In most states, you can start an LLC for your child, but you’ll be the one doing almost all of the work. A minor can hold a membership interest, yet a parent or guardian typically has to file the formation paperwork, sign contracts, manage operations, and handle the tax filings until the child turns 18. The structure is legal and common, and it also carries gift tax exposure, kiddie tax questions, banking friction, and child labor rules that families rarely anticipate.
Why the Parent Has to Set It Up
No federal law bars minors from owning LLC membership interests. The problem is signing authority. Every state requires someone to file the LLC’s formation document, and some states specifically prohibit anyone under 18 from serving as the organizer. Even where state law is silent on age, the organizer is entering a binding agreement with the state, and minors can generally void the contracts they sign. That single fact is why almost every family in this situation has a parent act as organizer.
Most states also require a registered agent who is at least 18. The registered agent receives legal and tax documents for the LLC, and states want someone with full legal capacity in that seat. A parent can fill the role, or you can hire a commercial registered agent service.
Once the LLC exists, your child can hold a membership interest even though they couldn’t sign the formation documents themselves. Some states allow minors to be listed as members but restrict their voting or management rights. Rules vary enough that checking your state’s LLC statute before you file is worth the time.
The Parent’s Role as Manager
Because a minor can void contracts, lenders, suppliers, and landlords have reason to be wary of an LLC whose only member is a child. That is the main reason parents typically serve as manager or co-member rather than letting the child run things on paper.
As manager, you carry a fiduciary duty to act in the LLC’s best interest, not your own. That means honest business decisions, clean financial records, and no self-dealing. Siphoning LLC profits for personal expenses or steering business opportunities away from the LLC to benefit yourself invites disputes and potential dissolution. The operating agreement should spell out your responsibilities, your decision-making authority, and what happens when the child reaches adulthood. Many families set the handoff at 18, but you can build in milestones or a gradual transition if the business calls for it.
Filing the Formation Documents
The mechanics are straightforward. You file Articles of Organization (called a Certificate of Formation in some states) with your state’s business filing office, usually the Secretary of State. The parent signs as organizer. You then draft an operating agreement defining ownership percentages, management structure, and the minor’s role. Many states don’t legally require a written operating agreement, but skipping one is a mistake when a minor is involved. The agreement is your main tool for defining the boundaries of the parent’s authority and setting the terms of the eventual transition.
Getting an EIN
The LLC needs an Employer Identification Number from the IRS even if it has no employees. You apply on Form SS-4 online, by fax, or by mail. The IRS requires a “responsible party,” defined as the individual who ultimately owns or controls the entity, and that person must provide a valid Social Security number or ITIN.1Internal Revenue Service. Instructions for Form SS-4 The IRS doesn’t explicitly prohibit listing a minor, but the parent managing the LLC is the natural fit because that’s who actually exercises control.
Opening a Bank Account
This is where families hit the most friction. Banks set their own policies, and many require every account signer to be at least 18. The parent-manager will almost always need to be the signatory on the LLC’s business account. Some banks are more comfortable with the arrangement than others, so shop around. Credit unions and community banks tend to be more flexible than large national chains.
Keeping the LLC’s bank account fully separate from personal funds is not optional. Mixing personal and business money is the fastest way to lose the liability protection the LLC provides.
Funding the LLC and Gift Tax
When you move money or property into an LLC your child owns, the IRS treats the transfer as a gift. For 2026, the annual gift tax exclusion is $19,000 per recipient.2Internal Revenue Service. What’s New – Estate and Gift Tax If you and your spouse both contribute, you can give up to $38,000 combined without owing gift tax, though electing to split gifts requires both spouses to file Form 709 regardless of the amount.3Internal Revenue Service. Instructions for Form 709
Gifts above the annual exclusion eat into your lifetime exemption, which sits at $15,000,000 for 2026 following passage of the One Big Beautiful Bill Act.2Internal Revenue Service. What’s New – Estate and Gift Tax Most families funding a child’s small business won’t come close, but you still need to file Form 709 for any year where your gifts to one person top $19,000.
Watch one trap: LLC membership interests that restrict the child’s access to distributions can be classified as “future interest” gifts, which don’t qualify for the annual exclusion at all.3Internal Revenue Service. Instructions for Form 709 If your operating agreement delays or limits when the child can receive distributions, have a tax advisor confirm whether the transfer qualifies as a present interest before you count on the exclusion.
How the Income Is Taxed
By default, a single-member LLC is a “disregarded entity” for federal tax purposes, and all income and expenses flow to the owner’s personal return on Schedule C.4Internal Revenue Service. Single Member Limited Liability Companies With two or more members, the IRS treats it as a partnership and each member reports their share on a Schedule K-1.5Internal Revenue Service. LLC Filing as a Corporation or Partnership Either way, the LLC itself doesn’t pay income tax. Income lands on your child’s return, and filing that return is the parent’s responsibility until the child reaches adulthood. Federal tax law doesn’t treat minor members differently from adult members on rates.
The Kiddie Tax
If your child’s unearned income exceeds $2,700, the kiddie tax kicks in and taxes the excess at the parent’s marginal rate rather than the child’s lower rate.6Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax) The kiddie tax applies to children under 18, and in some cases to full-time students under 24.
