Incorporating a Record Label: Everything You Need to Know
The exact steps you'll take to start your own record label depend on the state you're in.3 min read
2. Deciding on a Business Entity
3. Pros and Cons
Incorporating a record label involves the following steps:
- Selecting a name for the label
- Choosing the right business structure
- Obtaining necessary permits and licenses
- Obtaining adequate insurance
Starting Your Own Record Label
The exact steps you'll take to start your own record label depend on the state you're in. Each state has different requirements, although they tend to have many similarities. You can usually complete an application to create a business within a few hours, especially if you have help from a professional.
To start your own independent record label, you'll have to register the business in your jurisdiction. Joining the right industry organizations will increase your chances of success. It will involve a substantial time investment. You'll also have fees to pay, but all of this is necessary to legally operate a business and protect yourself.
Deciding on a Business Entity
You can legally operate a recording business alone as a sole proprietor, but there are other business structures that provide personal liability protection. The business structures that give you this protection require more time and effort to run. In general, you'll have more complicated tax returns to complete and you'll have to file yearly forms with the state. Weigh the additional time you'll spend maintaining the business with the personal risks involved if some type of liability occurs.
Decide on the type of incorporation you want for your record label, such as the following:
- Sole proprietorship
- Partnership (limited or general)
- Limited liability company (LLC)
Each business type has its pros and cons.
Sole proprietorships are simple and inexpensive to run. You're responsible for paying income tax on your earnings, but the biggest concern is the personal liability you incur for your business debts.
In a partnership, two or more people come together to run the business. Partners generally agree to split profits and losses based on an agreed-upon percentage. They should refer to their partnership agreement for how the company is run on a day-to-day basis, as well as everyone's duties and procedures for handling disputes. Partners pay taxes on their share of business profits. You should only enter into a partnership with people you trust.
A limited company or corporation is a legally separate entity from its owners. The owners own shares in the company. Corporations pay taxes on their profits and dividends to their shareholders.
Pros and Cons
The main advantage of forming most business types is the limited personal liability the owners enjoy. In the event the company was sued for a substantial sum, your personal liability wouldn't be more than what you invested or any outstanding amounts on any share capital.
Potential downsides include filing yearly audited accounts and possibly having to hire professionals to handle tax issues and other paperwork so that you have time to actually run the business.
The legal structure you choose may depend on the following factors:
- Your projected involvement in the company
- Tax issues
- The size of your company
- The extent of personal liability
Initially, you may want to start with an LLC since this business type is easy and relatively inexpensive to establish. Once you've achieved a certain level of success, you may want to change to a corporation.
Depending on your state, the cost of incorporating a business may be as low as $100. You can often do this yourself, or you can hire an attorney to create the business for you if you need help with the process. For sole proprietorships and partnerships, you'll usually register with the city or county. For LLCs and corporations, you'll file with the state.
A helpful resource for business owners is the Small Business Administration. Depending on the business structure you choose, you'll file formation documents such as an Articles of Incorporation with the state. Once the state approves your application and receives all necessary fees, your record label is official.
You can start out small if you want to create a record label. As your company grows, you may consider changing your business structure to better meet your label's needs. Having personal liability protection and adequate business insurance is important for protecting your valuable assets in the event of lawsuits and damages.
If you need help with incorporating a record label, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.