Learn more about minor-owned LLCs.
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If you’re wondering whether a minor can own an LLC, you’ve come to the right place.
Great business ideas don’t have an age limit, but business formation requirements might (especially depending on where you start a business). Keep reading to learn state-by-state rules surrounding minor LLC formation and ownership.
Before we dig into whether minors can form and own an LLC, let’s discover exactly what this business structure is.
LLC stands for limited liability company. This formation type is one of the most popular ways to organize a business. An LLC is a legal business entity that provides limited liability protection. The owners (who are called “members”) are usually protected from the business’s liabilities and debts.
That simply means that if someone sues the business or the business goes into debt, the personal assets of the LLC members are usually protected.
LLCs also have a flexible management structure. Generally speaking, LLC members can choose how they operate and manage their business. They simply need to outline their operational and management structure in their LLC Operating Agreement.
The first step to owning an LLC is forming it. This process involves one or more people (or a business entity) serving as the “organizer.” The organizer acts as a representative for the LLC throughout the formation process.
The question of whether a minor can act as an organizer and form an LLC depends largely on where the business is being formed. Some states expressly prohibit minors from forming LLCs, while others have no rules or regulations regarding LLC formation and age.
Most states make no mention of age in their LLC formation laws. However, a few states specifically require that LLC organizers be at least 18 years old, including:
As we mentioned, most states do not have language in their LLC laws regarding the age of organizers. This includes some of the most popular states in which to form an LLC, such as:
That said, don’t just assume a minor can form an LLC in your state. The rules surrounding business formation can change. Be sure to check with your Secretary of State’s office. You may even want to consult a lawyer to learn more about the most current LLC formation laws in your state.
LLC owners are referred to as “members.” So the next question to answer is whether a minor can be a member of an LLC (or, in other words, own an LLC).
In short: the answer is yes. While there are laws governing LLC formation and organizer age, there is nothing stopping minors from owning LLCs in any state.
Even if a minor has a business idea in a state that prohibits minors from forming LLCs, they could ask an adult family member or acquaintance to form the LLC for them. Conversely, they could hire an LLC formation service to handle formation. Once the business is formed, the minor could then serve as a member / owner.
While there’s nothing stopping minors from owning LLCs, there are some potential pitfalls or drawbacks that you need to consider.
One of the major problems with minor LLC ownership is that individuals under the age of 18 have limited ability to enter into legally binding contracts.
While laws vary from state to state, most contracts entered into by minors are voidable or difficult to enforce. Many states even prohibit minors from entering into certain types of contracts at all, such as contracts for property purchases.
Because of the issues surrounding minors and contracts, others may be hesitant to conduct business with an LLC that is solely owned and managed by a minor.
Luckily, there are several ways to mitigate the limitations that arise due to minor LLC ownership.
For starters, it’s a good idea to have other members of the LLC that are over 18. Your adult members can handle legal dealings, enter into contracts, and sign all paperwork on the LLC’s behalf.
You can also file a Statement of Authority with your Secretary of State. This document should state that only the adult members of your LLC can serve as the business’s agent and enter into legally binding contracts.
Finally, you can adopt a member-management structure when creating your Operating Agreement. This structure dictates that your LLC can be managed by its members, non-member managers, or a combination of the two. In this case, all designated managers would be adults, while the minor owner would serve as a passive investor.
Ready to form an LLC for your child or yourself? Or maybe you know someone under 18 who’s starting a business in a state that allows minors to form LLCs.