Can a Minor Be an Owner, Officer, Director, or Manager of a Business Entity?
Most states do not place an age limit on who can form, own, or be an officer, director, or manager of a business entity.[1] Some states do, however, place age limits on some of those functions, so each state’s relevant corporation laws must be checked. For example, New York law provides that only natural persons who are eighteen years of age or over may act as incorporators of a corporation.[2] Directors of a New York corporation must likewise be at least eighteen years of age.[3] Even New York, however, does not appear to restrict the age at which someone can organize, or be a member of, a limited liability company or serve as an officer of a corporation.[4] Even if a state does not limit the age at which a person can own shares of a corporation or membership interests in a limited liability company, title to such shares and interests is usually held by a minor, and managed by a custodian, in accordance with a state’s Uniform Transfers to Minors Act (or Uniform Gifts to Minors Act if the newer uniform statute has not been adopted in that state).[5]
That a minor can legally own a business interest or act as a director, officer, or manager of a corporation or limited liability company does not mean that issues related to the person’s age will not arise. For example, minors are generally viewed as not having the capacity to contract.[6] As a result, contracts made by minors are voidable at least during the period of minority.[7] (Note that there are special rules in California relating to certain contracts between an unemancipated minor and a third party in the fields of art, entertainment, and professional sports.)[8] If a minor might be able to simply disaffirm any contract that proves to be unfavorable to his or her business entity, then other parties would be leery of entering into contracts with minors even if they were ostensibly made on behalf of the entity.
With regard to the internal workings of a business entity, directors and officers of a corporation, and members and/or managers of a limited liability company, owe fiduciary duties to the entity. For example, a director of a California corporation must perform his or her duties “in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.”[9] Similarly, an officer of a New York corporation must perform his or her duties “in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.”[10] But minors are generally held to a standard of conduct expected only of a reasonable child of a similar age and situation.[11] That is not a universal rule, however. In California, for example, “[a]n exception to the general rule on a child’s standard of care arises where a minor engages in an activity which is normally undertaken only by adults, and for which adult qualifications are required,”[12] which would certainly seem to include serving as an officer or director of a corporation. Thus, there may be some confusion as to what standard of care applies to a minor serving as an officer, director, or manager of a business entity, and whether the minor can be held to account for failing to carry out his or her duties in good faith or in a reasonably proficient manner.
In sum, most states do not limit a minor’s ability to be an owner, director, officer, or manager of a business entity. But there are practical issues that should be considered before entering into any such arrangements.
[1]See, e.g., Cal. Corp. Code §§ 164 (“directors” must be “natural persons”), 200(a) (one or more “natural persons,” among others, may form a corporation), 17701.02(n), (p), (v) (managers and members of a limited liability company are “persons,” which include “an individual”), 17702.01(a) (one or more “persons” may organize a limited liability company); 6 Del. C. §§ 18-101(14) (“person” includes a “natural person”), 18-201(a) (one or more “authorized persons” may form a limited liability company); 8 Del. C. §§ 101(a) (any “person,” among others, can organize a corporation), 141(b) (“The board of directors of a corporation shall consist of 1 or more members, each of whom shall be a natural person.”).
[2]N.Y. Bus. Corp. Law § 401; cf. 805 Ill. Comp. Stat. Ann. 180/5-1(a) (“One or more persons, other than natural persons under 18 years of age, may organize a limited liability company[.]”).
[4]See N.Y. Bus. Corp. Law § 715 (dealing with officers of a corporation generally); N.Y. Ltd. Liab. Co. Law §§ 102(q), (w) (a “member” of a limited liability company is a “person,” which includes a “natural person”), 203(a) (one or more “persons” may organize a limited liability company).
[5]See 12A Fletcher Cyclopedia of the Law of Corporations § 5682.10 (Westlaw update through Sept. 2021); Cal. Prob. Code §§ 3900 to 3925; 12 Del. C. §§ 4501 to 4523; N.Y. Est. Powers & Trusts Law §§ 7-6.1 to 7-6.26.
[6]See, e.g., Cal. Civ. Code § 1556 (minors are not “capable of contracting”); 6 Del. C. § 2705 (“Any person who has attained 18 years of age shall have full capacity to contract[.]”).
[7]See, e.g., Cal. Fam. Code § 6710 (a minor’s contract “may be disaffirmed by the minor before majority or within a reasonable time afterwards”); Pearson v. Superior Court, 202 Cal. App. 4th 1333, 1338, 136 Cal. Rptr. 3d 455, 458 (2012) (contracts are generally voidable by minors in California); Kuehn v. Cotter, 77 A.3d 272, 2013 WL 5656205, at *1 (Del. 2013) (unpublished table disposition) (a contract with a minor is voidable); N.Y. Gen. Oblig. Law § 3-101 (when contracts may be disaffirmed on the basis of infancy); Scott Eden Mgmt. v. Kavovit, 149 Misc. 2d 262, 264, 563 N.Y.S.2d 1001, 1002 (Sup. Ct. 1990) (“An infant’s contract is voidable and the infant has an absolute right to disaffirm.”).
[8]See Cal. Fam. Code §§ 6750 to 6753. These provisions are sometimes referred to as the “Coogan Act,” after the actor Jackie Coogan. See Brad Smithfield, “Coogan Act,” The Vintage News (Oct. 29, 2016) (explaining the history of the Coogan Act). Relevant here, contracts of the type specified in the Coogan Act cannot be disaffirmed on the basis of the contracting party’s minority, “if the contract has been approved by the superior court in any county in which the minor resides or is employed or in which any party to the contract has its principal office in [California] for the transaction of business.” Cal. Fam. Code § 6751(a).
[9]Cal. Corp. Code § 309(a); see also Cal Corp Code § 17704.09 (fiduciary duties of members and managers of a California limited liability company).
[10]N.Y. Bus. Corp. Law § 715(h); see also N.Y. Ltd. Liab. Co. Law § 409(a) (same standard for manger of New York limited liability company).
[11]See, e.g., Hudson v. Old Guard Ins. Co., 3 A.3d 246, 250 (Del. 2010); Gonzalez v. Medina, 69 A.D.2d 14, 18, 417 N.Y.S.2d 953, 956 (1979) (a minor “should be held to a standard of care, judged not by the degree of care to be expected of an adult person, but rather by what is expected of a reasonably prudent child of that age, experience, intelligence and degree of development and capacity”).
[12]Prichard v. Veterans Cab Co., 63 Cal. 2d 727, 732, 408 P.2d 360, 363 (1965).