Minors as LLC Members

Published: April 24, 2025 • Incorporation
Minors as LLC Members: Complete Legal Guide | WY, DE, CA, All 50 States

Minors as LLC Members: Complete Legal Guide

Authoritative guidance on adding minors to LLCs across all 50 states. UTMA structures, trusts, BOI compliance, tax implications, and step-by-step implementation.

🎧 Audio Overview: Minor LLC Ownership & Legal Capacity Risks

Listen to a comprehensive overview of the key legal and tax considerations when adding minors to LLCs (12 minutes)

Can a Minor Be an LLC Member?

✓ Yes — With Proper Legal Structure

Minors can own LLC membership interests in all 50 states, but cannot directly manage the LLC or enter into contracts. The key is using an adult fiduciary wrapper:

  • UTMA Custodian: Adult holds the interest "as custodian for [Minor] under the [State] UTMA"
  • Trust: Trustee holds the interest; minor is beneficiary
  • Guardian: Court-appointed guardian manages the interest
  • Manager-Managed LLC: Minor is non-managing member; adult manager handles all decisions

Why This Matters

Thousands of parents, grandparents, and business owners need to add minors to LLCs for legitimate reasons:

  • Teen influencers/creators: YouTube, TikTok, Instagram income flows to an LLC owned partially by the minor
  • Family business succession: Gifting LLC units to children for estate planning and gradual wealth transfer
  • Real estate investing: Holding rental properties in LLCs with minor children as members
  • E-commerce brands: Minor builds a Shopify/Amazon business; parents want proper liability protection
  • Athletic NIL deals: Student athletes receiving name/image/likeness compensation
  • UTMA transfers: Existing UTMA accounts holding cash/stock want to invest in an LLC

The Core Legal Challenge: Minors Lack Contractual Capacity

In all states, minors can disaffirm (void) contracts they enter until they reach the age of majority (18 in most states, 19 in Alabama/Nebraska, 21 in Mississippi). This creates risk:

⚠️ Disaffirmance Risk

If a 16-year-old directly owns LLC units and signs the operating agreement, they could later (before turning 18, or shortly after) disaffirm the contract, potentially:

  • Voiding their membership admission
  • Demanding a refund of capital contributions
  • Unwinding transactions they participated in
  • Creating chaos for other members and lenders

Solution: Never have the minor sign as a member. Use an adult fiduciary (custodian, trustee, or guardian) who has full legal capacity.

What This Guide Covers

This is the most comprehensive resource on minors as LLC members. You'll learn:

  1. Four structural options (UTMA, trust, guardian, direct) with pros/cons
  2. State-specific rules for Wyoming, Delaware, California, and all 50 states
  3. BOI/CTA compliance (Corporate Transparency Act beneficial ownership reporting for minors)
  4. Bank KYC requirements (what banks need to open accounts for minor-owned LLCs)
  5. Tax implications (kiddie tax, Form 1065, foreign minors, ITIN requirements)
  6. Use-case deep dives (teen creators, family businesses, e-commerce, NIL, foreign minors)
  7. Step-by-step implementation (admission docs, OA clauses, cap table updates)
  8. When NOT to use UTMA (irrevocability, loss of control, timing issues)

Choose a Structure: Four Options

There are four ways to structure minor ownership of LLC interests. Each has different legal, tax, and practical implications:

🏦 1. UTMA Custodianship

How it works: Adult is named custodian and holds the LLC interest "for the benefit of [Minor] under the [State] Uniform Transfers to Minors Act."

Member title on docs: "Jane Doe, as custodian for Jesse Kearney under the Wyoming UTMA, Wyo. Stat. §34-13-101 et seq."

✓ Pros:
  • Simple to establish (no court, no separate trust document)
  • Custodian has full legal authority to manage
  • Low cost (no trust administration fees)
  • Widely understood by banks and accountants
✗ Cons:
  • Irrevocable: Once you transfer to UTMA, you cannot take it back
  • Mandatory termination: Child gets full control at age 18-21-25 (depending on state and instrument)
  • No creditor protection once child reaches majority
  • Cannot extend beyond UTMA termination age

Best For:

Lifetime gifts to minor children where you're comfortable with them receiving full control at 18-25, and you want simplicity over long-term control.

📜 2. Trust-Held Membership

How it works: A revocable or irrevocable trust is the LLC member. Trustee manages the interest; minor is beneficiary.

Member title on docs: "John Smith, Trustee of the Jesse Kearney 2024 Irrevocable Trust dated March 15, 2024"

✓ Pros:
  • Maximum control: Can delay distributions until 25, 30, 40, or any age
  • Revocable trust: Can change terms or revoke entirely (if revocable)
  • Creditor protection (if properly structured)
  • Can include spend-thrift provisions
  • Works for complex family planning (multiple beneficiaries, special needs, etc.)
✗ Cons:
  • Requires formal trust document (legal fees: $1,500-5,000+)
  • Ongoing trust administration (tax returns, trustee duties)
  • Banks may require more documentation
  • More complex for small gifts

Best For:

Larger gifts, long-term control needs, multiple beneficiaries, or when UTMA termination age is too early for your comfort. Also ideal for special needs planning.

