There is often speculation regarding the legality and wisdom of minors owning an LLC. The answer is that, yes, minors can own LLCs in the United States.
However, there are certain restrictions on this practice, so it is essential to understand the relevant laws and regulations before making any decisions.
We bring forth our extensive financial and legal expertise to explore this complex topic by examining relevant LLC laws and weighing potential benefits and risks. Let’s dive in!
- In many states, there is no specific minimum age requirement for forming an LLC.
- However, it may be challenging for underage LLC members to access credit.
- Parental assistance can greatly support minors in effectively managing their responsibilities.
Can a Minors Own (or be a Member of) an LLC?
Minors can have LLC ownership in most states but face obstacles due to their inability to enter contracts. However, parents or guardians can form an LLC on behalf of a minor. The minor acts as a passive investor until adulthood, when ownership can be transferred.
Can a Minor Form an LLC?
Forming an LLC as a minor largely depends on a state’s regulations. Some states provide room for teens to establish a legal business entity, while others have strict age requirements.
It’s crucial to understand that forming an LLC involves signing legally binding contracts, an action that minors might not be able to undertake without an adult or family member who can act as the business’s agent.
States Allowing Minors to Form an LLC
Most states, including California, Delaware, Nevada, and Wyoming, allow teens to form an LLC. These states don’t impose any age restrictions on LLC members, but they require the written consent of a parent or legal guardian.
States that Don’t Permit Minors to Form LLCs
Colorado, Illinois, Minnesota, Oregon, and Texas prohibit minors from establishing an LLC. These jurisdictions extend credit and contract privileges only to the partners of the business entity who are over 18.
The operating agreement in these states requires at least one adult manager to conduct business, so an LLC cannot be created or owned solely by minor members.
Should a Minor Own an LLC?
Ownership of a limited liability company (LLC) by a minor presents both potentials and challenges that should be considered.
Our team of experts has determined that owning an LLC can provide minors with valuable learning experiences.
- Learning Opportunity: As a business owner, a minor gains firsthand experience in running a business. The LLC’s members, regardless of age, can learn about business member management structure, decision-making, and other business entities.
- Building Credit: According to recent stats, out of America’s youth earning $49,999 or less per year, only 24.6% have a score over 680. With an LLC, minors can start building their business credit early, so they can take out business loans in the future.
- Asset Protection: LLCs protect the members from personal liability. This means that even if the business faces financial trouble or legal issues, the minor’s personal assets and personal property remain shielded.
However, the challenges cannot be overlooked:
- Legal Limitations: In most jurisdictions, teens have limited ability to engage in contracts. This could limit the operation of the LLC (property purchases, filings with the State’s Office), as contracts entered by minors can be void or voidable.
- Financial Risk: Running a business involves financial risk. Although minors owning LLCs are protected against liabilities, if their business idea fails, they can still lose their investment.
- Time Management: Balancing school, extracurricular activities, and managing a business may be overwhelming for a minor. This could affect both their academic performance and the success of the business.
Tips for Addressing Minor Limitations
Here are some ideas to avoid the main limitations of a minor owning an LLC:
- Adopt a Member-Manager Management Structure
We’ve found that a member-managed structure is advantageous. It enables all members, including teens, to participate in daily business operations and contribute valuable insights. However, that law still prohibits minors to sign contracts even if they participate in forming LLCs.
- File a Statement of Authority
Filing a Statement of Authority can delineate the powers of the minor, the adult members, and any designated managers. We noticed that this document can provide clarity to other parties and protect the minor from entering into binding contracts on the LLC’s behalf.
- Have Other Members Over 18
Including one or more adults in the LLC can help navigate most contracts and legal dealings. These adult members serve as the LLC’s agents and can legally form agreements with suppliers, banks, and other businesses, protecting the minor from potential financial risk.
Is an LLC the Right Legal Entity for a Minor?
Yes, an LLC is one of the most popular ways for a minor to own and operate a business. It offers a level of limited liability protection that a sole proprietorship does not, as the LLC separates the minor’s personal assets from their LLC business assets.
Can a Minor Get Access to Credit?
Access to credit can be more difficult for a minor. In many cases, only the adult members of an LLC can legally bind the organization to a loan or credit agreement. It’s vital to seek legal advice on this matter.
So, Can a Minor Own an LLC?
Our investigation shows that teens can indeed own an LLC in most states, allowing young entrepreneurs to explore their great business ideas.
However, being an owner comes with responsibilities like managing the business structure, signing documents, and handling money.
Using an LLC formation company to start a business can make things easier, as they can help file the LLC’s Articles of Organization and draft an Operating Agreement to reflect your situation.
With years of experience in the field, we worked with over 20 companies, but we always recommend ZenBusiness when a minor is involved.
They have excellent expertise and customer service, which can help clear up any questions you may have during the LLC formation process. Plus, we appreciate that their basic LLC formation pack is free, which helps reduce initial costs.