There is nothing contained within the law governing the formation of LLC that precludes minors from being members of an LLC. However, the practical implications of granting a child ownership in a business are significant. Fortunately, there are ways that an LLC can be structured to grant a minor ownership without the ability to run or influence the business.
A minor is any person who is under the age of 18. In the matter of business law, the most important consideration is the minor’s ability to contract. Any contract entered into by a minor is voidable by him. This means that the minor can avoid any contractual obligations he may enter into while the other nonminor parties do not have that option. This makes contracting to enter into a business with a minor in any sort of role to be a very difficult and risky proposition, and one that should be addressed when creating a business.
A limited liability company (LLC) is a business organization that combines the benefits of a partnership and corporation. Like a partnership, the business’s profits and losses are annually divided among the LLC’s owners, or members, and the members report and pay taxes on that amount. Like a corporation, an LLC’s members are protected from liability, which means that the members are generally not personally liable for the LLC’s liabilities. The LLC is organized at the state level, and each state has its own laws regarding the formation of an LLC. However, the Revised Uniform Limited Liability Company Act (RULLCA) represents the best basis to consider LLC principles in general. RULLCA has been adopted by five states as of 2010 and has been endorsed by the American Bar Association. RULLCA also represents the best formation practices of all state laws currently on the books and provides the best summary of LLC principles and membership rights and obligations. Therefore, when discussing LLC principles in general, it is best to use RULLCA for context.
Minor LLC Members
There is nothing in RULLCA that precludes a minor from being a member in an LLC. However, the realistic concerns of having a minor in a position of authority and who can exit the LLC without any personal repercussions does pose practical issues that a group can mitigate. If you permit a minor to join an LLC as a member, it would be in the best interest of the business to limit the child’s ability to take action that would bind or otherwise act for the LLC. A member is not necessarily an agent for the LLC, but if he reasonably appears to be one to a third party the member can bind the business. The best way to address this issue is by doing two things. First, file a statement of authority with the state specifying which agents for the LLC have the power to bind the business to contracts and then exclude the minor from that statement. Second, ensure that all possible business partners are aware that the minor, while a member, has no power to make decisions for the LLC. This will mitigate the risk of being bound by a minor’s actions from “apparent authority.”
When organizing a business, consult with a licensed attorney to ensure that all state and federal filings are made and all legal requirements are met. Every effort has been made to ensure this article’s accuracy, but it is not intended to be legal advice.
- USLegal: Contract by a Minor
- USLegal: Minor Law & Legal Definition
- Internal Revenue Service; Publication 3402 – Taxation of Limited Liability Companies; 2010
- NCCUSL.org: Limited Liability Company Act (Revised)
- NCCUSL.org: Why States Should Adopt RULLCA
- University of Pennsylvania Law School; Revised Uniform Limited Liability Company Act; 2006