May 15, 2017

How to Do Business with Kiddie Entrepreneurs

Jenna Nand

In 2017, 10-year-old Bishop Curry V invented a device that protects children stranded in hot cars from dying of heatstroke. This feel-good story received national news coverage as an example of our youth saving the world through STEM education. Bishop is now reportedly seeking a patent for his intellectual property and marketing the design to automakers.

From international youth robotics competitions to kiddie hackathons, leaders in the tech industry are eager to leverage the marketing potential of partnering with children. But once the photo ops are finished and news crews depart, what are the ethical considerations of engaging in business deals with minors? And how should lawyers navigate their own ethical obligations in the attorney-child-client relationship?

This is a touchy subject as it is a widely accepted tenet that contracts with youths are voidable by the minor party. That is, no matter how ironclad a business agreement, the child can generally use age as a loophole to get out of it. (Some state laws have niche exceptions to this rule for child entertainer contracts.)

Some entrepreneurs (and lawyers) may think that an easy solution to the voidability problem is simply contracting with the legal guardian in the child’s stead. After all, money earned by children, as a rule, belongs to their guardians if they are minors. Of course, not all guardians are responsible or honest with their children’s money. You may recall the famous case of child actor Gary Coleman, who, as an adult, sued his parents for the $1.3 million that they looted from his earnings when he was a child.

Rather than direct the funds generated to the adult in the child entrepreneur’s life, an attorney could incorporate a business entity (such as a limited liability company), designate the legal guardian as a governing person of the entity, but place the entity’s shares into a trust. In this scenario, the legal guardian owns the entity and is the grantor of the asset, the child is the beneficiary, and the attorney or another responsible fiduciary could opt to act as the trustee until the child reaches adulthood. This would interpose a fiduciary between the legal guardian and the child’s earnings until the child could take control of the business. This would require the cooperation of the legal guardian, who would most likely retain the attorney in this scenario.

The adult seeking to do business with the child (and the lawyer managing the transaction) could now contract with the business entity rather than the child or the legal guardian directly, avoiding the voidability problem and ensuring that generated profits ultimately end up in the child’s hands.

As more tech-savvy children seek to solve the world’s problems before they can legally drive, savvy lawyers can help protect the money that kids earn until they can responsibly manage it.

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Jenna Nand

Jenna Nand is a business lawyer in Seattle, Washington.