⚖️ 3. Guardian-Managed Direct Ownership

How it works: Minor is the member on paper, but a court-appointed guardian (or parent as "natural guardian") manages the interest until majority.

Member title on docs: "Jesse Kearney, a minor, by and through Jane Doe, Guardian"

✓ Pros:
  • Child is the actual member (clean ownership)
  • Automatically terminates at age of majority (no transfer needed)
  • Parent may act as "natural guardian" in some states without court appointment
✗ Cons:
  • Disaffirmance risk: Minor could potentially disaffirm membership at majority
  • May require court approval for certain actions (selling interest, distributions, etc.)
  • Guardian must file accountings with court (if court-appointed)
  • Banks very hesitant (minor's SSN on accounts)
  • Not recommended in most cases

Best For:

Rare situations where the minor has inherited an LLC interest (death of parent) and a guardian is already appointed. I generally do NOT recommend this structure for new gifts due to disaffirmance risk.

🛡️ 4. Manager-Managed + Protective Provisions

How it works: Combine any of the above with a manager-managed LLC structure where:

  • LLC is manager-managed (not member-managed)
  • Adult is the manager; minor (or custodian/trustee) is non-managing member
  • Operating agreement includes protective provisions
✓ Protective Provisions to Include:
  • No capital calls: Minor's interest cannot be diluted for failure to contribute
  • No personal guarantees: Minor cannot be required to guarantee LLC debts
  • Limited recourse: Member liability limited to contributed capital
  • No management rights: Minor has no right to participate in management
  • Voting proxy: Custodian/trustee/guardian votes on behalf of minor
  • Majority-age ratification: Upon reaching 18, minor must ratify membership

Best Practice:

Use this in combination with UTMA or Trust structures. Manager-managed governance + UTMA custodianship (or trust) provides maximum protection and flexibility.

💡 My Recommendation for Most Situations

UTMA Custodianship + Manager-Managed LLC for simple, small-to-medium gifts where age 18-21-25 termination is acceptable.

Trust + Manager-Managed LLC for larger gifts, long-term control needs, or when you want flexibility to change terms.

Avoid direct guardian-managed ownership unless the minor already owns the interest through inheritance and a guardian is appointed.

State Law: Wyoming, Delaware, California

While minors can be LLC members in all 50 states, the implementation details vary by state law. Here's comprehensive guidance for the three most important jurisdictions:

🏔️ Wyoming Permissive

Bottom Line

Wyoming allows minors as LLC members with no statutory age minimum. Use an adult fiduciary (custodian/trustee/guardian) to avoid capacity issues.

Key Statutes

  • Admission of members: Wyo. Stat. §17-29-401 — "person becomes a member...in the manner and at the time provided in the operating agreement." No age requirement.
  • Management: Wyo. Stat. §17-29-407 — LLC may be member-managed or manager-managed. Choose manager-managed to keep minor out of management.
  • Definitions: Wyo. Stat. §17-29-102 — "Member" means a person with an LLC interest; "person" includes individuals (no age restriction).
  • UTMA: Wyo. Stat. §§34-13-133, 34-13-138 — UTMA custodianship terminates at age 21, BUT can be extended to age 30 if the transfer instrument specifies (2017 amendment, HB0097).

How to Structure (Wyoming LLC)

Member Title (UTMA): "Jane Doe, as custodian for Jesse Kearney under the Wyoming Uniform Transfers to Minors Act, Wyo. Stat. §34-13-101 et seq." Operating Agreement Provisions: 1. LLC is MANAGER-MANAGED (cite §17-29-407) 2. Adult is appointed manager 3. Custodian holds voting rights on behalf of minor 4. No capital calls against minor's interest 5. No personal guarantees by minor 6. Limited recourse to contributed capital

Wyoming UTMA Age Extensions

Wyoming's 2017 UTMA update allows you to extend custodianship to age 30 if you specify it in the transfer instrument (subscription agreement, gift letter, or will/trust). Default is age 21.

Wyoming Advantages

  • Strongest LLC charging order protection in U.S. (protects minor's interest from parents' creditors)
  • No state income tax
  • Low annual fees ($60/year)
  • Privacy (members not disclosed publicly)
  • UTMA can extend to age 30

🏛️ Delaware Permissive

Bottom Line

Delaware allows minors as LLC members with no statutory age minimum. Capacity issues are handled by using an adult fiduciary (custodian/guardian/trustee). Organizer can be any "authorized person."

Key Statutes

  • Admission of members: 6 Del. C. §18-301 — Admission by agreement; no age rule in statute.
  • Management: 6 Del. C. §18-402 — May be member-managed or manager-managed. Use manager-managed for minors.
  • Organizer: 6 Del. C. §18-201 — "One or more authorized persons" may file; no age requirement.
  • UTMA: 12 Del. C. ch. 45 — "Minor" means under age 21. Default termination at 21; no statutory extension beyond 21 (unlike Wyoming).

