In the age of digital entrepreneurship, teenagers are launching businesses earlier and with more sophistication than ever before. From successful Etsy shops and Amazon FBA stores to social media consulting and app development, the line between a childhood hobby and a revenue-generating enterprise has blurred. If you are under the age of 18 and looking to formalize your business, or if you are a parent supporting an ambitious minor, the question inevitably arises: Can a minor form an LLC in the US?
The short answer is complicated: while many states do not explicitly bar a minor from filing the initial paperwork, the legal reality of contracts and liability—the very core purpose of an LLC—makes the process fraught with significant legal challenges. In almost every practical scenario, the minor will require adult involvement, often through a parent, guardian, or a designated adult member, to ensure the LLC is legally sound and functional.
The Central Problem: Contractual Capacity
The fundamental barrier preventing a minor from operating a legally robust Limited Liability Company (LLC) is the concept of contractual capacity. In the United States, minors (individuals under 18) are generally not considered to have the legal competence to enter into binding contracts.
This is crucial because an LLC's entire operation relies on contracts:
- The Operating Agreement: A contract among the members defining ownership and management.
- Vendor Agreements: Contracts for suppliers, services, and software.
- Leases and Loans: Contracts for physical space or financing.
- Customer Agreements: Contracts with clients or buyers.
The Right to Void Contracts (Voidability)
The primary legal protection afforded to minors is the right to void or cancel (disaffirm) most contracts they enter into, typically up until they reach the age of majority (18) and for a reasonable time thereafter. For anyone dealing with a business, this voidability is a massive risk. Imagine signing a major supplier contract with an LLC owned solely by a 16-year-old. If the contract later becomes inconvenient, the minor could legally cancel it, leaving the vendor with no recourse. Due to this risk, few sophisticated vendors, landlords, or banks will knowingly enter into agreements with an LLC controlled exclusively by a minor.
How to Legally Structure a Minor-Owned Business
Given the contractual barriers, the most common and legally sound approach to forming an LLC when the primary entrepreneur is under 18 is to ensure an adult is legally situated as the primary member or manager.
Strategy 1: Parent or Guardian as the Initial Member/Manager
This is the safest and most common approach. The LLC is formed with a parent or legal guardian serving as the official member and/or manager. The parent or guardian is the one who signs all legally binding documents, ensuring the company has contractual capacity.
- Legal Role: The adult holds the legal title and signs the Articles of Organization and Operating Agreement.
- Operational Role: The minor can still run the day-to-day operations, marketing, and creative aspects of the business.
- Ownership Transfer: Once the minor turns 18, the Operating Agreement can include a provision for the adult member to transfer 100% of the ownership interest to the now-adult child.
Under this structure, the parent or guardian is the legally responsible party. This means the LLC’s liability shield protects the family’s personal assets from business debt, while the parent assumes the formal risk and responsibility of the business until the minor is of age.
Strategy 2: Utilizing a Trust or Custodial Account
In cases where a parent wants to ensure the funds generated by the business are managed for the minor's future, the business may be owned by a trust or a custodial account (like a Uniform Transfers to Minors Act or UTMA account). In this scenario, the trustee or custodian is the legal member of the LLC and handles all contractual matters, while the minor is the beneficiary of the business profits.
Strategy 3: State-by-State Exceptions (Rare)
While extremely rare, a few states have specific laws addressing minors and business formation. However, even in these states, the federal issue of contractual capacity remains. It is essential to consult with an attorney specializing in business law in your specific state before assuming a minor can form an LLC without adult involvement.
The LLC Filing Process for Minors: State vs. Substance
When you file the Articles of Organization with the Secretary of State, many state forms only ask for the organizer’s name and address. Since they typically don't ask for the organizer's date of birth, a minor could theoretically file the paperwork and receive an LLC registration certificate.
However, this is a dangerous situation known as a "naked LLC":
- The LLC is technically registered, but the minor member lacks contractual capacity.
- The liability protection (the "corporate veil") is extremely vulnerable because the key internal document—the Operating Agreement—is voidable.
- Because the primary purpose of an LLC is to shield the owners from liability, a court is much more likely to disregard an LLC operated solely by a minor if a lawsuit arises, thus piercing the veil and holding the parent (or sometimes the minor) personally liable.
Therefore, simply succeeding in filing the paperwork is not the same as creating a valid, functional, and protective business entity.
Tax Implications for Minor-Owned LLCs
Taxation is another area where adult guidance is necessary, though the rules are slightly more flexible regarding the minor’s earned income:
Self-Employment Tax
If the minor is actively involved in the business and generating income, they may be subject to self-employment tax (Social Security and Medicare), regardless of their age, provided their net earnings exceed the threshold set by the IRS for the tax year.
Filing Requirements
If the LLC is a single-member LLC (which is typically the case when an adult is the initial legal member), it is treated as a "disregarded entity" by the IRS. All business profits and losses are reported on the member’s personal tax return via Schedule C (Profit or Loss From Business).
When the parent is the legal member, the income is generally reported on the parent's tax return. When the minor begins the process of generating significant income, tax professionals often recommend strategies to properly track and report the minor's earned income separately, which may involve the parent employing the child and paying wages, or setting up a custodial account.
Checklist for Launching a Minor’s LLC
To successfully launch a business for an entrepreneur under 18 while maintaining the protection of an LLC, follow this simplified plan:
1. Designate an Adult Member/Manager
The parent or guardian must be the initial legal Member and Manager of the LLC. They must be prepared to sign all legal documents and assume legal responsibility.
2. Draft a Comprehensive Operating Agreement
This is arguably the most crucial step. The Operating Agreement must:
- Clearly define the adult’s role as the signing authority.
- Stipulate how the profit and management duties are currently handled.
- Include a robust clause outlining the process for transferring 100% of the membership interest to the minor upon their 18th birthday.
3. Maintain Strict Separation
Even though the adult is the legal signatory, the LLC must maintain its liability protection (avoiding piercing the veil). Ensure the following are in place:
- A separate business bank account (opened by the adult member).
- Clear records of all business transactions.
- A paper trail showing the adult fulfilling the legal requirements (e.g., signing annual reports).
4. Obtain an EIN
The LLC will need an Employer Identification Number (EIN) from the IRS, which the adult member can apply for online using their Social Security Number.
Conclusion: Focus on Protection and Compliance
While the entrepreneurial spirit of a minor is commendable, the legal framework of the United States prioritizes protection for minors, making contractual capacity the main hurdle in forming an LLC. Attempting to set up an LLC solely in a minor's name is risky and potentially defeats the core benefit of liability protection.
The recommended path is to utilize a parent or guardian as the initial legal member. This strategy provides the business with the essential contractual capacity needed to operate legitimately, ensures the liability shield holds up in court, and allows the minor to learn and run the business under a safe, legal umbrella until they reach the age of majority and can officially take over the legal ownership.
Always consult with a qualified business attorney or CPA to ensure the structure and tax planning align with your specific state laws and the minor's long-term financial goals.