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Can My San Diego Teenager Form a Corporation and Start a Business?

Some have probably heard that Kylie Jenner may soon become a billionaire at the young age of 20 years old. See here. In the new economy, young entrepreneurs are increasingly using technology and online marketing/sales platforms to successfully bring new products and concepts to market. While Ms. Jenner likely had the backing and support of her parents and family, as discussed below, a teen entrepreneur can accomplish a lot legally, but parents and guardians play an essential guiding role. This article discusses a few of the legal issues that exist with respect to teenager entrepreneurs starting their own businesses. A good San Diego Corporate lawyer can help.

San Diego Business Law: Forming a Corporation

Nothing in California law prevents a teenage entrepreneur from forming and/or owning a corporation. There is no age limit or restriction. For example, when drafting and submitting articles of incorporation with the California Secretary of State, there is no required information about the applicant’s age. Indeed, Cal. Corp. Code, § 200 states that a corporation may be formed by a “natural person” and nothing is stated about age limits or restrictions.

Just as importantly, as provided by §200, subsection (b), a San Diego teen entrepreneur can use the services of an incorporator — someone who files the necessary paperwork on behalf of the owner(s). However, you do not need to be a teenager to utilize an incorporator when filing articles of incorporation.

San Diego Business Law: Being President of the Board of Directors

Similarly, there is no age restriction/requirement for a person to serve on a corporate board of directors and have himself or herself appointed as the President of the board. The California Corporations Code requires only that directors be natural persons. See Cal. Corp. Code, §164. (“’Directors’ means natural persons designated in the articles as such or elected by the incorporators and natural persons designated, elected or appointed by any other name or title to act as directors, and their successors.”). As a practical matter, a California corporation with one shareholder need only one board member, with two shareholders two board members who are the shareholders, and three or more shareholders requires at least three board members. See Cal. Corp. Code, §212(a). Parents or guardians are good candidates for board members when required.

San Diego Business Law: Becoming the CEO

If a wage or salary is contemplated, a teen entrepreneur may have more difficulty hiring himself or herself as the Chief Executive Officer of the corporation because California DOES have child labor laws which restrict the age at which teens can begin to work. See info page here. Essentially, teens aged 14 to 17 can work, but must have a permit under the rules and regulations promulgated by the California Department of Industrial Relations. It may be easier to avoid paying a wage or salary and either allow assets and equity to accumulate in the corporation until the teen reaches 18 years old or only withdraw value from the corporation as dividends/stock distributions.

San Diego Business Law: Signing Contracts

Forming legally enforceable contracts also presents some tricky legal nuances. The common misperception is that teenagers “cannot sign contracts.” As we discussed more fully here, minors CAN sign contracts AND enforce those contracts against other parties. However, the other parties cannot enforce the contracts against the teenager. This presents little problem for certain types of contracts including, for example, material goods contracts. If the teen contracts for delivery of 1,000 widgets for payment of $10,000, the teen can enforce the contract against the widget manufacturer, but not the other way around. But the solution for the manufacturer is to require payment upon delivery. Further, if the contract is not personal with the teen entrepreneur, but rather with the corporate entity, then, under those circumstances, the contract is properly formed and enforceable by both parties — the corporation/buyer and the manufacturer/seller.

However, contracts that require ongoing and/or periodic performance and which might require a personal guaranty by the company owners are more problematic. An example would be a loan or some sort of financing. Here, involvement will be required by parents, guardians, and others who have reached the age of 18.

Contact San Diego Corporate Law Today

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for businesses including formation of corporate entities of all types. Mr. Leonard has been named a “Rising Star” for 2015, 2016 and 2017 by SuperLawyers.com. Call Mr. Leonard at (858) 483-9200 or contact him via email.