How to Structure (Delaware LLC)

Member Title (UTMA): "Jane Doe, as custodian for Jesse Kearney under the Delaware Uniform Transfers to Minors Act, 12 Del. C. §4501 et seq." Operating Agreement Provisions: 1. LLC is MANAGER-MANAGED (cite 6 Del. C. §18-402) 2. Adult manager holds signing authority 3. Minor has no agency powers 4. Distributions paid to UTMA custodian (not child) until termination 5. Protective provisions (no capital calls, no guarantees)

Bank/KYC Practicality

Delaware banks typically require signers to be 18+. Keep all authority with the adult manager/custodian. The LLC's bank accounts should have the manager as the authorized signer, NOT the minor.

Delaware Advantages

  • 200+ years of corporate/LLC case law (Court of Chancery expertise)
  • Standard for VC-backed companies (if you plan to raise funding)
  • Flexible operating agreement provisions
  • Well-understood by banks and institutional investors

Delaware Disadvantages for Minors

  • Higher annual costs ($300/year franchise tax vs Wyoming's $60)
  • UTMA terminates at 21 (cannot extend to 25 or 30 like some states)
  • Less privacy (though members still not disclosed on formation docs)

🌴 California Permissive + Special Rules

Bottom Line

California allows minors as LLC members, but adds complexity: minors can disaffirm contracts unless certain conditions are met. For teen entertainers/influencers, California's Coogan Law provides a path to prevent disaffirmance.

Key Statutes

  • Formation: Corp. Code §17702.01 — "One or more persons" may form an LLC (no age restriction).
  • Admission: Corp. Code §17704.01 — Contractual admission; no age rule.
  • Minor contract disaffirmance: Fam. Code §6710 — Minors can disaffirm contracts.
  • UTMA (CUTMA): Prob. Code §3900 et seq. — Default transfer at age 18, BUT you can delay to age 21 (lifetime gift) or up to age 25 if from a will/trust/power of appointment (§3920.5).
  • Teen entertainers/influencers (Coogan Law): Fam. Code §§6750-6753 — Requires 15% set-aside in blocked trust account; court approval prevents disaffirmance.

How to Structure (California LLC)

Member Title (UTMA): "Jane Doe, as custodian for Jesse Kearney under the California Uniform Transfers to Minors Act, Prob. Code §3900 et seq." Operating Agreement Provisions: 1. LLC is MANAGER-MANAGED (Corp. Code §17704.07) 2. Adult manager; minor restricted from acting as agent 3. Require adult manager/custodian approval for member actions 4. If transfer from trust/will, specify custodianship to age 25 in transfer instrument (Prob. Code §3920.5(d),(f))

California UTMA Age Extensions

  • Default: Age 18
  • Lifetime gift with proper instrument: Can delay to age 21
  • Transfer from trust or will: Can specify custodianship to age 25 (Prob. Code §3920.5(d),(f))

Coogan Law Compliance (Teen Creators/Influencers)

If the minor is earning through the LLC as a performer, influencer, or content creator:

  • 15% set-aside required: 15% of gross earnings must be placed in a "Coogan account" (blocked trust) until age 18 (Fam. Code §6753)
  • Court approval: Obtain court approval of personal-services agreements to prevent disaffirmance
  • Work permits: Required for minors under 18 working in entertainment

⚠️ California-Specific Challenges

  • Disaffirmance risk is higher: CA courts broadly interpret minors' right to disaffirm
  • Coogan compliance required for creators: If the minor is earning as an influencer/performer, you must comply with Coogan Law (15% set-aside, court approval)
  • UTMA default is age 18: Earlier than most states (though can extend to 25 from trust/will)
  • Labor law complexity: Work permits, hour restrictions, on-set education requirements for working minors

Best Practice for CA Teen Creators

Trust structure + Coogan account + court-approved contracts provides maximum protection:

  1. Create an irrevocable trust for the minor
  2. Trust owns LLC membership interest
  3. LLC pays minor for services rendered (W-2 or 1099)
  4. 15% of gross earnings → Coogan account
  5. Remaining earnings → Trust (trustee manages until 25/30/etc.)
  6. Court approves the arrangement → prevents disaffirmance

Corporate Transparency Act (BOI) Reporting for Minors

⚠️ BOI Rule Status Update (March 2025)

As of March 3, 2025, FinCEN announced that domestic U.S. companies are no longer required to file Beneficial Ownership Information (BOI) reports. However, this rule has changed multiple times and may change again. Always check the current rule at FinCEN.gov/boi before relying on any exemption.

The Corporate Transparency Act (CTA), enacted in 2021, requires most LLCs and corporations to report their "beneficial owners" to FinCEN (Financial Crimes Enforcement Network). Minors receive special treatment under the BOI rules.

Minor Exception: Do NOT Report the Minor's Information

Under 31 CFR §1010.380, if a beneficial owner is a minor child (under 18), the reporting company must report a parent or legal guardian instead of the minor.

