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Can a Teen Start Their Own Business?

By Catherine Hodder, Esq. | Last updated on

Can a teen drink legally? No. Can they rent a car? No. But could a teen start a beverage company or a car washing service? Yes, and yes.

In most states, minors cannot enter into contracts until they are the age of 18. They may need their parent or guardian to consent to or sign contracts on their behalf. However, that doesn't mean they can't develop great business ideas for extra cash.

In fact, many entrepreneurs started their businesses as teenagers. Mark Zuckerberg started Facebook in college. Fred DeLuca started a sandwich-making business at 17, which later turned into Subway. And 16-year-old candle maker Mike Kittredge leveraged his know-how to start Yankee Candle.

While you can always set up a lemonade stand or be a pet sitter, there are many other creative ways for teen entrepreneurs to start a new business, such as:

Another popular way to make extra money is as a social media influencer. According to CBS News, 86% of American kids want to work as a social media influencer.

However, it is important to do something you are passionate about. Look at your extracurriculars and how you like to spend your free time. Do you like to create on the computer? You could be a freelance graphic designer. Do you love pets and exercise? Start a dog walking business.

Five Steps For Setting Up a New Business

1. Start With a Business Plan

A business plan is a way to outline what you want to accomplish and how to do it. When writing your business plan, you must address the following questions:

  • Do you know your target market? Who are your potential customers?
  • Are you operating an online business or need a space to run your business?
  • What is your product or service?
  • What are the startup costs to make the product or deliver the service?
  • How will you advertise? By word of mouth, flyers, or posting on social media platforms?

Successful business owners know you must spend much time researching to create a good business plan.

2. Set up a Business Structure

Many teens start a small business or a “side hustle" as a sole proprietorship. However, depending on the type of business activity, they may want to form a limited liability company (LLC) for liability protection. For example, if you have a bike repair business, and someone claimed they suffered an injury based on your repairs, they could only make claims against the business, not you, personally. The advantage of the LLC business structure is that it provides personal liability protection and allows you to report business profits or losses on your personal income tax return like a sole proprietorship. Be sure to confirm whether a minor can form an LLC in your state.

3. Determine What Financing Is Needed

Most small business owners self-finance to get started. However, if you need capital to fund your business, you may need a bank loan or line of credit. An adult would have to sign any loans for the business.

4. Obtain a Business License

You must know any legal requirements involved with your business. Most states require a business license to operate.

If you operate from home, check that you aren't breaking any HOA rules. Also, see if you need any permits for your business. For example, if you sell cakes and cupcakes from home, you might fit under the cottage food laws exception, which allows you to sell homemade food locally without a license.

5. Know Your Tax Liability

Yes, even teenagers must pay taxes on income. If they are still a dependent on their parent's tax return, they must file and pay taxes if they earn $12,950 or more a year from their business activities. Check also to see if you must pay any state or local taxes on business income.

Advantages of Teen Business Startups

Starting a business when you are in high school is hard work but teaches you many lessons in entrepreneurship.

Even if your business launch is not a homerun, there are several benefits to starting a business as a teenager. For example, you can learn from your mistakes which will put you ahead in your future business ventures. And since you are young, you can handle financial losses, especially if you don't have a family to support. And even if your business is a spectacular failure, it would still make one excellent college application essay.

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