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How to Help Your Kid Start a (Legal) Business

Sean Peek
Sean Peek

Putting up lemonade stands and mowing lawns are popular ways for kids to earn pocket change, but could they get in legal trouble for their entrepreneurial activities?

  • Kids' businesses are still businesses and need proper permits.
  • Having a business can teach children responsibility and good money sense.
  • Protect your children by making sure their business is legitimate.
  • This article is for parents and guardians interested in helping kids start their own legal small businesses.

Kids just want to be kids. But kids also want to be grown-ups. That's why letting them have neighborhood lemonade stands, yard sales or lawn-mowing businesses is a great way for them to learn responsibility and the value of a dollar.

However, child-run businesses can run into problems if they're not legal. Believe it or not, neighbors will complain to have a business shut down if there aren't proper permits and paperwork.

"Cities, countries, and states have laws that require businesses to secure permits and licenses to operate," said Mark Williams, director of customer service operations at BizFilings. "Those rules can extend to just about every business, including those owned by a child."

An increasing number of states and communities have started to make it easier for young entrepreneurs to make money, but in many communities, children and teens need to secure the right paperwork to run their businesses lawfully, according to Williams. Depending on the child's age, a parent will need to help.

"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," Williams said.

Can kids have a business?

Yes, kids can have businesses. Having a business is a great way for children to focus their energy and efforts on something positive instead of sitting around the house. A business is a business, whatever the age of the person in charge.

All businesses must adhere to certain legal requirements, and parents must understand these requirements to make sure their kids' businesses are legal. In addition to completing paperwork, such as forms to obtain a permit, you may have to pay taxes on the money the business earns. If your kids earn more than $400 on the venture, they may have to pay some type of tax.

Did you know?Did you know? Some successful companies were started by children as young as 9 years old.

Do kids need a business license?

Yes, any business needs a license, even if it's run by a kid; the age of the person running the business does not matter. Make sure your kid's business is up to code, because anyone may decide to report the business to the authorities.

The first step is to search for more information on the website of the city and county where the business will be located, or just head down to your city hall to find the officials in charge. Williams said these officials can often be found in a community's finance or revenue departments. To secure a permit or a license, business owners need to fill out forms and pay a fee, which starts around $50. 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 rolling.

You might be asking yourself, "Why go through all of this if it's just a lemonade stand? What harm could be done?" Williams warned that neighbors or passersby often have the time and inclination to tattle.

"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 Business News Daily. "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 have also snitched on 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 to be aware of the legal risks and liabilities of not making sure your child's business is legally compliant.

"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.

But fear not: For parents who want to help a child start a business, there are plenty of resources out there to make sure it is done 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.

How do you obtain a license for kids?

Every state has different requirements for obtaining a business license. In most states, the child will need to submit a business plan, which will show their competency and understanding of their financing and legal parameters. This is also good practice for children and teenagers to learn more about how businesses form and operate.

When applying for a business license, children need to know the state's laws on teen labor and age of consent. Most minors cannot legally enter contracts without an adult's approval in the majority of states. Depending on the scope of the business, it may require outside funding – and no one under the age of 21 can apply for a loan without the consent of a responsible adult over 21.

Since obtaining a business license can be a lengthy process, it's best to start as soon as possible. If your child is planning to hold a summer bake sale or shovel snow in the winter, you should start the process a few months before that season to give them enough time to obtain a permit.

What are good businesses for kids?

To decide what type of business is right for your kid, start by helping them find the areas they enjoy.

When a parent wants to help their child start working, they often think first of setting up a lemonade stand or babysitting. But there are many other jobs that can be even more exciting to a child.

Children may be excellent at making baked goods and candy, for example. If they are not interested in doing the baking themselves, they may be able to find a baker who needs a dessert decorator. Perhaps they love animals, so they can be dog-walkers or pet-sitters. And someone always needs their car washed, so your kids could start a car-washing business. They could even start a YouTube channel or a podcast for other children.

Here are some of the top business ideas you and your child can start together, including home-based ones:

1. Tutoring

For older children who excel in a certain subject, tutoring is a great small business option. Teenagers can find other students to tutor online or through their school or local library. They can help other students do their homework and understand subjects or concepts that they struggle with. Not only will they earn money by helping others, but they'll also build on their own academic thinking skills.

2. Social media services

Younger people have grown up with social media, so it is second nature for many of them. Meanwhile, small businesses whose owners didn't grow up with social media may struggle if they don't have an online presence. Teenagers can offer their social media savvy to small business owners, helping them engage their audience online and gain more customers.

3. Craft seller

If your child's hobby is making a certain craft, such as bookmarks or weavings, they could find a way to sell it outside your home, online, or through craft fairs. Many people love to have or give personalized items homemade by local artists – especially child artists.

Business News Daily editorial staff contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

Image Credit: LSOphoto / Getty Images
Sean Peek
Sean Peek
Business News Daily Contributing Writer
Sean Peek has written more than 100 B2B-focused articles on various subjects including business technology, marketing and business finance. In addition to researching trends, reviewing products and writing articles that help small business owners, Sean runs a content marketing agency that creates high-quality editorial content for both B2B and B2C businesses.