How does an LLC benefit young business owners?
For teens, starting a business can be as simple as offering pet sitting, babysitting, lawn care, or even social media services to family, friends, and neighbors. However, if no paperwork is filed to create a business entity, it's considered a sole proprietorship. In a sole proprietorship, the business owner bears all responsibility for the business's debts and liabilities personally. This means that an owner's personal assets and bank accounts, in effect, secure the business's debts. As a sole proprietor, a teen entrepreneur may encounter difficulty securing vendor agreements, or getting credit extended, as banks and other businesses may be wary of being able to collect if their bills go unpaid.
A business owner can, however, form a limited liability company or a corporation to become more creditworthy and to reduce the personal risk to the owner. An LLC helps protect owners from personal liability for business losses by effectively making the business its own legal entity. So when an LLC cannot pay a supplier or other creditor, the creditor will not be able to satisfy the debt from the owner's personal assets. But, keep in mind that if a business owner doesn't follow the requirements for running an LLC properly, particularly when it comes to managing the business's money, the protection an LLC provides may not be effective.
How can teens form an LLC?
Forming an LLC as a teen generally requires the same steps as it would for an adult. It takes one part paperwork, one part legwork, and a pinch of patience.
Basically, there are a series of steps to take in order to start an LLC. These steps include naming the LLC, choosing a registered agent, creating an Operating Agreement, then paying a fee and filing the Articles of Incorporation with the Secretary of State.
Rocket Lawyer offers a customizable Articles of Incorporation Worksheet to help organize all the details. After getting the paperwork together, having the paperwork reviewed by a lawyer before filing can help protect against costly mistakes.
Is forming an LLC different if I am under 18?
While there is no law that says minors cannot start an LLC, there are some states that prohibit minors from being organizers. Organizers are needed to start an LLC as they are responsible for filing the incorporation paperwork.
Some states that prohibit those under 18 from organizing are Colorado, Illinois, Minnesota, Oregon, and Texas. Fortunately, most states, including California, Delaware, Nevada, and Wyoming, do not have rules against minors being an organizer. Fortunately, even when a state prohibits minors as organizers, where there's a will, there's a way.
What if I live in a state that prohibits minors from being organizers?
Teens can still form LLCs, even if they live in states that do not allow minors as organizers. More than half of all corporations in the U.S. are registered in Delaware, yet are headquartered and do business elsewhere. After filing the Articles of Incorporation in a teen-entrepreneur-friendly state, like Delaware, and that state's Secretary of State approves it, the LLC must then register with the state in which it will actually be located. Registering an LLC in a state is a different process than forming an LLC, and a requirement to do business in every state. The registration process may vary from state to state and be called something else, such as "foreign qualification" or a "certificate of authority."
Another option is to allow someone over the age of 18 to serve as the organizer, such as a family member, friend, attorney, or someone trustworthy. Just be sure to get an agreement in writing that defines their role, and to seek the advice of an attorney on how to structure that relationship to ensure the organizer cannot refuse to hand over the reins when the time comes.
If you would like to learn more about what an LLC can do for you or if you are ready to get started, Rocket Lawyer Incorporation Services makes it affordable and simple. Get started today and connect with an incorporation specialist to answer all of your questions.
If you have questions about starting a new business, the extent of your liability, or legal issues, a Rocket Lawyer network attorney can help.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.