Legalities of running a business when you are not yet 18 years old
Topic: Business, General Legal
Time Investment: 6 Minutes
Suggested Product: BizRevamp®
I have a brilliant friend who started a baking business back in junior high school. She would take orders from classmates at school and bake cakes for birthdays or other special occasions. She would bring the cakes to school for her classmate to give as gifts to other students. She had a true entrepreneurial gift that ultimately carried over into her adult life where she is co-owner of a very successful business…though not a bakery!
While she seemed unique to us all back then, today we hear of successful minor businesses all of the time. From the young girls in Colorado who started their own lip balm company using the beeswax from their parents’ bee hives to the boy genius who developed and sold a successful app.
Many minors have the talent, entrepreneurial spirit, and drive to run successful businesses, including photography businesses. However, how does a minor manage turning photography from a hobby into a successful business? Let’s talk about a few of the more significant hurdles you will face.
Can you enter a legally binding contract with your clients if you are under 18?
While I am putting the cart before the horse and talking about contracting on behalf of your photography business before setting up your own business, your rights and obligations under contract law has direct bearing on the type of entity you would be able to create. So, I start here.
In a few states under mostly limited circumstances, minors are able to execute fully binding contracts. In most states; however, while a minor can enter into a valid contract, the contract is usually considered “voidable” by the minor. What this means is that the minor contracting party can hold the other party (assuming they are an adult) to all of the terms of the contract, but the minor may avoid his or her obligations under the contract at any time. There are exceptions…there are always exceptions, such as if the minor turns 18 and continues to perform under the contract, which is known as ratification. As you can imagine, while this seems all well and good from your perspective, having the ability to get out of a contract at will likely creates some hesitation from a client’s perspective.
Can you formalize a business in your state as a minor?
As I have mentioned in previous blog posts, I tend to favor a limited liability company, or LLC, for photography businesses. Whether or not someone under the age of 18 can form an LLC varies from state to state. Several states specifically provide that someone has to be at least 18 years old to form or organize LLCs, while other states are silent as to the age of members. If you are in a state that does not specifically preclude you from forming an LLC or being a member of an LLC, your ability to void contracts at will is something that would likely impact your ability to act with authority for your organization. More likely than not, being an LLC Member will be extremely challenging at best. In these instances, a sole proprietorship may be an easier option for you in terms of getting your business started, but a sole proprietorship will not shield you from liability if you could be held liable for your business activities under the laws of your state.
Can you open a business checking account with your bank if you are a minor?
So you formed your photography business and have started making your own money. That is great. Where are you going to store or save income? Whether you can open a business or personal checking or savings account will depend on the law in your state and each individual bank’s policies and procedures. In many cases, a parent has to be joint owner on a minor’s bank account. If you are in a state that does not allow an individual personal bank account, chances are you also will not be able to open your own business account as the requirements may be more stringent for business accounts.
I may need some financial assistance for my business, can I access credit as a minor?
Accessing credit as a young adult, much less a minor, can be difficult. Typically, you have to have a credit history in order to get credit. Therefore, without a credit history and a full-time job, it will be very hard to open a credit card account without assistance from an adult. You may be able to get a debit card with your bank account, but that will limit you to expenses that are within your account versus being able to “spend more to make more.” That may not be a great lesson for spending within your means but isn’t always the best limitation when growing your business.
What role could my parents play in all of this?
In the end, many of the hurdles you will face as a minor could be overcome with your parents’ involvement in your business – they could sign mutually binding contracts on behalf of the business, establish an LLC to limit liability, jointly own bank accounts with you, and cosign on loan or credit card applications or allow you to be an authorized user on a credit card account.
This is not without personal risk on their end, as their assistance can impact their credit score and rating. Additionally, if your parents get involved in your business, I would definitely reiterate my position on setting up an LLC. Even though you may not have significant personal assets, your parents likely do. Therefore, they will want to protect themselves as any other adult business owner should.
If you are passionate about starting a photography business as a minor, I say go for it, but have a plan to address these issues so you don’t become discouraged at the outset.