6 Things You Need to Know About Starting a Business as a Minor
Are you, or do you know someone, under the age of 18 who is
interested in starting a business? Whether you are building the latest
web app or buying and selling on eBay, young entrepreneurs face the same
opportunities and challenges as their adult counterparts.
But as you might expect, there are also some tax and legal considerations to bear in mind.
Here are answers to some FAQs about starting a business as a minor (the definition of which varies by state).
1. Can a Minor Form an LLC or Corporation?
Forming an corporation or LLC is something many businesses consider as a way to separate their personal assets from their business assets. Can a minor incorporate a business? Corporate laws vary by state, but all states require the principals of a company that incorporates to be 18 years or older.
One option is to have a parent to act as an authorized signer – but remember, the parent becomes liable if their dependent is negligent in performing the duties of the business. Another option, permissible in some states, is to have the minor become a shareholder in the business or serve on an advisory board. Shareholders can be of any age and in the case of minors, their share may be held in trust.
The bottom line: Be sure to consult a local attorney about incorporating a business as a minor.
2. Can a Minor Sign a Contract?
Contracts are an essential fact of life as a business owner, whether you are signing an agreement with customers, partners or suppliers. A minor can sign a contract, but in most states they are not considered legally competent to enter into a binding agreement, meaning they can disaffirm the contract – rendering it void.
3. Can a Minor Get a Business Loan?
The “disaffirm” condition mentioned above keeps many lenders from entering into a loan agreement with a minor. Likewise, insufficient or poor credit history may also make it difficult to find traditional financing.
Credit cards are also limited to individuals who are 18 or older, although minors can apply for a credit card under their parent or guardian’s account. Again, the responsible adult party is liable.
There are other options for financing a start-up that don’t involve formal business loans; borrowing money from family or friends, for example, is a common option for minors. However, it’s important to structure these agreements to prevent conflict. This blog explains some key factors to consider: 6 Tips for Borrowing Startup Funds from Friends or Family.
4. What About Paying Taxes as a Young Entrepreneur?
If you have started a business and made a profit, then you may need to pay income tax and self-employment tax to the Internal Revenue Service (IRS), although some teen businesses such as lawn mowing and babysitting are exempt from self-employment taxes. If you have earned income from your business, you should file you own tax return instead of adding your income to your parent’s return.
The IRS offers tax guidance for young entrepreneurs, including resources to help you determine what taxes you need to pay. If you are selling products that qualify for sales tax, you should also consult your state revenue office to understand your obligations and obtain a sales tax permit.
It’s also extremely important to maintain good records of income and outgoings, as well as receipts. This will help you accurately track your finances and claim the right tax deductions against your expenses.
Check out SBA’s Guide to Small Business Taxes for information on all aspects of managing and paying your taxes.
5. Can a Minor Claim Copyright?
According to Copyright.gov, "minors may claim copyright, and the Copyright Office issues registrations to minors, but state laws may regulate the business dealings involving copyrights owned by minors." Copyright.gov advises that you consult a local attorney for specific guidance.
6. Can a Minor Register a Trademark?
It depends on your state’s law. According to the U.S. Patent and Trademark Office, if you can validly enter into binding legal obligations as a minor in your state, and may sue or be sued, then the application may be filed in your name as a minor. Otherwise, applications must be filed in the name of a parent or legal guardian, clearly stating his or her status as parent or legal guardian.
Where to Find More Information
For more information about essential steps involved in starting a business, such as registering a business name and getting the right licenses or permits (even home-based businesses require permits), read these 10 Steps to Starting a Business. In addition, check out SBA’s Young Entrepreneur Guide for links, online training and other useful resources.
There are also organizations in the community dedicated to helping small businesses and entrepreneurs start up and succeed, such as local Small Business Development Centers and other community resources.
Related Resources
But as you might expect, there are also some tax and legal considerations to bear in mind.
Here are answers to some FAQs about starting a business as a minor (the definition of which varies by state).
1. Can a Minor Form an LLC or Corporation?
Forming an corporation or LLC is something many businesses consider as a way to separate their personal assets from their business assets. Can a minor incorporate a business? Corporate laws vary by state, but all states require the principals of a company that incorporates to be 18 years or older.
One option is to have a parent to act as an authorized signer – but remember, the parent becomes liable if their dependent is negligent in performing the duties of the business. Another option, permissible in some states, is to have the minor become a shareholder in the business or serve on an advisory board. Shareholders can be of any age and in the case of minors, their share may be held in trust.
The bottom line: Be sure to consult a local attorney about incorporating a business as a minor.
2. Can a Minor Sign a Contract?
Contracts are an essential fact of life as a business owner, whether you are signing an agreement with customers, partners or suppliers. A minor can sign a contract, but in most states they are not considered legally competent to enter into a binding agreement, meaning they can disaffirm the contract – rendering it void.
3. Can a Minor Get a Business Loan?
The “disaffirm” condition mentioned above keeps many lenders from entering into a loan agreement with a minor. Likewise, insufficient or poor credit history may also make it difficult to find traditional financing.
Credit cards are also limited to individuals who are 18 or older, although minors can apply for a credit card under their parent or guardian’s account. Again, the responsible adult party is liable.
There are other options for financing a start-up that don’t involve formal business loans; borrowing money from family or friends, for example, is a common option for minors. However, it’s important to structure these agreements to prevent conflict. This blog explains some key factors to consider: 6 Tips for Borrowing Startup Funds from Friends or Family.
4. What About Paying Taxes as a Young Entrepreneur?
If you have started a business and made a profit, then you may need to pay income tax and self-employment tax to the Internal Revenue Service (IRS), although some teen businesses such as lawn mowing and babysitting are exempt from self-employment taxes. If you have earned income from your business, you should file you own tax return instead of adding your income to your parent’s return.
The IRS offers tax guidance for young entrepreneurs, including resources to help you determine what taxes you need to pay. If you are selling products that qualify for sales tax, you should also consult your state revenue office to understand your obligations and obtain a sales tax permit.
It’s also extremely important to maintain good records of income and outgoings, as well as receipts. This will help you accurately track your finances and claim the right tax deductions against your expenses.
Check out SBA’s Guide to Small Business Taxes for information on all aspects of managing and paying your taxes.
5. Can a Minor Claim Copyright?
According to Copyright.gov, "minors may claim copyright, and the Copyright Office issues registrations to minors, but state laws may regulate the business dealings involving copyrights owned by minors." Copyright.gov advises that you consult a local attorney for specific guidance.
6. Can a Minor Register a Trademark?
It depends on your state’s law. According to the U.S. Patent and Trademark Office, if you can validly enter into binding legal obligations as a minor in your state, and may sue or be sued, then the application may be filed in your name as a minor. Otherwise, applications must be filed in the name of a parent or legal guardian, clearly stating his or her status as parent or legal guardian.
Where to Find More Information
For more information about essential steps involved in starting a business, such as registering a business name and getting the right licenses or permits (even home-based businesses require permits), read these 10 Steps to Starting a Business. In addition, check out SBA’s Young Entrepreneur Guide for links, online training and other useful resources.
There are also organizations in the community dedicated to helping small businesses and entrepreneurs start up and succeed, such as local Small Business Development Centers and other community resources.
Related Resources
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