BOI Reporting Rules for Minors (When BOI Applies)

  • Do NOT report the minor's name, date of birth, address, or ID.
  • DO report a parent or legal guardian's information instead.
  • When the child reaches age 18 (age of majority), you must UPDATE the BOI report within 30 days to replace the parent's info with the (now adult) child's info.

Example: LLC with Minor Member

ABC LLC has three members: - John (parent): 40% ownership → Report John's BOI - Jane (parent): 40% ownership → Report Jane's BOI - Jesse (minor child, age 14): 20% ownership → Report John or Jane's BOI instead (parent/guardian exception) When Jesse turns 18: - Update BOI report within 30 days - Remove parent's info (for Jesse's ownership) - Add Jesse's info (now an adult)

Set a BOI Update Reminder

BOI Compliance Checklist for Minors

  • Determine if your LLC is a "reporting company" (most LLCs are, unless exempt)
  • If BOI applies, file initial BOI report within required timeframe
  • For each minor beneficial owner, report parent/guardian info instead
  • Set calendar reminder for minor's 18th birthday (or age of majority in your state)
  • Update BOI report within 30 days of minor reaching majority
  • Keep records of when you filed, who you reported, and when updates are due

⚠️ Penalties for Non-Compliance

Willful failure to file or update BOI reports can result in:

  • Civil penalty: Up to $500 per day the violation continues
  • Criminal penalty: Up to $10,000 fine and/or 2 years imprisonment

Always check current FinCEN guidance at FinCEN.gov/boi as rules continue to evolve.

Resources

Tax Implications: Kiddie Tax, Partnership Filings, Foreign Minors

1. Kiddie Tax (Unearned Income)

If the minor receives distributions from the LLC that are not compensation for services (i.e., unearned income), the "kiddie tax" may apply.

What is Kiddie Tax?

The kiddie tax (IRC §1(g)) taxes a child's unearned income above a threshold ($2,500 for 2024) at the parent's marginal tax rate instead of the child's lower rate. This prevents parents from shifting investment income to children to avoid taxes.

  • Unearned income: LLC distributions (not for services), dividends, interest, capital gains
  • Earned income: W-2 wages, 1099 compensation for actual services rendered
  • Threshold (2024): $2,500 (first $1,300 tax-free; next $1,200 at child's rate; excess at parent's rate)
  • Applies to: Children under 18, or under 19 if not working, or under 24 if full-time student

How to Report Kiddie Tax

  • Form 8615: "Tax for Certain Children Who Have Unearned Income" — attached to child's Form 1040
  • Parent's election (Form 8814): Parent can elect to report child's income on parent's return if unearned income is $11,000 or less and only from interest/dividends

Resources: IRS Topic 553 (Kiddie Tax), IRS Publication 929

2. Partnership Tax Filings (Multi-Member LLCs)

If the LLC is multi-member (more than one owner), it's taxed as a partnership and must file Form 1065 (U.S. Return of Partnership Income).

Multi-Member LLC Tax Filing: - LLC files Form 1065 annually - Each member (including minor) receives Schedule K-1 - K-1 reports member's share of LLC income/loss/deductions - Member reports K-1 amounts on their Form 1040 - Minor's K-1 → Minor's Form 1040 (or parent's 8814 election) - If K-1 shows unearned income > $2,500 → Kiddie tax (Form 8615)

Who Signs the Minor's Tax Return?

  • If minor is under 18: Parent or guardian signs
  • UTMA custodian typically signs on behalf of minor
  • Trustee signs if interest is held in trust

3. Single-Member LLCs (Disregarded Entity)

If the LLC has only one member, it's a "disregarded entity" for tax purposes (unless it elects to be taxed as a corporation):

  • No separate tax return: LLC income flows through to the member's Form 1040, Schedule C (if business) or Schedule E (if rental)
  • Minor as sole member: Income reported on minor's Form 1040
  • Kiddie tax applies if the income is unearned (e.g., rental income, not compensation for services)

4. Foreign Minors: ITIN, Form 5472, Withholding

If the minor is a foreign person (non-U.S. citizen/resident), additional tax rules apply:

Foreign-Owned Single-Member LLC

If a foreign minor (or trust/custodian for foreign minor) is the sole owner of a U.S. LLC, the 2017 IRS rule change requires:

  • Form 5472: "Information Return of a 25% Foreign-Owned U.S. Corporation or Foreign Corporation Engaged in a U.S. Trade or Business"
  • Pro forma Form 1120: Even though the LLC is a disregarded entity, it must file a pro forma Form 1120 with Form 5472 attached
  • Due date: Same as Form 1120 (15th day of 4th month after year-end, typically April 15)
  • Penalties: $25,000 for failure to file

Resource: IRS Instructions for Form 5472 (Rev. 2017)

ITIN for Foreign Minors

Foreign minors do not have Social Security Numbers. To receive LLC distributions or file U.S. tax returns, they need an Individual Taxpayer Identification Number (ITIN):

