We often assume that teen life is all about studies, movies or simply hanging out. Not anymore — today’s teens are hard at work building big businesses. From reselling clothes and building apps, to launching the perfect cookies, opportunities for young entrepreneurs run all across the board. And why not? Entrepreneurial spirit doesn’t have an age specification.
According to a survey by Junior Achievement (JA) and Ernst & Young LLP (EY), 41 percent of teens say they prefer starting a business over working for someone else. Business success can come at any age, and today’s teens know how to leverage technology and their network to build their careers and make money from it.
Have an innovative business idea that you're eager to launch? We're here to support you. Learn if you, as a minor, can legally start a business. We’ll help you understand the rules around minors forming and owning their own limited liability company (LLC) and how to go about it.
Can a Minor Form an LLC?
The reality is that most states require budding entrepreneurs to be 18 years before they can form their own LLCs as an organizer (the person who files the incorporation paperwork). However, that doesn’t mean you need to put your idea on hold until then. These laws vary from state to state, and a few states like California, Delaware, Nevada and Wyoming don’t stipulate the age at which one can form an LLC. Therefore, it’s best you contact your Secretary of State’s office and review the specific rules. You can also learn more about your specific state rules and regulations here.
Don’t worry if you live in a state that doesn’t allow a minor to form an LLC — there are a number of other alternatives.
Forming an LLC as a Partner
Although some states prohibit minors from forming their own LLC, there are no laws that pertain to minors being partners of a business. This means that if you have a business partner over the age of 18, that business partner can be responsible for the LLC formation, operation and other daily tasks of running a business that you would not legally be able to manage. To avoid any confusion regarding partnership roles and responsibilities, draft and sign a partnership agreement.
Incorporating in a Teen-Friendly State
Did you know that more than half of all corporations in the U.S. are registered in Delaware yet are headquartered and do business elsewhere? There’s a reason behind that — Delaware is one of the teen-entrepreneur-friendly states. You can file the Articles of Incorporation in a state like Delaware or California, and after getting the approval, register with the state where your business will actually be located.
Registering an LLC in a state where you don't live is a different process than forming an LLC in your home state. The registration process may vary from state to state and may be called something else, such as a “Foreign Qualification” or a “Certificate of Authority.”
Being a Member of LLC
The last alternative is to allow someone trustworthy (like a parent, relative or attorney) over the age of 18 to serve as the organizer and be a member of the LLC. There are no age limitations for members/managers in an LLC. In this type of arrangement, we recommend working with an attorney to structure the LLC and also getting an Operating Agreement in writing that defines the organizer's and members' roles. This will ensure the organizer cannot refuse to hand over the reins once you turn 18.
The Contract Conundrum — How to Manage Contracts as a Minor
Any entrepreneur knows that business contracts and other legal documentation are essential to running a successful business because they protect you and your assets. However, when it comes to running a teen business, one point to be aware of is that most contracts are not legally binding when signed by only a minor. In most states, minors are not considered legally competent to enter into a binding agreement, thereby rendering any signed contracts null and void.
This would make day-to-day tasks of doing business pretty difficult if you were solely running and organizing your business. However, you can have your parent or guardian be your business partner and get them to sign on your behalf.
Also, most businesses require some sort of bank account to be set up — this arrangement certainly makes it easier to accurately separate your business and personal finances. Most banks require an individual to be over the age of 18 to open an account. Once again, getting a parent/guardian or business partner over the age of 18 to serve as the joint account holder will help you get over this hurdle.
Passionate About Business? Make Your Teen Business Legit
If the entrepreneurial bug has hit you early, you should know that with the help of a few trusted family members and friends, you can turn your idea into a profitable, protected and legit business venture. You might be asking yourself, “It’s just a teen business; do I really need an LLC?” Forming an LLC increases your business’s credibility, makes it easier to acquire funding and also protects your personal assets.
Although the rules for forming an LLC as a teen are quite nuanced, where there’s a will, there’s a way. If you are a minor and have questions about filing for an LLC for your teen business, Incfile can walk you through the legalities of starting and running your own company.
Swara Ahluwalia is a freelance content writer with experience in the technical, B2B and SaaS domain. She also has curated content for various lifestyle brands. In her downtime, you will most likely find Swara training for her next marathon or spending time with her two daughters.