Are you a minor with a burning entrepreneurial spirit?
Then you'll be wondering: at what age can you start your own business?
Here's some good news; we're going to tell you everything you need to know.
In this guide we'll cover:
- The most popular types of business entities
- Can a minor be a member of an LLC?
- How can a minor form an LLC?
- The states that don't allow minors to form LLCs
- How minors can deal with the challenges of forming an LLC
So, let's get started.
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Creating A Business Entity For A Minor-Owned Business
Generally, the first stage of starting a business is to create a business entity. The two most popular choices are to form either a Limited Liability Company (LLC) or a corporation.
When most people start a business, they usually choose to form an LLC. LLCs are particularly favored by small business owners because they give the owners legal protection without the same administrative weight as a corporation.
As a young entrepreneur, starting a new business without forming a business entity comes with certain risks. One of the main risks is that you will be personally liable for your business if something goes wrong. If somebody sued you for property damage, for example, you would be personally liable for settling the claim.
Can A Minor Be A Member Of An LLC?
So, you're a minor with a great business idea and want to form your own LLC – but can you? The short answer is yes.
The owners of LLCs are called members, which can be a little confusing. Remember that the terms “member” and “owner” are used interchangeably when referring to LLCs.
No state has a law prohibiting minors from owning an LLC. In other words, a minor can be a member of an LLC in any state.
However, some states do have laws preventing minors from acting as the organizers of an LLC as it is formed. An organizer is a person or multiple people who act as the representative or representatives of the LLC during its formation.
The states that legally prevent minors from acting as organizers are:
How Can A Minor Form An LLC?
The process of forming an LLC for young entrepreneurs is the same as it is for adults. Whether starting a car washing business, a graphic design business, or a dog walking business, you must follow the same steps.
The main steps you need to take are as follows:
- Choose a name for your LLC
- Choose a registered agent
- Create an Operating Agreement
- Pay any necessary fees in your state
- File the Articles of Organization with your Secretary of State
All local businesses should seek legal advice before forming an LLC because laws and processes vary between states.
What Steps Can A Minor Take If They Live In A State That Doesn't Allow Minor-Owned LLCs?
If you're a minor brimming with business ideas in a state that prohibits minor-owned LLCs, there are ways to work around it.
Let's say you have a great idea for a small business, like a lawn care business. Yet, you live in Colorado. One option would be to ask an adult, like a parent, to form your LLC for you. Once it has been created, you could become the owner.
There is also the option of foreign qualification. This involves registering your business in another state that does allow minors to form LLCs. So, you could register your business in New York even though you're based in Colorado. The main downside is that you would have to pay taxes in both states.
This is why foreign qualification is usually only something that very successful businesses do. Still, it's useful if part of your target market is based in another state. In general, foreign qualification is not one of the best business ideas for teen entrepreneurs.
Possible Hurdles A Minor Might Encounter When Forming An LLC
Beginning an entrepreneurial journey is difficult for anyone. For teen businesses, though, there are extra challenges that adults don't have to face.
One of the biggest issues is that people younger than 18 years old don't have much ability to enter into contracts that are legally binding. Most contracts like this are hard to enforce or are outright voidable. This varies between states, but some states won't allow minors to enter into some types of contracts.
As we've mentioned, minors aren't permitted to act as the organizers of an LLC during its formation. Depending on the state, you may not be able to act as a registered agent for the LLC.
Ways To Sidestep The Limitations Of A Minor-Owned LLC
Fortunately, if you're a minor with a great business idea, there are ways around these limitations.
Filing a statement of authority
One option is filing a statement of authority with your Secretary of State. The statement would declare that only the members of your LLC aged over 18 years will sign legally binding contracts. It would also state that only adult members of your LLC will be registered agents.
Other LLC members that are over 18
For the first strategy to work, you must have members of your LLC who are legally adults, which should be a big part of your business plan. These members can still be young, but you must ensure they're over 18 years old.
When you create your Operating Agreement, you can adopt a manager-management structure. This means that your LLC will be managed by its non-member managers, members, or both. For this to work, all of the managers need to be adults. As a minor owner, you would function as a passive investor in the LLC.
Frequently Asked Questions
Do I need to form an LLC to sell products at local craft fairs?
If you're a minor, selling at craft fairs is a great way to earn some extra spending money and dip your toe into the world of business. Although many small businesses that are already LLCs will be trading there, becoming an LLC isn't a prerequisite.
Depending on the location of the fair, there will be some legal requirements. You usually need to pay for a license to trade at a fair. Often, the organizers of the fair will have a license that covers the entire event.
Do I need to form a business entity if I'm a young social media influencer?
Forming an LLC is a great idea if you're an influencer on social media platforms. Essentially, you should treat it like any other business, even if it's very different from a traditional nine-to-five job.
What's the youngest age you can start a small business?
In theory, there is no age limit for starting a small, medium, or large business. The only limitations depend on the laws of the state where you live. You should always seek legal advice before starting a business, regardless of your age or level of experience.