businesses registered under corporation must maintain a well-established management structure. Having a stiff management structure is actually an advantage because hierarchy is appropriately defined and job descriptions are clear.

From Board of Directors, shareholders, management teams, down to the company employees; everyone knows their roles, responsibilities and scope. Overlapping of tasks, power struggles and other issues are prevented because of a well-organized management structure.

These are just some of the most important advantages if you form a Hawaii Corporation. If you want to make sure that your business is fit to be incorporated as a Corporation, you can consult with an attorney or (if you want to save money) you can use a business entity comparison chart.


Cons to Starting a Corporation in Hawaii

1) Expensive

As with any kind of government process, starting a corporation in Hawaii is quite costly. You need to pay for government, filing and professional fees and other miscellaneous expenses such as name reservation, certified records and payment during the organization of your corporation. Aside from the cost, it is also time-consuming and challenging.

2) Subject to Strict Government Regulations

With all the perks of a Hawaii Corporation, the government doesn’t come easy in terms of monitoring business activities and operations. Corporations are subject to strict government policies which can cost more money. You may need to comply with numerous requirements, obtain several documents and a lot more.

3) Meticulous Record Keeping

For many entrepreneurs, this is a daunting task. When you’re busy running a business, adding another job that will consume much of your time can be frustrating.

However, when you manage a business, you have no choice but to keep an organized record of your shareholders, directors and officers if you want to continue doing business. You have to maintain records of changes in the management structure, transactions and debts acquired by your Hawaii small business.

4) High Risk of Double Taxation

A Hawaii Corporation can be at risk for double taxation based on the special rights and restrictions connected to the shares and the method by which income or profit is paid out to its shareholders. If a corporation pays its taxes using its profits, shareholders can be at risk for double taxation based on the paid profits.

5) Director and Shareholder Liability

As I’ve mentioned earlier, there’s a general rule saying that any acts or failures committed by a corporation are not the liability of the owners and even the directors or shareholders. However, there are certain situations that will exempt directors and shareholders of this rule.

Engaging in activities or questionable acts will jeopardize the liability protection given to the owners or shareholders of a corporation, thus, proper guidance and legal advice should be taken to avoid losing the advantages of running a Hawaii Corporation.

Your Hawaii startup has different needs than the rest so you need to make sure that you evaluate if a corporation is the best choice for a legal entity. The biggest companies in the world are registered as corporations and while its owners deserve credit for the success of their ventures, it’s also safe to say that managing a corporation has its fair share of perks and advantages that somehow contributes to the growth of companies.

A Hawaii Corporation can give you countless benefits; the above advantages that I discussed are just a few of them. If you feel like a corporation is for you, seek assistance from concerned government agencies or offices and start your business entity application now!

Please be aware that this is not legal advice – it is solely an informational guide. For details on how to form a Corporation in Hawaii or starting a business in Hawaii, a lawyer has the best answers for you.

About Ryan James

Half hardworking hermit, half avid adventurer, Ryan founded Startup Savant to simplify entrepreneurship and pay it forward by donating a portion of all revenue to support children's education via