  • Form W-7: "Application for IRS Individual Taxpayer Identification Number"
  • Required documents: Passport or other foreign ID, proof of foreign status
  • Parent/guardian applies on behalf of minor
  • Processing time: 7-11 weeks

Withholding on Distributions to Foreign Persons

If the LLC makes distributions to a foreign minor (or custodian/trustee for foreign minor):

  • 30% withholding: Default rate on U.S.-source income paid to foreign persons
  • Tax treaty relief: May reduce withholding if treaty exists between U.S. and minor's country
  • Form W-8BEN: Foreign person provides to claim treaty benefits
  • Form 1042 & 1042-S: LLC must file to report withholding

⚠️ This Is NOT Tax Advice

Tax rules for foreign minors are complex and vary by country, treaty status, and type of income. Consult a CPA or tax attorney experienced in international tax before structuring foreign minor ownership of a U.S. LLC.

5. Employment vs. Ownership Income

Critical distinction for tax purposes:

Income Type Tax Treatment Kiddie Tax? Example
Earned Income (Services) W-2 wages or 1099-NEC; taxed at child's rate ❌ No Teen influencer paid $50K for creating content
Unearned Income (Ownership) K-1 distributions; taxed at parent's rate if > $2,500 ✅ Yes Minor owns 20% of LLC, receives $10K distribution (no services)
Hybrid (Both) W-2/1099 for services + K-1 for ownership ✅ Yes (on K-1 portion) Teen works for family LLC ($30K W-2) + owns 10% ($5K K-1)

Tax Planning Tip: Separate Labor from Equity

For teen creators/workers:

  • Pay W-2 or 1099 for actual services rendered (content creation, labor, etc.) → Earned income, child's rate, no kiddie tax
  • Ownership distributions (K-1) are separate → Unearned income, kiddie tax may apply
  • Document services clearly: Contracts, time logs, work product, reasonable compensation

This maximizes the portion taxed at the child's lower rate (earned income) and minimizes kiddie tax exposure.

Use Cases: When and Why to Add Minors to LLCs

1. Teen Influencer / Content Creator (YouTube, TikTok, Instagram)

Scenario: 15-year-old has 500K YouTube subscribers, earning $8K/month from AdSense, brand deals, and merch. Parents want liability protection and tax-efficient structure.

Legal Issues:

  • Minor cannot sign contracts with brands/sponsors (disaffirmance risk)
  • California Coogan Law requires 15% set-aside if working in CA
  • Need to separate earned income (content creation) from ownership distributions
  • Liability protection (defamation, copyright claims, product liability)

Recommended Structure:

  1. Form Wyoming LLC (or Delaware if raising VC, or CA if working in CA)
  2. Manager-managed: Parent is manager; handles all contracts, signing, business decisions
  3. Minor as member via UTMA custodianship: "Parent, as custodian for Teen under WY UTMA" owns 70-90% of LLC
  4. Parent owns remaining 10-30%: For management/control
  5. LLC pays teen W-2 or 1099 for content creation (earned income, not subject to kiddie tax)
  6. Profit distributions flow per ownership % (minor's portion subject to kiddie tax if > $2,500)
  7. If in California: Set up Coogan account (15% of gross earnings), obtain court approval of major contracts
Tax Benefit: $100K earned income (W-2/1099) taxed at teen's rate (likely 12-22% bracket). $50K ownership distribution (K-1) → $2,500 at teen's rate, $47,500 subject to kiddie tax (parent's rate, likely 24-37%). Still better than parent receiving all income directly at top rate.
Coogan Compliance: If working in CA as entertainer/influencer, 15% of gross earnings ($150K gross → $22,500) goes to blocked Coogan account until age 18. Remaining funds → UTMA custodian account.

2. Family Operating Business (Multi-Generation LLC)

Scenario: Parents own a successful consulting LLC ($500K/year profit). Want to gift 20% to two minor children (10% each) for estate planning and to start transferring wealth.

Goals:

  • Reduce parents' taxable estate
  • Shift some income to children (at lower tax rates)
  • Begin teaching children about business ownership
  • Maintain full control until children are mature

Recommended Structure:

  1. Convert to manager-managed LLC (if currently member-managed)
  2. Parents are managers with full authority
  3. Gift 10% to each child via irrevocable trust (not UTMA, to retain long-term control)
    • Trust owns LLC units
    • Parent is trustee until child reaches 25-30 (trust specifies)
    • Distributions to trust can be held/reinvested per trust terms
  4. Operating agreement provisions:
    • No capital calls on children's interests
    • No voting rights (manager-managed eliminates this anyway)
    • Restrictions on transfer (cannot sell without parent approval)
  5. Annual gift tax exclusion: $18,000 per child per year (2024) can be gifted tax-free
    • Gift 10% interest valued at $100K → use 3-year installment gift ($33K/year × 3 years) to stay under exclusion, OR
    • File Form 709 and use lifetime gift tax exemption ($13.61M for 2024)
Estate Planning Benefit: $200K in LLC value (20% of $1M) removed from parents' estate. Future appreciation also outside estate. Children receive $100K/year in K-1 income (20% of $500K profit) → first $2,500 taxed at children's rates, remainder at parents' rates due to kiddie tax. Still better than parents paying 37% on full $500K.

