How Can a Minor Own an LLC? (Start a Business as a Teen)
A minor can own an LLC, but formation requirements vary by state, with most requiring adult involvement during the establishment process.
With 86% of American kids aspiring to work as social media influencers and entrepreneurial ventures becoming increasingly popular among teens, understanding these legal frameworks becomes essential.
Effective approaches for minor LLC participation include having parents or guardians establish the entity, forming the business in teen-friendly states like Delaware, California, or Illinois, or structuring the LLC with adult managers while the minor maintains ownership as a passive member.
Here's everything you need to know.
Quick Summary
- A minor can own an LLC through the representation of a parent, guardian, or legal agent.
- Five states have specific restrictions that prevent minors from starting an LLC, highlighting the importance of understanding and navigating state-specific laws.
- According to the IRS, the United States has about 21.6 million LLCs, some of which are operated by minors, however, their limitation in owning an LLC lies in their inability to enter legally binding contracts on behalf of the company.
- I always pinpoint that empowering minors to own LLCs fosters early entrepreneurship and teaches valuable business and life skills from a young age.
How Can a Minor Own an LLC?
A minor can form an LLC through the following ways:
- Representation by a parent or guardian for legal purposes.
- Being a passive LLC member by merely investing in the business without active participation.
- Assigning assets into a trust or custodial account.
I found that to form an LLC with the least hassle, a minor should involve an adult who will likely take an active role in the formation process. This can be done with or without the help of an attorney.
If you're a minor trying to form an LLC, the company should have adult members. However, each state has different LLC laws, so it's better to consult an attorney for professional legal advice.
"Minor ownership in LLCs offers unique opportunities but requires careful legal navigation."
- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions
Can a Minor Get Access to Credit?
Minors can get access to credit, allowing them to take out a business loan in the name of the LLC rather than as an individual.
From my experience, before a minor can avail of a credit line, they must go through the proper legal steps to ensure its validity.
This includes notarization and filing necessary documentation with the state in which a limited liability company is established.
States That Restrict Minors from Owning an LLC Business
The following is a list of a few states that restrict minors to start an LLC:
- Minnesota
- Oregon
- Illinois
- Colorado
- Texas
Note: This doesn't mean the entrepreneurial journey ends here for minors in these states. I found that partnering with an adult or forming an LLC in a more lenient state can open up pathways to business ownership.
Conversely, states with the most relaxed laws are New York, California, and Delaware, with the latter being known for its open door policies, which makes it a popular choice for minors who want to start a business.
Can a Minor Make a Legal Business Entity?
Minors can form business entities with the help of their parents or legal guardians. This includes business structures like corporations (Inc.), general partnerships (GP), limited partnerships (Ltd.), and limited liability companies (LLC).
But keep in mind that business owners are still responsible for business debts, taxes, and any business operations lawsuits.
The legal entity must designate a person in charge, who is usually referred to as the "incorporator," "organizer," or "promoter."
This person's name will appear on business documents, but it can be changed later by filing an amendment to the business' Certificate of Formation [1].
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FAQs
Can a Minor Sign a Contract?
A minor can sign a contract only with consent and representation usually from a parent, guardian, or legal representative to make the document valid.
How Does a Young Entrepreneur Pay Taxes?
A young entrepreneur pays taxes using the 1099-MISC form. Any person who earns at least \$400 is required to file a tax return, including minors.
Who Is Eligible to Join an LLC?
Anyone interested in LLC membership is eligible to join. The LLC's members do not have to be U.S. citizens or residents, and they need not even live in the country where the company operates.
Minors need consent and representation to be eligible members.
What Are The Disadvantages of Minors Owning LLCs?
The main disadvantage of minors owning LLCs is their limited ability to enter legally binding contracts since they are difficult to enforce or voidable. Many states forbid minors to enter specific types of contracts, such as property purchases.
Some people may be hesitant to conduct business with a minor-owned LLC because of contract issues.
Are There Any Age Restrictions for Owning an LLC as a Minor?
There may be age restrictions for owning an LLC as a minor due to limitations on entering into legally binding contracts. As minors generally lack contractual capacity, their ability to own an LLC may be restricted or require parental/guardian involvement.
Can a Minor Be Listed as the Sole Owner of an LLC?
In most jurisdictions, a minor cannot be listed as the sole owner of an LLC due to limitations on contractual capacity. However, they can conceptualize a business idea that can be pursued and owned by a legal adult until the minor reaches the age of majority.
While minors can technically own LLCs in most states, the process involves additional legal considerations and requirements that vary by jurisdiction. As Venture Smarter, we recommend consulting with a qualified attorney to ensure proper compliance and protection for young entrepreneurs entering the business world.
Reference:
- https://www.upcounsel.com/certificate-of-amendment
Excellent way of explaining
This article makes me think about the importance of teaching young people about business ownership early. Even with legal hurdles, the learning experience is invaluable.
Thank you for explaining how minors can participate as passive LLC members through investments. It’s a great option for teens who aren’t ready for hands-on management but still want to be involved.
Reading this guide made me realize how valuable it is to encourage entrepreneurship in teens. With the right legal structure, they can start building skills and confidence early.