Just because you’re young doesn’t mean you don’t have a great business idea and that you can be a successful entrepreneur. There are tons of young people who have the ideas and ambition to run a successful business, even if they’re not yet 18.
But owning a business isn’t always just as easy as exchanging what you’re selling for money; it involves forming a legal entity to protect yourself and your business. If you’re wondering if a minor can even form an LLC, keep reading to find out how a minor can create one and some of the potential pitfalls to look out for.
What Is an LLC?
A Limited Liability Company, or LLC for short, is a business entity and legal structure for a business. It allows owners of a business to have their company separate from them personally. It provides owners limited liability protection that corporations get, along with other tax benefits that businesses are eligible for.
Members of an LLC can protect their personal assets from litigation or debt collection and allows the owner to keep personal and business funds separate.
You can either have one owner of an LLC or it can have multiple owners; there is no maximum number of partners within an LLC.
Can a Minor Form an LLC?
A large part of determining if a minor can form an LLC is based on the state where the person lives and wants to form their LLC. There are some states where a minor forming an LLC is prohibited, while other states do not have any rules or regulations on this.
States That Do Allow Minors to Form an LLC
Most states do not specifically mention an age requirement in their general guides to forming an LLC. There are only a handful of states where it explicitly bans minors from being able to form an LLC.
States That Don’t Allow Minors to Form an LLC
The few states that prohibit anyone under the age of 18 to form an LLC are listed below. Some states have a guideline that no member of the LLC be under 18 while others only require that at least one person is over the age of 18.
Colorado, Illinois, Minnesota, Oregon, and Texas
One important note to make is that even if you reside in a state that does not allow minors to form an LLC, it is possible to form an LLC in a state where you are not a resident of that does allow minors to form an LLC. Be sure to research states and their specific rules and guidelines for forming an LLC.
Can a Minor Own an LLC?
There is a difference between forming an LLC and being an owner of an LLC. While some states have rules in place for a minor forming an LLC, all states allow minors to own an LLC.
If a minor wanted to start a business but was in a state that does not allow minors to form an LLC, they would be able to ask an adult to form the LLC for them and then be included as a member and owner of the LLC.
Deciding if an LLC is the Right Entity for a Minor
As with any business, there are pros and cons to forming and owning an LLC. Along with understanding those, it’s important to also make sure that an LLC is even the right entity for the business you want to start.
Benefits of LLC Ownership for Minors
One of the largest benefits to a minor being able to form an LLC or own an LLC is that it allows people under the age of 18 to be able to start a business without worrying about or having the responsibility of the business’s debt or liability, personally. If a teenager wanted to start a babysitting or lawn care business they are more protected in an LLC than they would be if they just had a sole proprietorship.
If your business deals with vendors or if a loan is ever needed, it is easier to do business and secure partnerships with others when you have an LLC formed over a sole proprietorship as banks and suppliers may be wary of doing business with someone who is not legally protected like they are in an LLC.
Limitations of LLC Ownership for Minors
One limitation to consider as a minor owning an LLC is that even if the law doesn’t prohibit you from forming and owning an LLC, there are laws in place that limit a minor’s ability to enter into legally binding contracts. Laws will vary by state but this makes it harder for minors to enter into contracts and more difficult to enforce.
3 Tips for Addressing Minor Limitations
As to many limitations in business, however, there are some ways to get around this issue so that a minor can still own and run a successful LLC.
- Appoint Other Members That Are Over 18
A potential workaround with this is that a minor can partner with an adult they trust to also be an owner of the LLC who can enter into contracts legally and be responsible for legal dealings.
- Adopt a Member-Management Structure
This structure of an LLC allows it to be managed by its members, non-member managers, or a combination. In this case, all managers would be adults and the owner of the LLC is still able to be a minor and serve as a passive investor.
- File a Statement of Authority
This is a statement that you can file with your Secretary of State stating that the adult members of your LLC will serve as your business’s agent and enter into contracts on your behalf.
Creating an Operating Agreement for the LLC
An operating agreement for an LLC is a document that lays out the terms of an LLC based on the business and the needs of its members. It outlines the operations of the company and who is responsible for what. It is not a mandatory requirement but it is beneficial and extremely important in cases with more than one owner. Once aligned by the owners of the LLC, the operating agreement acts as a binding rule book for the members to follow.
Time to Act on Your Great Idea
Hopefully, this breakdown provided you with the knowledge and confidence to move forward with your great new business idea. Minors are just as capable of forming an LLC as anyone else is and age shouldn’t hold anyone back from pursuing their dreams. If your business is a success, your expenses will grow! We recommend starting with someone who can help keep your finances on track. doola’s bookkeeping services will have you off to a great start in your endeavor. Good luck!
What is the minimum age for an LLC?
There is no specific age restriction for someone to form an LLC other than in the states listed in this article where you cannot be under the age of 18.
How do you get an LLC?
There are a couple of steps that go into obtaining an LLC. Some of the more important ones are choosing a name, registering your business name with your state, and filling out your articles of organization.
Can a minor be part of an LLC?
Yes. A minor can be part of an LLC the same as any adult is able to be. The only limitations come in with legally binding contracts which are addressed in this article.