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How to Grow an LLC for Music Artists & Record Labels



Some new students of the music game love to start with multi-million-dollar company structures.

But their ambition often falls prey to misinformation and fear on the internet about what one truly needs to succeed.

With no prior experience running even a single-member LLC or a DBA, newcomers are diving into treacherous waters.

So you look to the multi-million dollar structure because it makes you feel confident and secure.

While there's nothing wrong with feeling secure, it's crucial not to overwhelm oneself. Wasting time and resources on structures you're not ready for can delay the actual growth you're striving for.

I feel that you want to feel like a boss at the beginning. However, I can tell you it's hard enough trying to run one LLC efficiently, let alone two.


Level 1: Single Member LLC

Start small and smart with a Single Member LLC. This structure is your business nursery. It's where all key operations - from payroll to royalty collections - live. You'll also house your copyrights (for both sound recordings and compositions) here, manage your merchandise operations, design copyrights, touring contracts, and even small brand deals. It’s the core structure, laying the foundation for your budding business.


Level 2: S-Corp ($160,000 Gross)

Once your company's gross income hits $160,000, or you're ready to consistently pay yourself a 'reasonable' salary, it's time for a change. The next step is to upgrade your LLC to an S-Corp. This not only provides better tax advantages but also allows for more intricate shareholder structures and enhanced credibility in the business world.


Level 2.5: Copyright Holding Company

As money begins to flow, the next step is to mitigate risks. You'll want to transfer your copyrights (both music and merchandise designs) to a separate LLC. This 'Copyright Holding Company' shields your intellectual property. It separates the day-to-day operations of your music business from your precious copyrights. This way, you secure your music and creations, protecting them from any potential business losses.


Level 3: Merch Company

Your merchandise operations can bloom quickly once you're established, and it might become your first hiring ground. So, it's important to carve out a separate Merch Company. This independent entity will handle production, distribution, sales, and other facets of your merchandise business, allowing you to scale efficiently while keeping things organized.


Level 4: Entertainment Company (Touring)

Once your touring business begins earning $1,500 - $2,000 per show consistently, you'll need to establish a dedicated Entertainment Company for shows. By doing so, you're essentially separating the potential liabilities associated with live performances from your recording and merchandise businesses. This separation helps mitigate potential legal and financial risks that can arise in the complex world of live performances.


Level 5: Brand Deals Company (Optional)

Finally, there's the Brand Deals Company. This entity is not necessary for everyone but becomes important when dealing with high-value brand partnerships. By creating a separate structure for these partnerships, you isolate the risk from your other business assets, keeping your core businesses protected. This structure only becomes necessary if the brand deal is significant enough to warrant extra protection and separation.


A Bit of Advice

Through these steps, you can gradually and effectively build your music business, managing risks while also setting the stage for growth and success. Remember, it's all about taking one step at a time.


Isn't starting an LLC complicated and expensive?

It might seem daunting at first, but starting an LLC is a straightforward process. The cost varies from state to state but is generally affordable. Remember, the initial investment is worthwhile for the legal protection and credibility it offers to your business.


Is it necessary to transition to an S-Corp when hitting $160,000 gross?

Transitioning to an S-Corp is suggested at this point due to the potential tax benefits and flexibility in the ownership structure it provides. However, everyone's situation is unique. Always consult with a financial advisor or tax professional before making such decisions.


Can I handle all these different business aspects by myself?

While it's possible to manage these entities on your own, especially in the early stages, it can become complex as your business grows. Don't hesitate to hire professionals or delegate tasks to skilled team members. After all, your primary focus should be on creating great music. Building a supportive team around you can help your business run smoothly while freeing up your time to do what you love.



Check This Out!

If you're a music creative or executive looking to build your label or publishing company in 60 days or less, grab the 60-Day Record Label Course and get it done today! You’ll gain the ability to get real funding, avoid contractual pitfalls, and keep the middleman out of your pockets. Click the link below to get started now! If you’re skeptical, grab the free guide, "10 Ways to Increase Your Record Label Profits," which comes with a free split sheet download.


Getting this right

Embarking on this journey armed with knowledge brings you numerous advantages. By applying this structured approach, you'll enhance the legal protection for both your operations and intellectual property. You'll gain better control over disparate aspects of your business, fostering financial and operational efficiency. The crucial act of separating different components of your business also helps to lower your overall risk profile. Plus, potential tax benefits can be realized when transitioning to an S-Corp structure at the right time. With these actions, you're setting the stage for an organized business structure that's primed for growth and success.


Doing this the wrong way

On the flip side, failure to adhere to this guidance could lead to several setbacks. Without separating the distinct areas of your business, you expose yourself to increased risk - a downfall in one aspect could impact all others. You could miss out on significant tax advantages that proper business structuring can provide. The absence of an organized approach can also lead to increased complexity and confusion, making it harder to manage your business operations effectively. Ultimately, this could hinder your journey to becoming a successful player in the music industry.


Conclusion

At the beginning, our character was an aspiring musician, overwhelmed by the intricacies of the music business. Now, armed with a step-by-step plan, they stand ready to navigate the music industry, protecting their work while setting the stage for success.

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