If you own or operate a record label, forming an LLC offers you the best way out from all the legal and other complexities of your record label business. It provides you with much-needed asset protection on top of other multiple advantages.
Why and how to start a record label LLC?
The primary reason to form an LLC for your record label is to gain access to the protection of your assets offered by the structure of LLC. Either you operate a small record label company or own a significant record label with various clients. It would help if you always had limited liability protection offered by a limited liability company.
To understand its importance, take an example of a cover song that your record label has recorded. Unfortunately, neither the singer nor you had realized that you didn’t have the rights to record the cover of that particular song. As a result, your record label will likely be sued for violating the copyright of the original music. Again, it is where your LLC will help you, as it will protect your assets to fall into the hands of the party that has sued you.
However, as we have already stated, it is not the only advantage that a record label LLC offers you when it comes to your business; it is just the tip of the iceberg. Another significant benefit that record label LLC has to offer is taxation.
- Taxation on record label LLC
A record label LLC offers its owners a choice to select the way they want to be taxed. The owner of the record label LLC can then select the best way to decrease the payable tax compared to paying the total tax under an informal business entity.
Having your record label registered under an LLC will allow you to choose between getting taxed as a sole proprietorship or a general partnership. In addition, it will ensure that your business is not paying taxes itself. Instead, the profits will divide down to the members, who will then pay taxes on their income.
With a record label LLC, you can also choose to get taxed as an S corp. However, it is not a popular option for taxation as it subjects your business to what is known as double taxation. In double taxation, the LLC profits are initially taxed on a corporate level. Then once the profit is divided between the members, their income will be taxed again on an individual level.
Record label business license
A record label license is needed to operate your record label as a business and protect your record label from all sorts of infringements. Once you have applied for the license of your record label, upon the issuance of the license, you will also be entitled to having a trademark logo for your record label. You can then use this logo on your records and the events that your record label sponsors.
- How to apply for your record label license?
The county’s clerk office issues your record label license upon completing all the required documents. If your record label LLC is multi-membered, the required documents will also include an operating agreement for license application.
Here is the list of steps that you need to take to register your LLC and get a license:
- Name and Logo
As with all kinds of business, your first step towards registering your record label and applying for a license starts with choosing a name and a logo for your label. You will have to make sure that the title you are taking is not already registered in the USA, and your logo is also unmatched in the records.
It would help if you chose a name that perfectly describes your label and a logo that compliments the name of your label. You can check the availability of the word and the logo on the official website of U.S. Patent and Trademark, usupto.gov.
- Federal Tax ID
After choosing the name and logo for your label, the next step towards registering your record label is to obtain a federal tax I.D. You can get it from the revenue office, and after paying the fees for tax I.D., the revenue office will further guide you about the process of filing your label taxes. It is essential to understand the tax requirements, as failure to pay taxes will accumulate debts on your record label and ultimately lead to your record label’s closure.
If you directly employ people in your label, you would also need to apply for an EIN (Employer identification number) from the revenue office. An EIN is also for taxation purposes for the corporations that are employing people directly.
After completing the steps listed above, you would need to pay the fees and complete other minor legal documents that require your identification. Some states will also direct you to the secretary of the state’s website to make the process easier for you.
After you have completed the steps above, you would then need to wait for the state to dispatch you a legal document that will define your record label’s registration and define the terms to operate it.
Record label LLC or corporation
As we have discussed already, registering and operating your record label under an LLC will offer you more advantages than registering your record label under a corporation. LLC will protect your assets and make sure that your taxation is optimized and you bear fewer operating expenses.
However, corporations come with their advantages as well. For example, while a C Corp has to bear double taxation, S Corp is not subject to double tax, giving relief to the people opting for corporations over LLCs.
Here is the chart that explains the differences between an LLC and a corporation, and it will help you to choose between these two for your record label LLC:
| Entity | Taxation | Maintenance | Liability |
| Corporation | C Corp is subject to double taxation. S Corp, however, is a separate taxable entity, corporate profits among owners and corporation. | Regular meetings are required to maintain the status of the corporation. | Corporations do not offer solid liability protection to the personal assets of the owners. |
| LLC | Internal revenue service offers LLC to choose the way it wants to be taxed. | LLC is a legal entity with minor worries about maintenance and other formal recurring requirements. | LLC, as the name suggests, offers the best protection to the personal assets of the owners. |
Record label business structure
Record labels usually rely a lot on customers’ trust and recurring purchases. It is why record labels must keep good credibility, as it is the foundation of their business. Record labels that operate under an LLC get credibility and consumer trust due to their LLC. It is why LLCs are a time-tested option for record labels, and you shouldn’t consider any other option apart from an LLC for operating your record label.
Under an LLC, a record label operates with an operating agreement. This agreement defines how the label will conduct its business, profit division, and salaries for employees if there are any salaried employees. The operating agreement will also describe the role of each member and employee of the LLC.
FREQUENTLY ASKED QUESTIONS
This section discusses the frequently asked questions about the record label LLCs:
- Do you need an LLC to start a record label?
It is not mandatory to have an LLC to start your record label, as you can get it registered as a business entity without being under any corporation or an LLC. However, an LLC offers the best operating and legal structure for the record label business.
- How do I register a record label?
You can get your record label registered by filling out all the necessary details required by your county’s clerk office. It generally requires you to choose a name, a logo, and personal identification documents to register your record label.
- Should musicians have an LLC?
Musicians who want to have their record label should opt for an LLC as it provides the best legal and operational framework for their record label. It will ensure that their business is infringement-free and their assets are protected if any possible lawsuit arises against them. Furthermore, an LLC will also offer them multiple tax advantages.
- How do I turn my LLC into a record label?
You can have your record label operate under an LLC by first registering your record label and then having your LLC take ownership of it. Across the world, the majority of record labels are operated under LLCs due to the optimization structure offered by LLC for record labels.