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Owner’s Liability for the Debts and Obligations of a Hawaii Limited Liability Company

We’re frequently asked what makes Hawaii limited liability companies so attractive as compared to Hawaii partnerships and Hawaii corporations.  The main benefit of a Hawaii limited liability company is that it takes the best of a Hawaii corporation (in general protection of the owners from the liabilities of the corporation) and a Hawaii partnership (in general pass-through taxation so you avoid double taxation on the corporate and shareholder level).

Hawaii Partnership

  • Hawaii General Partnership. A Hawaii general partnership is managed by two or more general partners who are personally liable for the debts and obligations of the Hawaii partnership.  A Hawaii general partnership can be created informally, without going through a formal registration process.
  • Hawaii Limited Partnership. A Hawaii limited partnership consists of at least one general partner and one limited partner.  The general partner(s) is personally liable for the debts and obligations of the Hawaii limited partnership, while the limited partner(s) is protected with limited liability.

The Hawaii limited partnership is managed by the general partner(s) and possibly the limited partner(s). However, those limited partners who participate in the management lose their limited liability status and become personally liable for the debts and obligations of the Hawaii limited partnership.

Hawaii Corporation

A Hawaii corporation is managed by directors and officers and owned by the shareholders.  The shareholder is protected with limited liability as to the debts and obligations of the Hawaii corporation.

Hawaii Limited Liability Company

The Hawaii limited liability company is a new hybrid business entity with characteristics of both a corporation and a partnership.  Under Hawaii law, it is neither a partnership nor a corporation, but an entity created pursuant to the Hawaii Revised Statutes.

The owners of a Hawaii limited liability company are referred to as “members”.  Like the shareholders of a corporation, the members are provided with limited liability protection for the debts and obligations of the limited liability company.

The Hawaii limited liability company can be managed by designated “managers” or by all the members.  Unlike limited partners who lose their limited liability protection when participating in the management of the limited partnership, members who participate in the management of the limited liability company should not lose their limited liability protection.

However, since a Hawaii limited liability company is a very recent development in Hawaii, there is very little guidance as to how the Hawaii courts will treat certain Hawaii limited liability company issues, in particular whether there are instances where the members can be personally liable for the limited liability company’s debts and obligations.

The Hawaii limited liability company allows pass-through taxation to its members like a partnership, while protecting its members with limited liability like a corporation. These characteristics have helped make the Hawaii limited liability company a very attractive vehicle for starting a Hawaii business.

Please consult with your accountant as to what is the best entity for your particular financial situation.

If your accountant recommends a Hawaii limited liability company contact our law offices and we can form your Hawaii limited liability company.

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