3. E-Commerce Brand Equity (16-Year-Old Builds Shopify Business)

Scenario: 16-year-old built a Shopify store selling custom t-shirts, grossing $300K/year, netting $80K profit. Wants proper business structure and liability protection. Parents helped fund initial inventory.

Issues:

  • Teen cannot sign Shopify TOS, payment processor agreements, or vendor contracts (voidable)
  • Need liability protection (product liability, trademark/copyright disputes)
  • Need to separate teen's labor from parents' capital contribution
  • Tax efficiency (teen earning the income should receive tax benefit)

Recommended Structure:

  1. Form Wyoming LLC (low cost, privacy, strong asset protection)
  2. Ownership split:
    • Teen: 80% (via UTMA custodian — parent holds as custodian)
    • Parents: 20% (reflects their initial capital/inventory contribution)
  3. Manager-managed: Parent is manager, signs all agreements
  4. LLC employs teen: W-2 or 1099, $40K-60K reasonable compensation for 20 hrs/week of work (product design, social media, customer service)
  5. Remaining profit ($20K-40K) distributed per ownership % (80/20)
Tax Treatment: Teen receives $50K W-2 (earned income, taxed at teen's 12-22% rate, no kiddie tax) + $24K K-1 (80% of $30K remaining profit, unearned income, kiddie tax applies to $21,500). Parents receive $6K K-1 (20% of $30K). Total tax lower than if parents owned 100% and paid 37% on $80K.

4. Student Athlete NIL Deals (Name, Image, Likeness)

Scenario: 17-year-old high school basketball star (committed to D1 college) starts receiving NIL deals from local businesses. Expects $50K-100K in first year, potentially $500K+ in college.

Challenges:

  • Cannot sign endorsement deals directly (voidable by minor)
  • Need liability protection (defamation, FTC disclosure violations, contract disputes)
  • Multi-state issues (plays in TX, attends college in CA, NIL deals nationwide)
  • Tax efficiency important as income scales

Recommended Structure:

  1. Form LLC in state with no income tax (Wyoming, Nevada, or Texas if athlete lives there)
  2. Manager-managed: Parent is manager
  3. Ownership: Teen owns 100% via UTMA (or trust if family wants extended control)
  4. LLC signs all NIL deals (manager has authority)
  5. LLC pays teen for services rendered (W-2 or 1099)
  6. Remaining profit: Distributed or retained in LLC for tax planning
Why This Works: Parent (as manager) signs contracts → no disaffirmance risk. Teen receives W-2 for work → earned income, no kiddie tax. LLC retains some profit → defer taxes. If athlete goes pro, LLC can continue as personal brand entity.

State-Specific NIL Rules

Many states have NIL laws regulating college athletes. High school athletes face different rules. California, Texas, Florida, and other states have specific NIL legislation. Consult an attorney in your state before signing NIL deals.

5. Foreign Minor (Non-U.S. Citizen/Resident Owns U.S. LLC)

Scenario: Canadian parents want to gift U.S. LLC interest (rental property LLC) to their 12-year-old child for estate planning. Child is Canadian citizen, does not have U.S. SSN.

Complex Tax Issues:

  • Foreign minor needs ITIN (not SSN) for U.S. tax filings
  • Form 5472 + pro forma 1120 required if foreign-owned SMLLC
  • 30% withholding on distributions (unless treaty relief)
  • FIRPTA (foreign investment in real property) if LLC owns U.S. real estate

Recommended Structure:

  1. Foreign trust or UTMA equivalent (use Canadian structure, not U.S. UTMA)
  2. Trust/custodian owns U.S. LLC interest
  3. Apply for ITIN (Form W-7) for the minor immediately
  4. LLC files Form 5472 + pro forma 1120 annually (if foreign-owned SMLLC)
  5. Withholding: LLC withholds 30% on distributions, or child provides Form W-8BEN claiming U.S.-Canada treaty benefits (may reduce to 15% or 0% depending on income type)
  6. FIRPTA: If LLC owns U.S. real estate, 15% withholding on sale proceeds (FIRPTA rules)
This Is Extremely Complex: U.S. international tax rules for foreign minors are intricate. You must consult a CPA or tax attorney experienced in U.S.-Canada (or relevant country) tax treaties. Mistakes can result in double taxation, penalties, and missed treaty benefits.

Step-by-Step: Add a Minor Member to an LLC

Whether you're forming a new LLC with a minor member or adding a minor to an existing LLC, follow these steps:

Step 1: Choose Your Structure (UTMA vs Trust vs Guardian)

Decide which fiduciary wrapper to use based on:

  • Control needs: How long do you want to retain control? (UTMA = 18-30; Trust = any age you specify)
  • Complexity tolerance: UTMA is simpler; Trust is more flexible but requires legal docs
  • Cost: UTMA is free; Trust costs $1,500-5,000 to establish
  • Creditor protection: Trust can provide stronger asset protection

Most common choice: UTMA custodianship for gifts under $100K where age 18-21-25 termination is acceptable.

