The ambition to start a business is not limited by age. While there is no universal minimum age to develop a business idea, launching a formal business as a minor involves specific legal and financial steps. Legally operating a business requires actions that necessitate adult participation, creating a unique set of rules for young entrepreneurs.
The Legal Hurdle of Starting a Business Young
The primary legal obstacle for a young entrepreneur is the “age of majority,” which is 18 in most U.S. states. Individuals below this age are considered minors and lack “contractual capacity,” meaning they generally cannot enter into legally binding agreements. Contracts signed by a minor are often voidable, allowing them to back out of the agreement without legal repercussions.
This limitation directly impacts core business functions. Without the ability to sign binding contracts, a minor cannot independently rent commercial space, secure a business loan, or formally register the business with the state. These laws are in place to protect minors, which is why adult involvement becomes a practical necessity to establish a legal business entity.
Practical Steps to Legally Operate a Business as a Minor
Overcoming the legal limitations of being a minor requires a partnership with a parent or legal guardian. The most direct way to handle business agreements is for an adult to co-sign legally binding documents. This includes supplier contracts, commercial leases, and the terms of service for online platforms.
Financial matters also require adult assistance. A minor cannot typically open a business bank account independently, so the solution is a custodial or joint account with a parent or guardian as the authorized signer. This account allows business finances to be managed properly and kept separate from personal funds.
Many businesses also require specific licenses or permits to operate legally. Applying for these credentials necessitates the signature and personal information of an adult, who acts as the legal representative for the business in these official matters.
Choosing the Right Business Structure
A business’s legal structure influences its operational requirements, liability, and taxes. The simplest choice for young entrepreneurs is a sole proprietorship, the default structure for an individual business. In a sole proprietorship, there is no legal separation between the owner’s personal and business assets.
The primary advantage is its simplicity and low setup cost, as no formal action is often needed. Profits and losses are reported on the owner’s personal tax return, avoiding complex corporate taxes.
In contrast, a Limited Liability Company (LLC) offers personal liability protection, shielding personal assets from business debts. However, forming an LLC is more complex, requiring state registration and stricter record-keeping. While some states permit a minor to form an LLC, it often requires an adult to act as the organizer.
Understanding Your Tax Responsibilities
Minors are not exempt from tax obligations on business income. The Internal Revenue Service (IRS) requires any individual to file a tax return if net earnings from self-employment exceed $400 in a year. This income is subject to self-employment tax, which covers Social Security and Medicare contributions.
Good record-keeping is essential for managing taxes. A young entrepreneur should track all income and business-related expenses, such as supplies or software, as these can be deducted to lower taxable profit. Even if claimed as a dependent on their parents’ tax return, a minor must file their own separate return if they meet the income threshold, as parents cannot report this income for them.
Business Ideas for Young Entrepreneurs
The best business ventures for young entrepreneurs often have low startup costs and minimal legal complexity, allowing them to focus on developing skills and serving customers.
- Tech-based services: Manage social media accounts for local businesses, design basic websites for small organizations, or provide tech support and tutoring for computers and smartphones.
- Creative ventures: Sell handmade items like jewelry or art on platforms like Etsy, offer photography sessions for families, or use graphic design skills to create logos for clients.
- Local services: Provide reliable services that have consistent neighborhood demand, such as lawn care, pet sitting, and car washing. Running errands or house-sitting are other practical options.
- Online content creation: Start a YouTube channel, blog, or podcast to build an audience. Monetization is possible through ads or sponsorships, but it often requires an adult to manage the financial accounts.
- Tutoring and instruction: Use expertise in a subject to offer academic tutoring for younger students, or provide private lessons in skills like music, sports, or art to others in the community.