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Young Entrepreneurs; Advice for Starting a Business as a Minor

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Young Entrepreneurs; Advice for Starting a Business as a Minor

By NicoleD
Published: October 29, 2010 Updated: February 17, 2011

Many young people find 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 there are also some legal considerations that apply specifically to this group of budding businesspeople. For commonly asked questions about starting a business as a minor, read on.


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. 

 

How 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. 

 

Will young entrepreneurs have trouble getting a loan or 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. 

 

How should 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. 

 

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.

 

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: 


*In some states, minors who are not under the care of a parent or guardian may sign contracts for necessities (like food or shelter) and are legally bound to those contracts.


Message Edited by NicoleD on 12-11-2009 04:22 PM

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Comments:

My 13 year old daughter has a cotton candy business and I'd like to turn over a internet based retailer that I own. Is there any way to remove my liability from these companies? Both of them are sole proprietorships and don't make more than $4000 per year. Not enough to justify incorporating.
I think that the obstacles faced by a minor in starting a business are a great way for that yound person to begin creatively thinking about solutions to business issues. I personally started as a minor in my wall clings business and other businesses. Learning to navigate these difficulties provides good business education that you can't get other places. Bootstrapping is a great thing to start off with, in my opinion, because it makes a person focus on cash flow, which is the life-blood of any business. Being that a minor will have a hard time getting a loan, they may need to bootstrap to get their business off the ground. ---This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.
Building a business successfully while you are a young is a tremendously difficult experience. It requires a lot of hard work, perseverance, and is full of ups and downs. However, if you stick to it, the result will be worth it. So if you're ready to build your own business and make is successful. You need to think of a unique and handy business idea. This could be anything from making birthday cards to customizing backpacks. If you're looking for an easy profit then you might not want to have something that's been done by a million other companies. For example, making birthday cards or decorating backpacks are both useful and fun ideas, whereas painting nails or mending things may not be as popular. Try to choose something that people want/need, and that will stand out.
As the web grows in importance for operating and promoting so many other businesses, and as our young people develop their internet skills earlier and earlier, I believe it will be more and more common for minors to find lucrative business opportunities. Credit seems to be tight for everyone in business these days. I do believe stongly in the mentor concept but I hope parents will also recognize the potential in their minor children and offer a hand with the necessary financing. Bill FletcherOrange County Website DesignMessage Edited by NicoleD on 09-30-2009 12:07 PM
I think there will be the need for co-signers if a young entreprenuer really succeeds and gets to the point they need credit, and if that is the case - they will be 18 before they know it :- ) Tyler GhellerLos Angeles Lawyers & Attorneys Message Edited by NicoleD on 09-30-2009 12:07 PM

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