Step 2: Amend Operating Agreement to Manager-Managed (If Needed)

If your LLC is currently member-managed, amend to manager-managed:

  • Wyoming: Cite Wyo. Stat. §17-29-407
  • Delaware: Cite 6 Del. C. §18-402
  • California: Cite Corp. Code §17704.07

Operating agreement should state: "The Company shall be managed by one or more managers. Members shall have no authority to act on behalf of the Company solely by virtue of being members."

Appoint adult as manager: Parent, grandparent, or trusted advisor.

Step 3: Draft Subscription Agreement & Custodian Certification

Create a subscription agreement for the minor's interest:

SUBSCRIPTION AGREEMENT This Subscription Agreement is entered into as of [Date] by and between: Subscriber: [Parent Name], as custodian for [Minor Name] under the [State] Uniform Transfers to Minors Act, [State] Stat. §[Citation] Company: [LLC Name], a [State] limited liability company 1. Subscription. Subscriber hereby subscribes for and agrees to purchase [Number] membership units of the Company, representing [X]% of the total outstanding units. 2. Purchase Price. Subscriber shall pay $[Amount] for the units (or contribute the following property: [describe non-cash contribution]). 3. Custodian Representation. Subscriber represents and warrants that: a) Subscriber is duly appointed custodian under the [State] UTMA b) [Minor Name] is a minor under the laws of [State] c) This subscription is in the best interests of the minor d) Subscriber has full authority to make this investment 4. Transfer at Termination. Upon termination of the custodianship (when minor reaches age [18/21/25]), the membership units shall automatically transfer to [Minor Name] individually, subject to the operating agreement. 5. Voting and Management. Subscriber shall exercise all voting and consent rights on behalf of the minor. The minor shall have no management authority. Subscriber: _________________________ Date: _______ [Parent Name], as custodian for [Minor Name]

Step 4: Member Consent Admitting the Minor (Custodian/Trustee)

Existing members must consent to admit the new member (or the subscription agreement may serve as admission). Draft a written consent:

WRITTEN CONSENT OF MEMBERS [LLC Name] The undersigned, constituting all of the members of [LLC Name] (the "Company"), hereby consent to and approve the following resolutions: RESOLVED, that [Parent Name], as custodian for [Minor Name] under the [State] Uniform Transfers to Minors Act, is hereby admitted as a member of the Company, holding [Number] units representing [X]% of the total outstanding units, effective [Date]; RESOLVED, that the officers of the Company are authorized to take all actions necessary to reflect this admission on the Company's membership ledger and records; RESOLVED, that the Operating Agreement shall be deemed amended to reflect the admission of the new member and any protective provisions attached hereto. Dated: [Date] [Signature of each existing member]

Step 5: Add Protective Provisions to Operating Agreement

Amend the operating agreement to include minor-specific protections:

PROTECTIVE PROVISIONS FOR MINOR MEMBERS The following provisions apply to any member who is a minor or whose interest is held by a custodian/trustee on behalf of a minor: 1. No Capital Calls. The minor's membership interest shall not be subject to capital calls. Failure to contribute additional capital shall not result in dilution or forfeiture of the minor's interest. 2. No Personal Guarantees. The minor shall not be required to provide personal guarantees of Company obligations. 3. Limited Recourse. Any liability of the minor member shall be limited to the capital contributed to the Company and shall not extend to the minor's personal assets. 4. No Management Authority. The minor shall have no authority to act on behalf of the Company, bind the Company, or participate in management decisions. All such authority shall be exercised by the Manager(s). 5. Voting Proxy. All voting and consent rights shall be exercised by the custodian/trustee/guardian on behalf of the minor. 6. Ratification at Majority. Within 90 days of reaching the age of majority, the minor shall ratify their membership in writing or shall be deemed to have ratified by continuing to accept distributions or exercise member rights.

Step 6: Update Cap Table and Membership Ledger

Update your capitalization table and official membership ledger to reflect the new member:

Member Name Units % Capital Contribution
John Doe 700 70% $70,000
Jane Doe, custodian for Jesse Kearney (minor) 300 30% $30,000
TOTAL 1,000 100% $100,000

Step 7: Update Bank Beneficial Owner Forms (KYC/CIP)

Banks require "beneficial ownership" information under federal CIP and CDD rules. Update your bank with:

  • Custodian's information (ID, SSN, address) — NOT the minor's
  • Manager's information (the person authorized to transact on the account)
  • Proof of custodianship: UTMA custodian appointment letter, trust agreement, or court order
  • Minor's birth certificate (banks may request to verify age)

Important: The minor should NOT be listed as an authorized signer on bank accounts. Only adults can sign for the LLC.

