Starting your Business in the Music industry

You will need to get a business license for your band once you start performing. The type of license that you will need or want can vary however. This decision could be made for you, depending on the number of people in your band and the way it is set up, but otherwise you and you band members will have to make a choice. There are three basic types (there are more, but understanding these three will give you a good starting point) of licenses you could apply for: a corporation, sole proprietorship and partnership. Each one has different pros and cons and which one will work best for you will depend on your particular situation.

We'll start with a sole proprietorship. This type of license would mean that only one person owns the business and basically, according to government laws, they are the business. This type of business license would work great for a one-man-band or a soloist. If this is the type of business license that you are looking for, be aware that because of it you will be the owner and the business itself. This means that if the business goes under, so do you. Your and your businesses finances are now the same and are on the line when things head south.

Moving on to the partnership, you will see that is very similar to a sole proprietorship. The main difference is more people own the business, rather than just one person. This is where most bands will start. It essentially means that each member is equally liable for anything that goes on with the business. One thing to watch out for when dealing with the type of license is that one person's signature can bind your entire band to a commitment. It doesn't take the whole band to sign anything for it to be legal and binding. This is because you are all equal owners of the band and thus, as an owner, you have power to decide the future of the business. This can cause problems among band members if everyone is not on the same page. The other thing that can happen is if the band defaults on a contract or an obligation, everyone in the band is responsible. Even if it was only one person messing up, everyone pays. Also if the band falls apart and breaks up, each member is still considered a part of that business and can legally use the name of the business later on.

A lot of the problems listed above in connection with the partnership can be avoided by creating an inter-band contract. Many bands feel like they trust and respect everyone in the band and making them sign a contract would be a slap in the face. This simply isn't true. Putting a contract into place to ensure that if someone leaves the group, they are giving up their ownership in the business, is just being a good business. Other things that you may want to consider including in the contract with your other band members is allowing only one person to sign anything for the band. This means that only one of the members is allowed to sign or pay for studio time or scheduling gigs or concerts. This will simplify things, however, it will not remove any liability from the other members. They are still owners in this business. It only will ensure that things are being passed by the other members before the entire band is committed so something.

Both of the options that have been listed so far put a lot of your own personal assets on the line. If that is too risky for you, there is one other option. This option would be the corporation. This type of business will allow only those assets connected to the business to suffer. So if the band is sued and must come up with a couple hundred thousand dollars, and you don't have it, you will still get to keep your house. Only the business will take the hit. There are a few catches to the corporation however. One of these is the management and tax situation you may find yourself in. A corporation takes a whole lot more time and personnel to manage and you will find your business in a whole different tax bracket. Something else you will find out about a corporation is that the band will work for the corporation, not on its own. That means that only the manager of the corporation can sign contracts and deals. This is why you will often hear a corporation in the music industry called a “loan-out.” Essentially the corporation will be loaning the band to whoever it is that would like hire them. It takes a lot of responsibilities away from the band itself, but places it all on the manager of the corporation. This also puts all of the power of binding the band to different commitments in the hands of that manager.

Sometime a corporation just doesn't make sense when you look at the size or abilities of your band at its current state, but you also don't want to put everything you own on the line for the band. When that is the case there are several different options that will combine different aspects of the business models listed above and create more options for you to look at. Limited liability partnership is one such option. This will basically give you the set up of a partnership, without putting everything from all of the members on the line.

With all of the options available out there, it can be confusing to figure out which type will work best for your band. You should never hesitate on consulting a lawyer who knows the entertainment industry to make sure you understand all of the facets of each business type. This article should give you a pretty good starting point however.