How to Help Your Kid Register an LLC

Young entrepreneurs are starting businesses more vast and complex than the lemonade stands of yore. But, legally, kids can’t build a business alone.

Can a minor own a business?

A person under the age of 18 cannot legally form a business entity. But as a parent, you can form an LLC for your child’s business. This means you will be the organizer, and potentially sole member of the business, and your name will appear in the company’s LLC operating agreement. As such, you will be the authorized signer for the business.

Can a minor be a member of an LLC?

The Limited Liability Company Act doesn’t prohibit multi-member LLCs from including a minor as a member.

Can a minor run an LLC on their own?

Problems can arise when someone under the age of 18 becomes responsible for certain aspects of running a business, like signing contracts. Most state law prohibits minors for entering into legally binding contracts, which means contracts involving minors can be voided, or “disaffirmed,” at any time by the minor. Thus, minors will most likely have a hard time opening a business bank account and/or securing business loans on their own.

These laws are in place to protect the rights of people under the age of 18. At the same time, they’re not helpful when it comes to running a business. If your child’s business becomes big enough to involve business partners or distributors, you’ll probably need to step in as the authorized signer.

Should I form an LLC for my kid’s business?

This is ultimately a personal choice, and will probably depend on the scale and scope of your child’s business—as well as your relationship with your kid. Here are some points to consider:

• Pro – The upshot of starting an LLC for your child’s business is the business structure itself, which affords you (and your kid) limited liability protection. Should the business acquire any debt, your personal finances (and/or your child’s) won’t be held liable.

• Con – While the LLC structure will protect your personal finances from debt, you CAN be held personally responsible if your child’s LLC enters into any fraudulent or illicit activity.

How do I draft an OA for my kid’s LLC?

The details of how you and your child structure your child’s business should be laid out in your LLC operating agreement (OA). Particularly if you are both members, your operating agreement will be helpful for establishing responsibilities and expectations, including (but not limited to):

• Roles in the company
• Financial contributions
• Distribution of profits

Most operating agreements have sections for each of these categories. You may use Northwest’s attorney-drafted LLC Operating Agreement template for your business, or just use it as a reference. Either way, it’s also a good idea to consult with a business attorney to make sure your business structure is the best fit for your business.