If you are an artist, producer, or songwriter someone along the way has probably told you that you need an LLC or at least some kind of official business structure.
This may or may not be necessary depending on where you are in your career. Here are 4 ways to know it is time in your music career to open an LLC, get a partnership agreement in place, or just keep doing what you're doing as yourself.
1. Are you doing business with friends?
Once you decide to go into business with others you want to have more than a handshake agreement regarding who is in charge of what, who receives payment for what, and how business will be done generally. All of these things and more are covered in a standard Operating Agreement governing an LLC. You'll want one that is specific to your business situation and not a Google/LegalZoom template because should something go wrong in the business, having a clear operating agreement in place reduces the tension that comes with resolving issues with friends and again protects you personally when running a business with others.
If you and your friends have a general idea or concept that you know will make money but you aren't sure the exact details, you aren't ready to launch just yet, you need to connect a few more dots? In this case a partnership agreement may make the most sense. There is no state filing required like an LLC. A partnership agreement is just a written record of whose idea was what, who all was involved, and how in a perfect world things would be run and revenue would be split. Everyone is friends until money gets involved or an idea you came up with somehow gets launched by associates that were involved in the concept years ago.
Cover yourself and handle business as business and get everything in writing.
2. Are you creating music for yourself or others?
This may seem like a pretty basic question but if you are producing and someone later adds an element to your track that is owned by someone else YOU could end up being sued for copyright infringement. If you are writing a song with other writers and someone else's portion is from another song YOU can still be sued for copyright infringement (a la TI getting slapped with a HUGE judgement for Robin Thicke's Blurred Lines). Do you get the theme here?
Any time you are creating with others you put yourself at risk for legal action for copying parts or elements. Having an LLC setup again protects you and your personal assets like your home and personal bank accounts in the event of lawsuit because the lawsuit will be versus the LLC and not you personally.
3. Is Music Paying Your Bills...or at least one of your bills?
LLC stands for Limited Liability Company and at the point you are generating enough business to pay a major bill or two it may be time to seek the legal protection a LLC provides. An LLC creates a legal barrier between your personal bank account/assets (that still may get checks from your 9-5) and the revenue/assets that purely come from your music business. If you are just getting your feet wet in the industry and are only making a hundred here or there you are likely in a safe enough space to continue to do business as yourself (this is called operating a "Sole Proprietorship") without incurring the cost or the paperwork it takes to launch an LLC.
Did your song land a major placement? Have you built a handful of consistent clients that buy your tracks or call you for studio sessions? Then, it might be time to consider starting to handle your business under an LLC.
4. Have you invested in your music career?
At the point you are investing a substantial amount in tech equipment like laptops, studio equipment, courses, software like InDesign or Pro-Tools to launch your business you are increasing the risk associated with your business and it becomes a good idea to go ahead and register your business an LLC. These investments can be counted as capital expenses related to building your business and in a Trump era business friendly tax environment it could help you to have these under an LLC.
The music business is scary...starting a business doesn't have to be. From partnerships to sole proprietorships subscribe and get a FREE DOWNLOADABLE GUIDE TO BUSINESS TYPES for starting your business.