Young Entrepreneurs: Six Legal Considerations for Starting a Business as a Minor

June 22nd, 2010 | by Jesse Lee |

Many young people find that they have the determination, time, and resources to start a business before their 18^th birthday. Young entrepreneurs face the same opportunities and challenges that their adult counterparts do, but there are also some legal considerations that apply specifically to this group of budding businesspeople.

If you are a young entrepreneur and are still legally considered a minor, here are some common considerations that you’ll 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. Liabilities apply in these situations, and parents can be held responsible if their dependent is negligent in matters of operating the business. It’s a good idea for parents to consult with an attorney and certified public accountant (CPA).

Some states allow minors to act as shareholders or serve on an advisory board of a business. Learn more about state regulations.

In situations 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 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. How About Access to Credit?

The disaffirm condition we reviewed earlier will likely 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 – young entrepreneurs included.

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. Keep in mind that payment liability will generally fall onto the minor’s parent or guardian.

Read more about small business loans and grants from Business.gov.

4. How Does a Young Entrepreneur pay Taxes?

The IRS offers specific tax guidance for young entrepreneurs, including resources to determine if you need to file federal income tax returns.

5. Can a Minor Claim Copyright?

According to Copyright.gov, “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.” Copyright.gov advises that you consult a local attorney for specific guidance.

6. Isn’t Experience Necessary to Run a Successful Business?

A background in business does not guarantee a successful venture, but it is important to understand the risks and challenges that any new business faces. To compensate for a lack of business know-how, young entrepreneurs do not have to look far. Find a local entrepreneur with experience running a successful business and ask them to mentor you through your journey. A relationship with an established business leader may also lend credibility to the business and help to secure financing.

More on this topic:

10 Steps to Starting a Business – Starting a business involves making key financial decisions and completing a series of legal activities. This guide from Business.gov provides information to help you plan, prepare, and manage your business.
Words of Inspiration for the Aspiring Entrepreneur – By Tonya Wilson of Columbus, Ohio, SBDC
Small Business Administration’s Teen Business Link – Resources, guides and strategies for budding young entrepreneurs from the SBA.

Small Business Matters is brought to you by Business.gov to provide helpful and easy-to-understand tips for small and home businesses, including direct links to resources that help business owners to navigate the government maze. Business.gov is sponsored by the U.S. Small Business Administration to provide small business owners with access to federal, state and local government resources from a single access point. Business.gov creates a dialogue among business owners and the organizations serving them, making government resources and information more accessible to the nation’s small business community. The U.S. Government and the U.S. Small Business Administration neither endorses nor guarantees in any way the external organizations, services, advice, or products included in any external website links. Furthermore, the U.S. government neither controls nor guarantees the accuracy, relevance, timeliness or completeness of the information contained in non-government website links.

Business & Finance World News