How to Help Your Kid Start a (Legal) Business

What legal requirements apply to kids’ businesses?

A business is a business, no matter how old the boss is. Child-run businesses can face serious problems if they’re not legal. 

“Cities, countries and states have laws that require businesses to secure permits and licenses to operate,” said Mark Williams, formerly the senior leader at BizFilings. “Those rules can extend to just about every business, including those owned by a child. For the typical lemonade stand, lawn-mowing business or snow-shoveling operation, young entrepreneurs will need to check with local officials to determine the compliance requirements.”

All businesses must adhere to certain legal requirements, and parents should understand these stipulations to make sure their kids’ endeavors are legal. You’ll want to help your child figure out the appropriate business structure for their proposition so you can determine which forms you’ll have to complete to start the business and what permits you’ll need. Most businesses choose to become limited liability companies (LLCs). [If you decide to take this route, see our guide for how to start an LLC.]

Before you start this company, however, make sure you feel comfortable with the business’s tax liability. If your kid’s venture is successful enough to earn more than $400, they will have to pay taxes on the money made. Fortunately, there are tools and experts you can rely on to help you through these beginning stages.

Search for more information on the websites of the city and county where the business will be located. You and your child can also head down to City Hall and meet with the officials in charge of business licensing, as every business needs a business license, even if it’s run by a kid. Williams said these officials can often be found in your community’s finance or revenue departments. 

How do you obtain a business license for kids?

Every state has different requirements for getting a business license. In most states, the child will need to submit a business plan, which will show their business competence and understanding of the financial and legal parameters of their proposed undertaking. This is a great opportunity for children and teenagers to learn more about how businesses form and operate.

To secure a permit or a business license, owners need to fill out forms and pay a fee. City and county officials in the jurisdiction where the business is located can outline the requirements, explain penalties for noncompliance and provide the proper paperwork to get the process going.

When applying for a business license, kids need to know the state’s laws on child and teen labor as well as laws for entering into legal agreements with minors. While minors can legally enter into most contracts, they are often subject to different terms, and some require permission from a legal guardian. Depending on the scope of your child’s business, it may need outside funding, and minors cannot legally apply for a small business loan on their own. 

Because obtaining a business license can be a lengthy process, it’s best to start as soon as your child’s idea is fully developed. If your kid plans to hold a summer bake sale or shovel snow in the winter, you should start the licensing process a few months before that season to give them enough time to obtain the proper permits.

Why does a kid’s business have to be legal?

You might be asking yourself, “Why go through all of this for a lemonade stand? What harm could possibly be done if I don’t?” Williams warned that neighbors or passersby are often inclined to tattle if the business poses an inconvenience to them or makes them feel nervous. 

“In some cases, neighbors may feel inconvenienced because customers to the lemonade stand next door are blocking their driveways or adding more noise or traffic to their usually quiet residential street,” Williams told us. “Passersby may be concerned that teens handing out fliers for their snow-shoveling business may be casing a neighborhood and up to no good.”

Competitors may also be motivated to snitch on neighboring kid-owned businesses. A landscaping company, for instance, could report a teen-run lawn-mowing business for noncompliance to weed out cheaper competition.

It’s also important for you and your child to be aware of the legal risks and liabilities of operating a business without meeting all of the legal requirements. The consequences could have profound effects on your kid and their ambitions.

“Kids who run their businesses without the correct permits or licenses can face closure and other penalties, including but not limited to fines,” Williams said. He added that a run-in with regulators is never a fun experience, especially for a young entrepreneur who is dreaming big and only just starting their career.

But fear not: Plenty of resources are available for parents who want to help a child start a business the right way. For example, the Small Business Administration provides links to state-specific license and permit information and even offers resources for home-based businesses.

What are good businesses for kids?

When a parent wants to help their child find work, their first ideas are often selling lemonade or babysitting. But many other businesses may be more exciting for your child. To determine what type of operation is right for your kid, begin by helping them identify the activities and subjects they enjoy the most.

For example, children who are excellent at making baked goods and candy may want to start selling their confectionaries from home and even build the service into a full-fledged brand. Perhaps your child loves animals; they may decide to become a dog walker or pet sitter. Someone always needs their car washed; if your kid likes cooling off outside on a warm summer day, they may want to start a car-washing business with some friends. Meanwhile, creative storytellers or inquisitive question-askers may want to start a YouTube channel or a podcast for other children.

Here are some other small business ideas you and your child can explore together in your community or your living room.

Tutoring

Tutoring is a great small business option for older children who excel in a particular subject. Teenagers can find other students to tutor online or through their school or local library. They can help peers or younger pupils do their homework and understand subjects or concepts they struggle with. Not only will your kid earn money by helping others, but they’ll also develop their own academic thinking skills.

Social media management

Teenagers today have grown up with social media, so using it is second nature for many of them. In contrast, many small business owners don’t have as much experience on the web and may struggle to build their online presence. Teens can offer their social media savvy to these proprietors, helping them build and engage their audience online and gain more customers. But whether your child is using YouTube or Twitter, keep in mind that the internet can be dangerous, so you’ll want to make sure they’re following safe online practices and protecting their privacy. 

Crafting

If your child’s hobby is making a certain craft – such as bookmarks, clay figures or scarves – they could find a way to sell their creations in your front yard, online marketplaces or local craft fairs. Many people love to have or give personalized items that are homemade by local artists, especially when those artists are kids. [See online sales alternatives to Etsy to consider options that might make sense for children.] 

What is the value of starting a business with your kid?

According to Junior Achievement USA, 60% of teens would rather start a business than have a traditional job. While launching a business may require what seems like an overwhelming amount of information, it can be a great learning experience for your kid and for you, too. Starting a business can help children learn a wide range of lessons, such as personal responsibility, the importance of teamwork and the value of a dollar. As long as you and your little entrepreneur conduct research and follow guidelines carefully, you both stand to gain a lot, including business experience, profits and even precious family memories.

Cailin Potami and Jennifer Post contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.