What is included in a Hawaii LLC Operating Agreement?
Your operating agreement should account for any situation your Hawaii LLC is likely to experience. You can cover anything in your operating agreement that isn’t counter to Hawaii state law, but you should be sure to include the following topics:
- LLC activities
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
What information do I need for Northwest’s free Hawaii LLC operating agreement?
Want to focus on your business and leave the legal fuss to us? Our lawyers have drafted a comprehensive operating agreement you can use for free. You can even fill it out on this page, save it in a free account for later, and download a completed draft to sign.
In order to fill out our free operating agreement template, you’ll need your:
This must be your business’ legal entity name, or the name you put on your LLC Articles of Organization.
Did an LLC member contribute $500? $5k? A storefront? Put that here.
You’ll just write in 16 here since our version has a set amount of pages.
Remember, this is an internal document, so you won’t have to submit these names to the state just because they’re on here. However, you might need to add these people to your BOI Report.
Include any initial contributions, even if it’s only a small percentage.
While we recommend having a business bank account, some banks like to actually see the operating agreement before you open the account. If that’s the case, you can leave this blank for now.
This is the place your business operates from.
You can add this in later if you aren’t sure when your meeting will be held.
There are a few spots in our template where you’ll need a signature from one or more members.
Why should a Hawaii LLC have an operating agreement?
A Hawaii LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to conduct company operations.
Hawaii state law doesn’t explicitly require LLCs to adopt an operating agreement. However, creating a strong operating agreement now will likely spare you headaches in the future. Here’s why.
1. An operating agreement is required to open a business bank account.
Some banks require LLCs to have an operating agreement in order to open a company bank account, a step needed to keep your business and personal spending separate and maintain limited liability.
2. An operating agreement can help reinforce your limited liability status.
To benefit from limited liability status, business owners have to show a clear separation between personal and business finances and interests. Formalizing LLC processes in an operating agreement helps demonstrate that the LLC truly functions as an entity separate from its members.
3. An operating agreement can help settle disputes between members.
When you go into business with other people, disagreements are bound to happen. Cementing verbal agreements in a written operating agreement is important, even just so that you’ll have something to refer back to in the case of a dispute.
4. An operating agreement can override Hawaii’s default laws.
If you don’t have an operating agreement, your LLC will be subject to Hawaii’s default LLC statutes, which may not fit your company’s needs. By creating a customized operating agreement, you can exercise more control over your LLC.
Hawaii Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of Donnelly v Jewel of Kahana LLC where disputes erupted among the members of the LLC, and some members demanded to be ‘cashed out’ for their membership in the LLC. Despite conflicting claims on the valuation of the members’ interest in the LLC, the LLC operating agreement clearly outlined the process for determining a disassociating member’s interest. As a result, the reviewing court upheld the arbitrator’s determination and application of the valuation process, resulting in the preservation of the limited resources of the LLC (and the other remaining members). Because the members hammered out their expectations and understanding of how a disassociating member’s interest in the LLC would be valued, valuable resources were preserved.
“On the other hand, the Donnelly case is a prime example of why it is important for members to anticipate and plan for their exit strategies in the event they wish to disassociate. Because the dissociating members in the Donnelly case failed to think that far in advance and never revised or modified the valuation process under the LLC’s operating agreement, their interest was valued at zero dollars, leaving them with nothing.”
FAQs
No. Hawaii Revised Statute § 428-103 states that members of an LLC may enter into an operating agreement but doesn’t say that they must. However, without an operating agreement, your LLC will be governed by the default Hawaii Uniform Limited Liability Company Act rules.
Nope. Your operating agreement is an internal document, so you don’t need to file it with the Hawaii Department of Commerce and Consumer Affairs. Instead, you’ll keep your operating agreement on file at your business location.
Yes. While it might seem like a waste of time to create an operating agreement just for yourself, operating agreements have many important functions for single-member LLCs. You may need an operating agreement to open a company bank account or help fight a lawsuit. Without an operating agreement, you risk the possibility that a court will view your LLC as a sole proprietorship and find you personally liable.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.