Whether LLC income counts as unearned depends on the child’s actual involvement in the business. If your child actively works in the LLC, the income is generally earned and the kiddie tax doesn’t apply. If the child is a passive owner collecting distributions while you do the work, the IRS is more likely to treat the income as unearned. The distinction can meaningfully change the family’s total tax bill.
The Family-Business FICA Exception
Income from an LLC that flows to a member is generally subject to self-employment tax at a combined 15.3% for Social Security and Medicare. Family businesses get a valuable exception: when a child under 18 works for a sole proprietorship owned by a parent, or a partnership where both partners are parents, their wages are exempt from Social Security and Medicare taxes.7Office of the Law Revision Counsel. 26 USC 3121 – Definitions The IRS confirms the exemption applies to sole proprietorships and qualifying parent-only partnerships, but not to corporations or partnerships with a non-parent involved.8Internal Revenue Service. Family Employees
This creates a structural question worth thinking through before you file. If the parent owns the LLC and employs the child, the FICA exemption can save the family thousands a year. If the child owns the LLC and the parent merely manages it, the exemption doesn’t apply the same way because the child isn’t working “in the employ of” a parent. How you split ownership between parent and child has direct tax consequences, and this is a spot where a tax professional’s input pays for itself quickly.
An Alternative: Holding the Interest in a Custodial Account
Another approach is to hold the child’s LLC membership interest inside a custodial account under the Uniform Transfers to Minors Act. UTMA accounts exist in every state and can hold a wide range of assets, including LLC membership interests. The parent serves as custodian, controlling the asset until the child reaches the termination age set by state law. That age varies: many states require turnover at 18, others allow 21, and a few permit as late as 25. Once the child hits it, the custodian must hand over the assets outright.
A common structure pairs the two: the custodial account holds a large non-managing interest (often 99%) while the parent holds a small managing-member interest (often 1%). The parent keeps operational control through the managing role while the custodial account holds the economic value. If you want control to last longer than your state’s UTMA termination age, a trust is a better vehicle than a custodial account.
Keeping the Liability Protection Intact
The core benefit of the LLC is the wall between business debts and personal assets. If the LLC gets sued or can’t pay a vendor, creditors generally can’t reach your child’s personal savings or the family’s home. Courts can pierce that wall when the LLC is treated as a personal piggy bank. The most common triggers are commingling personal and business funds, failing to keep basic records, and using the LLC for fraud or gross negligence. The risk actually runs higher than average in a minor-owned LLC because the parent controls everything and the line between family and business finances blurs easily.
To keep the protection, maintain a dedicated business bank account, keep written records of major decisions, file all required annual reports on time, and make sure the LLC is adequately funded for what it does. General liability insurance is a cheap additional layer.
What the Child Can Actually Do in the Business
Owning the LLC and working in it are two different questions. The Fair Labor Standards Act prohibits “oppressive child labor,” which generally means children under 14 cannot work in non-agricultural jobs. Children of any age can work for a business entirely owned by their parents, but that exception has limits: kids under 16 cannot work in mining or manufacturing, and no one under 18 can perform tasks the Department of Labor has declared hazardous, such as operating forklifts, power-driven hoisting equipment, or commercial balers.9U.S. Department of Labor. Fact Sheet #43: Child Labor Provisions of the Fair Labor Standards Act (FLSA) for Nonagricultural Occupations
State laws often add restrictions beyond the federal rules, and when both apply, the stricter standard controls. Many states limit hours on school days, require work permits, or restrict late-night shifts. The parent-owned business exception under federal law doesn’t excuse state school-attendance requirements.10U.S. Department of Labor. elaws – FLSA – Child Labor Rules
Penalties are steep. Federal civil fines run up to $16,035 per child per violation, and violations causing death or serious injury to a worker under 18 carry penalties up to $72,876, doubled for willful or repeated violations.11eCFR. 29 CFR Part 579 – Child Labor Violations – Civil Money Penalties Your operating agreement should define age-appropriate tasks that square with both federal and state law.
What It Costs
Formation fees vary by state. Filing the Articles of Organization typically runs between $35 and $500, with most states charging somewhere around $100 to $150. Most states then require an annual or biennial report to keep the LLC in good standing, with fees ranging from $0 to several hundred dollars. A handful of states impose minimum franchise taxes regardless of revenue.
Beyond state fees, budget for an operating agreement (through an attorney or a reputable online service), a registered agent if you don’t fill that role yourself, a dedicated business bank account, and general liability insurance. Legal and accounting help at formation isn’t strictly required, but the tax and gift tax issues with a minor-owned LLC are complex enough that professional guidance tends to save more than it costs. For a simple small business, total first-year costs including professional fees typically land between $500 and $2,000, depending on your state and how much legal work you need.
A Note on College Financial Aid
Families planning ahead often worry the LLC will hurt their child’s aid eligibility. Starting with the 2026–27 award year, the FAFSA excludes the net worth of family-owned businesses with 100 or fewer full-time employees from the asset calculation used to determine aid eligibility.12Federal Student Aid. 2026-27 FAFSA Form and Pell Grant Eligibility Updates The business itself won’t count as an asset for most minor-owned LLCs. Income the LLC generates still shows up in adjusted gross income and gets factored into the Student Aid Index, so a profitable business can still affect aid through the income side.