Starting a Business as a Minor: A Complete Guide for Young Entrepreneurs
Introduction
Many young people are finding that they have the determination, time, and resources to start a business before their 18th birthday. Young entrepreneurs face the same opportunities and challenges that their adult counterparts do, but they must also consider some legal considerations that apply specifically to this group of budding businesspeople. In this article, we will discuss the common considerations that young entrepreneurs need to bear in mind before starting a business.
1. Can a Minor Form a Business Entity?
If a parent chooses to form the business on behalf of their child, they can act as an authorized signer. However, it’s important for parents to consult with an attorney and certified public accountant (CPA) to understand the liabilities that apply in these situations. Some states allow minors to act as shareholders or serve on an advisory board of a business. In cases of legal emancipation, a guardian can be appointed by the courts to work with the minor on business decisions.
2. Can a Minor Sign a Contract?
Technically, yes, a minor can sign a contract, but because minors are not considered to have the legal competency to enter into a binding agreement, they have the ability to “disaffirm” the contract, which essentially voids their end of the bargain. In most states, people under the age of 18 are considered minors.
3. Can a Minor Get Access to Credit?
The disaffirm condition may hinder some lenders from drawing up a loan agreement with a minor. Anyone with poor or no credit history may find it difficult to secure traditional financing. Credit cards applications are open to people ages 18 and older, but minors may apply for a card under their parent or guardian’s account, with payment liability generally falling onto the minor’s parent or guardian.
4. How Does a Young Entrepreneur Pay Taxes?
The IRS offers specific tax guidance for young entrepreneurs, including resources to determine if they need to file federal income tax returns.
5. Can a Minor Claim Copyright?
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. It is advised to consult a local attorney for specific guidance on this matter.
6. Importance of Experience in Running a Successful Business
While a background in business does not guarantee a successful venture, it is important for young entrepreneurs to understand the risks and challenges that any new business faces. To compensate for a lack of business know-how, young entrepreneurs can seek mentorship from an experienced local entrepreneur and establish credibility for the business to secure financing.
Helpful Resources for Young Entrepreneurs
- Resources for Young Entrepreneurs (SCORE)
- Business for Kids (Shopify)
- Young Entrepreneurs (SBA)
- 12 Creative Business Ideas for Kids in 2020 (Fit Small Business)
