Starting a Company When You're Under 18
Youth Entrepreneurship is something super close to our hearts here at Mazuma. Our founders started Mazuma at just 23 years old and we love it when we see a new client starting a business at a young age. This week we had a call from a young entrepreneur who has just started their Limited Company at age 16 and that got us thinking we should put a quick blog together with what to watch out for.
Can I start a Limited Company If I’m Under 18?
Yes! It’s perfectly legal to set up a limited company if you’re over 16. Setting up a Limited Company is a major responsibility regardless of your age though, so you need to be sure it’s the right option for you and look into the responsibilities of a Director on HMRC.
You should also check the set up of Limited Companies in contrast to being a sole-trader, to ensure the tax implications suit the type of business you’re looking to start, and how much turnover you might be expecting. If you’re unsure of the differences you can take a look at our quiz here.
Can I Set Up a Business Bank Account If I’m Under 18?
Kind of… This is probably the most difficult aspect of starting a business if you’re only 16.
It’s a legal requirement for every Limited Company to have it’s own bank account. Unfortunately, a lot of Business Banks don’t allow you to set up an account if you’re not 18 years old. It is possible to open an account if one of your other directors is over the age of 18 but they’ll have to be the main contact. So, if you’re the only director you might have to shop around for a bank that will specifically allow for you to be under the age of 18.
The other things you’ll need to be aware of when opening a bank account is that the bank will likely require the following:
- Proof of address
- A credit check
As a 16 year old you may not have much in the way of identification yet. You may be able to use something such as a passport, a provisional driver’s license or a personal bank statement but if you’re not living alone you may not have any bills with your name on yet.
If you’re only 16 you might also not have a credit score yet. Credit scoring is based on lots of different factors including being on the electoral role. This might seem like an odd choice as you won’t be able to actually vote in elections in England until you’re 18 but you can register at 16 or over (or 14 and over in Scotland and Wales). If you’re in Scotland or Wales you may be able to vote in some elections from 16+. Credit is also based on your use of financial products such as credit cards (which again you can’t use until you’re 18!). Ensure that if you have personal banking or a phone contract that everything is paid on time and you don’t dip into any unarranged overdrafts.
These points are unfortunately quite limiting, so we’d recommend shopping around with plenty of banks and checking which one can offer a bank account to you.
Can I add one of my Parents to My Limited Company?
A common question young entrepreneurs have is if it’s helpful to add one of more of their parents to their Limited Company as a Director. This has some benefits and drawbacks.
Banking: It will certainly be easier to open a bank account if you have at least one director who is over 18. They’ll need to provide the same points above but will likely find it easier to get their ID and credit in order.
Having another party involved in business set-up is also helpful to share risk and to get another set of eyes on your plans.
If you’re adding in another director they also have a degree of control and responsibility for your business. Depending on how you allocate shares, they could take dividends from the business and share in the profits. They’ll also be a major decision maker in your business which might not be what you want long-term.
Regardless of who you chose, if you’re adding another director or shareholder it’s always advisable to put together a clear agreement between all parties. This should detail the shareholdings, decision-making process and any exit planning for when you would like to remove them from the business or should the business close.
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