Kids and coding seem to go together like a horse and carriage – except I doubt that tech-savvy teens would even know what a carriage was.

Entrepreneurs are getting younger by the day as online tools open children up to idea and business creation at a much younger age. Robert Taylor, consultant IP and media solicitor at Cubism Law and Angela Jack, senior associate at IP firm EIP examine what the legal implications of setting up a company at this stage are.

Increasingly youngsters are making the leap from the bedroom to the boardroom. In March 2013, Nick D’Aloisio, a 17 year-old from London sold Summly to Yahoo for a reputed $30 million. Similarly, at the age of 14, Grant Goodman has already set up his own business and won an Apple Scholarship, not to mention the new cohort of Youtubers like Dan Howell, KSI and Tanya Burr.

So if your teenager has a great idea and you want to support them to turn it into a business – what do you need to know?

Corporate structures

‘Most start-ups in the UK are formed as limited companies or less often LLPs (limited liability partnerships). This is with good reason, as they establish the ownership and control of the business and are easily expandable or transferable,’ says Taylor. ‘So the first step if you think your child’s idea has genuine commercial prospects would be to set up a limited company.’

He adds, ‘Under 16s cannot become directors of limited companies in the UK, which means an adult will have the legal responsibility for the company.

‘Over 16’s can be appointed as directors – but running a successful business is not necessarily the same skills base as developing apps and you should think carefully about what your child’s business needs to succeed.

‘Most teenagers will need the support of those with established business experience, so it is probably a good idea for the majority of the board to be adults.’

‘Children can hold shares in a company – although you should check the articles of association in case these contain a restriction,’ Taylor continues.

“It is not necessarily a good idea for your child to own the shares directly as it can cause problems if the shares need to be sold”

He adds, ‘It is often preferable for an adult to hold the shares as nominee for the child. This means the adult makes the decisions, exercising voting rights or to sell the shares, but any benefit still goes to the child. A more advanced structure would be to hold the shares through a trust company.’

Children and contracts

‘The general rule is that minors (under 18 in the UK) do not have contractual capacity, therefore a contract made with a minor is voidable at the minor’s option while they are under 18 or until a reasonable time afterwards,’ says Taylor. ‘However, many of the contracts which a minor may get into would be considered service contracts for the benefit of the minor and these are not generally voidable – Chaplin v Leslie Frewin (Publishing) Ltd [1966] Ch 71.’

He continues, ‘In practice this means that children are dealt with in the same way as adults. However, the business reality is that investors or buyers will expect contractual certainty and will demand parents act as guarantors if they are not directly involved in the business themselves.’

More on aspiring young entrepreneurs:

• Starting up a business with your university dorm mate
• Education entrepreneur George Burgess’ battle to bring tech to classroom
• Nurturing a new generation of British entrepreneurs

Intellectual property

‘There is nothing to prevent a child owning intellectual property. For coders copyright law is the most relevant, although you should consider patenting if your child has invented something and trademarks to protect your brand,’ says Taylor.

He continues, ‘Copyright arises on creation of an original work (computer code is considered to be a literary work for these purposes) and is held by the creator for the term of their life plus 70 years. In the UK, there is no requirement to register copyright. Copyright is assignable or licensable by contract – however we get potentially into the same problems of whether the contract is voidable as discussed above.

‘Patenting is a complex area and it is important that patent applications are drafted properly. Anyone considering applying for a patent should seek advice from a patent attorney,’ says Jack.j

Trademarks and passing off

‘The law does provide some protection against someone adopting someone else’s brand name or get up and passing the goods off as the real thing but trademarks provide much better protection,’ Jack says.

‘So, if branding is important for your child’s new business, then consider obtaining trademarks. This is a cheaper and more straightforward process than obtaining a patent and trademark attorneys can help with this.’

‘Investors will want to be sure that a clear chain of title exists transferring rights from your child to the company, so it is worth taking advice on this and making sure legally binding contracts are drawn up,’ says Taylor.

Databases

‘Databases may also qualify for automatic database rights under European law and these rights protect against substantial amounts of data being extracted from the database,’ says Jack.

Patents

It is crucial that the invention is still new at the date of the application.  Jack says, ‘Tempting as it is to shout a great idea from the rooftops, the idea should not be disclosed to anyone before the application is made unless confidentiality is first established (for example under an NDA (non-disclosure agreement)).’

She adds, ‘Anyone can apply for a patent but it will only be granted to the inventor or someone who has obtained the rights to the invention from the inventor.’

Employment

Under 14s cannot be employed in the UK, unless under local bye-laws. School-age children cannot work for more than two hours on a school day or a Sunday. ‘Whilst this is not likely to be a problem for ‘hobby’ based businesses, if you are moving out of the domestic environment you should consider the potential impact on the business as it grows,’ says Taylor.

Conclusion

Kids can be the creative driving force behind a successful business, but to maintain that success most youngsters will need advice and support from those will the ability and experience to make the business grow.

Watch the video on the 10 mistakes made by teen entrepreneurs