Should a Musician Form an LLC: Everything You Need to Know
Should a musician form an LLC? In most cases, the answer is yes; musicians can benefit greatly by forming an LLC.3 min read
Should a musician form an LLC? In most cases, the answer is yes; musicians can benefit greatly by forming an LLC. With an LLC, a musician can receive limited liability protections and will also be able to more easily resolve disputes with band members.
Musicians Registering as a Business
If you've decided to embark on a career as a musician, it is important that you have some familiarity with the difficulties that come with running a legitimate business. Successfully working as a musician is a full-time job and should be treated as such.
When you get paid to play music, you are a business, and you must register in the state where you live and work. To understand why musicians should register as a business, let's discuss a worst-case scenario. Imagine that you get hired to provide the music at a wedding reception taking place at a country club. Before your performance, you need to connect your equipment to an electrical outlet that is far enough away that you must use an extension cord.
Now, assume that you have draped the extension cord across a walkway and that it causes one of the wedding guests to fall and injure themselves. Later, the injured person decides to file a lawsuit against your band. If you haven't registered your band as a business, you and your bandmates can be held personally liable for the injury. This means that if you lose your lawsuit, the court can pursue your personal assets such as your home or bank account to cover damages. On the other hand, if you have registered as a business, your band will be held liable instead of yourself.
What Type of Business Should You Register As?
If you've decided to register your band as a business, you will need to decide which business entity best meets your needs. In general, musicians can form either a limited liability company (LLC) or a corporation.
Forming one of these business entities can help you resolve important issues related to your group. If your band performs original music, for example, you would need to decide who owns the rights to your songs and what would happen if a band member decided to leave the group. There are several other questions that can be answered when registering your band as a business:
- Who owns the name of the band?
- How will money paid to the band be distributed among the members?
- Who is responsible for maintaining expenses?
If you're having trouble deciding which entity type is right for your band, you should consult with a knowledgeable attorney.
Why Musicians Should Form an LLC
For most musicians, the most effective way of protecting themselves legally is forming a limited liability company. LLCs can provide a variety of benefits, including beneficial tax treatment and legal protections. An LLC can form with a single member or with multiple members, meaning both solo musicians and musical groups can choose this business structure. The best reason to form an LLC as a musician is protecting your personal assets from lawsuits involving your band. After forming an LLC, you could not be sued personally for a legal situation involving your band.
Another benefit of establishing an LLC is that it can allow you to formalize your band's relationship. For instance, although it is not required, most LLCs have an Operating Agreement, which is a document that defines the rules of the LLC, including the responsibilities of its members. You can use your Operating Agreement to help prevent disputes between you and your bandmates. In this document, you can set expectations for each of your band members and can also outline a policy for a member leaving the group. You can also decide if your band members will manage your band or if you will hire an outside manager.
Forming an LLC can also provide you with impressive tax benefits. You can use your LLC to handle all revenue related to your band, and you can access beneficial business tax deductions. Establishing an LLC for your band can also help you avoid paying self-employment taxes.
If you need help with determining should a musician form an LLC, you can post your legal needs 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.