If you have a great idea for a business, but want to limit your legal liability as much as possible, you should create a separate legal entity to own and operate the business. The limited liability company (LLC) has become one of the most popular ways to legally organize a business. The LLC form provides the same limited liability as a corporation while preserving much of the informality of a partnership. LLCs are used for all kinds of businesses and can have anywhere from one to any number of owners (called members).
However, great business ideas are not limited to adults, minors (those under 18 years of age in most states) have them too. Can you form an LLC if you’re under age 18? Can you even be a member of an LLC if you’re a minor?
Can Minors Form an LLC?
To form an LLC, one or more people (or a business entity such as a corporation or LLC) must act as the organizer. The organizer is responsible for setting up the LLC. The organizer’s most important duty to complete and sign the LLC’s articles of organization, and file them with the Secretary of State. Filing of the articles gives the LLC legal life. Typically, the organizer is also an owner of the LLC (called a member), but such membership is not required.
Every state has its own LLC law, and these vary. The LLC laws of some states specifically provide that minors under age 18 cannot serve as organizers to form LLCs. These states include:
Colorado (CO Revised Statutes 7-80-203)
Illinois (805 IL Compiled Statutes 180/5-1)
Minnesota (MN Statutes 322B.105)
Oregon (OR Revised Statutes 63.044), and
Texas (instructions to Form 205, Certificate of Formation).
The LLC laws of most other states say nothing at all about how old a person has to be to serve as an organizer and form an LLC. These include some of the most popular states for forming LLCs, such as California, Delaware, Nevada, and Wyoming. It appears minors can form LLCs in these states. However, you should check with the Secretary of State of the state involved to make sure; or seek an attorney’s advice.
If you live in a state that does not allow a minor to form an LLC, you can always form your LLC in a state that does allows it. You can then register your LLC in the state where you live or wish to do business. Alternatively, you can have someone over age 18 serve as organizer on your behalf.
Can Minors Own an LLC?
An LLC’s members (owners) can be individuals, or other business entities such as other LLCs or corporations. An LLC can have any number of members—anywhere from one to thousands. There is nothing that prevents a minor from being a member in an LLC.
However, practical problems can arise where an LLC has minor members; especially where, as is typically the case, the LLC is member-managed—that is, all the members share responsibility for the day-to-day running of the business.
Problems can arise when minors own LLCs because special legal rules govern the ability of minors to make and break contracts. Although these rules vary somewhat from state to state, most types of contracts entered into by minors are voidable—that is, the minor can choose to either honor or void (end) the contract. If the contract is voided, the minor must ordinarily give back anything of value he or she received from the other party, such as money or property. In most states, however, a minor cannot void a contract for necessities like food, clothing, or lodging. Also, many states don’t permit minors to enter into some types of contracts at all on their own, such as contracts for the purchase or sale of real property.
Because of these special rules, others may be reluctant to deal with an LLC that is owned solely by a minor or that is managed by a minor-member because they fear that any agreements they enter into with the LLC won’t be legally binding. For example, a supplier might be reluctant to extend credit to an LLC owned by a minor for fear that he or she could void the contract.
This problem can be avoided if there are one or more other members of the LLC who are over age 18—for example, the minor’s parent or parents or an adult sibling or friend. These adult members should sign all contracts on the LLC’s behalf. You can also file a statement of authority with your Secretary of State specifying that only the adult members serve as the LLC’s agents with the authority to legally bind it to contracts.
Another alternative is to adopt a manager-management structure for the LLC. Under this structure the LLC business is run by one or more designated managers. The mangers may be LLC members, nonmembers/outsiders, or a combination of the two. Such managers would be adults, while the minor-members would be left as passive investors not involved in LLC’s day-business operations. In most states, member-management is the default for LLCs. To change this, you must establish a manager-management structure in your LLC’s articles of organization or in a written LLC operating agreement.