Step 8: File/Update BOI Report (If Applicable)

If your LLC is subject to BOI reporting (check current FinCEN rules):

  • Report the parent/guardian's information for the minor's ownership (do NOT report the minor's BOI)
  • Set calendar reminder for the minor's 18th birthday (or age of majority in your state)
  • Update BOI within 30 days of the minor reaching majority (replace parent info with now-adult child's info)

Step 9: Set Ratification & UTMA Termination Reminders

Create calendar reminders for key dates:

  • Minor's 18th birthday (or age of majority in your state):
    • Obtain ratification of membership (signed acknowledgment that child affirms membership)
    • Update BOI report
    • Update bank signature cards (child can now sign)
  • UTMA termination age (18, 21, 25, or 30 depending on state and instrument):
    • Transfer ownership from "Custodian for Minor" to "Minor" individually
    • Update cap table, operating agreement, and membership ledger
    • Provide child with full access to financial records

Step 10: Tax Reporting Setup

Coordinate with your CPA or tax preparer:

  • Obtain EIN for LLC (if not already done)
  • Minor's SSN or ITIN: Provide to LLC for K-1 preparation (foreign minors need ITIN)
  • Form 1065 filing: If multi-member LLC, file annually and issue K-1 to minor (or custodian)
  • Form 8615 (Kiddie Tax): Minor's tax return includes Form 8615 if unearned income > $2,500
  • Form 5472 (if applicable): Foreign-owned SMLLC must file Form 5472 + pro forma 1120

Complete Implementation Checklist

  • Choose structure (UTMA vs Trust vs Guardian)
  • Amend LLC to manager-managed (if needed)
  • Draft subscription agreement
  • Obtain member consent for admission
  • Add protective provisions to operating agreement
  • Update cap table and membership ledger
  • Update bank beneficial owner forms
  • File/update BOI report (if required)
  • Set calendar reminders (age 18, UTMA termination)
  • Coordinate tax reporting with CPA
  • File signed documents in corporate records

How I Can Help

I specialize in adding minors to LLCs for families, teen creators, and family businesses. I handle the legal complexity so you can focus on your business and family.

Add Minor to Existing LLC

Complete service to add a minor member to your LLC via UTMA or trust:

  • Draft subscription agreement & custodian certification
  • Amend operating agreement to manager-managed
  • Add protective provisions (no capital calls, etc.)
  • Member admission consent
  • Update cap table and membership ledger
  • BOI compliance guidance
$1,200 - $2,000

Fixed fee. Typical completion: 5-7 business days.

Form New LLC with Minor Member

Complete LLC formation with minor member from day one:

  • Choose optimal state (WY, DE, or your state)
  • File Articles of Organization
  • Draft operating agreement (manager-managed, protective provisions)
  • Subscription agreements for all members
  • EIN application
  • Initial BOI filing (if required)
  • Registered agent service (1st year included)
$1,500 - $2,500

Includes state filing fees and first year registered agent.

Trust for Minor LLC Owner

Draft irrevocable or revocable trust to hold LLC interest for minor:

  • Custom trust agreement (age-based distributions, spendthrift provisions)
  • Trustee appointment & acceptance
  • LLC subscription agreement (trust as member)
  • Trust funding instructions
  • Coordinate with your CPA on trust tax elections
$2,500 - $5,000

Complex trusts (special needs, multi-beneficiary) may be higher.

Teen Creator LLC Package

Complete solution for influencers, YouTubers, content creators:

  • LLC formation (WY or CA)
  • Operating agreement (manager-managed, protective provisions)
  • Employment agreement (LLC employs teen for W-2 income)
  • Brand deal contract template
  • California Coogan compliance (if applicable)
  • Tax structure guidance (coordinate with CPA)
$3,000 - $4,500

Includes LLC formation, contracts, and ongoing advisory.

Review Existing Structure

Audit your current LLC structure with minor members for legal and tax compliance:

  • Review operating agreement for protective provisions
  • Verify UTMA/trust documentation
  • Check BOI compliance
  • Analyze kiddie tax exposure
  • Identify legal risks (disaffirmance, capacity issues)
  • Written report with recommendations
$750 - $1,500

2-3 hour review; written report delivered within 1 week.

Hourly Consulting

Pay-as-you-go legal advice on minor LLC ownership:

  • UTMA vs Trust decision guidance
  • State law research (your specific state)
  • BOI/CTA compliance questions
  • Tax structure planning (coordinate with your CPA)
  • Document review
  • Phone or video consultation
$350/hour

Billed in 15-minute increments. No minimum commitment.

Request a Consultation

Fill out this form and I'll email you within 24 hours with a detailed proposal and quote:

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About Me

Sergei Tokmakov, Esq.

I'm a business attorney specializing in LLC formation, family business structuring, and minor ownership issues. I've helped hundreds of families navigate the complexity of adding minors to LLCs for estate planning, teen creator businesses, and family wealth transfer.

I understand both the legal mechanics (UTMA vs trust, operating agreement provisions, state law differences) and the practical realities (bank KYC requirements, BOI compliance, tax optimization with your CPA).

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