Setting Up A Label

Well, since this is the “music” – “business”, you need to have two (2) things: (1) Hot Music! and (2) your “business” needs to be right!



Having hot music should speak for itself. It’s either hot or it’s not! Notice that the above-mentioned examples of music entrepreneurs all happen to be rappers. There is a reason for that. Hip-Hop is a music genre (along with dance/club music) that doesn’t necessarily need mainstream radio to create a “buzz” and sell records. The “Street” (i.e., DJ’s, mixtapes, and the Internet) can help drive sales of your record without mainstream radio exposure. R&B artists have a bit more difficulty because radio airplay is needed to sell units and hiring independent radio promoters to get an R&B record on the radio can be very costly.



Getting your business “right” is the next most important thing to consider. There are four (4) types of business entities that you can use to get your record label up and running. You can operate your record label as either a: 1) Sole Proprietorship, 2) Partnership, 3) Corporation or 4) Limited Liability Company.



With a Sole Proprietorship, the business is run by one person who is also the owner. It is easy to create by going to the local county courthouse and filling out some simple forms such as a “DBA” (“doing business as”) with the fictitious name of your company. The big disadvantage with a Sole Proprietorship is that if you get sued and you lose, the judgment creditor can recover against both your business and personal assets (there goes that “Jacob” watch!!) and that’s not a good look!



A Partnership is an association of two or more people conducting business on a continual basis for profit. There’s usually a written partnership agreement that outlines the duties and responsibilities of each partner. Big disadvantage: Each person in the Partnership is responsible and liable for the business obligations of the Partnership incurred by any of the partners. So if your partner signs a contract to pay a record producer to produce a song and doesn’t - all of the partners are responsible for the payment. If the Partnership fails to pay the Producer, he can sue all the partners and if he wins, the personal assets of the partners can be taken but only after all the partnership assets, if any, have been taken (there goes the Maybach!). Again, not a good look especially if your partners are irresponsible.



A Corporation is a better look. A Corporation is a separate legal entity with a life apart from the people who own and operate it. Using the earlier example, if a Corporation enters into an agreement to pay a record producer and doesn’t, the producer can sue the Corporation and if the Producer wins only the assets of the Corporation can be taken but not the personal assets of the individual owners of the Corporation (you get to keep your house!). There are also significant tax advantages to creating a Corporation.



You can incorporate a company by filing an “Article of Incorporation” with the Secretary of State Department in the state where you’ll be doing business (check the Internet for companies that can assist you) or you can retain the services of an attorney to incorporate the company for you.



Finally, a Limited Liability Company (“LLC”) is a business entity that has the elements of a Corporation and a Partnership. In an LLC, the owners (members) are parties to a contract known as the “Operating Agreement” which outlines the rights, duties and rules of the LLC. As with a Corporation, LLC’s provide limited liability and protection of the member’s personal assets while allowing the members to be treated as a partnership for ownership and tax purposes