Do you want to launch your own record label but worry about the legal side?

Starting a label can be exciting, but it also comes with risks if you don’t have the right structure. Imagine facing debts or legal issues that could affect your personal assets. That’s a scary thought, and for a good reason. But it doesn’t have to be that way.

‍Choosing the right legal structure, such as an LLC, can help protect your label and ensure its growth. Today, we'll show you how to do it.

What Legal Structure Is Best for Registering a Record Label?

Choosing the right structure for your record label is crucial. Why? Because it will determine how you handle debts, taxes, and the growth of your label. The most common options are:

• Sole Proprietorship
• Partnership
• LLC (Limited Liability Company)
• Corporation

Each has its own pros and cons. Let’s break them down to help you decide which works best for you.

What Is a Sole Proprietorship?

It’s the simplest way to run a record label. You don’t need special registration or forms. If you start selling music, you are already operating as a business.

• Ownership and Operation: You are the owner. You are the business.
• Example: You upload your music to Spotify and earn royalties. All the money is yours, but so are all the debts.

Advantages: It’s simple and inexpensive. No complicated formalities.

Disadvantages: Unlimited liability. You are responsible for all debts. If your label runs into problems, so do you.

What Is a Partnership?

A partnership is when two or more people join together to run a record label. You don’t need formal registration to start. Just working together means you have formed a partnership.

• Ownership and Operation: All partners own the business together. Each partner shares profits, debts, and decision-making.
• Example: You and a friend decide to release music together and split the earnings. You are both responsible for the label's debts and profits.

Advantages:

• Combined Strengths: You can use each partner's skills and resources to grow the label.
• Simple to Set Up: Easy and relatively inexpensive. No major paperwork.

Disadvantages:

• Unlimited Liability: Each partner is personally responsible for the label’s debts. If your partner makes a mistake, you could also be liable.
• Dependency: Your label depends on the partners. If one leaves, it could disrupt the entire business.

What Is a Corporation?

A corporation is a formal type of business structure that separates the business from the owners. It gives you strong legal protection, which is great if you want to grow big and bring in investors.

• Ownership and Operation: The label is owned by shareholders. Shareholders elect a board of directors to make big decisions.
• Example: You start a label and bring in investors to help it grow. The investors own shares, and you all share in the profits.

Advantages:

• Protection from Liability: Owners (shareholders) are not personally responsible for the label's debts. Your personal assets are safe.
• Access to Capital: Easier to get funding because you can issue shares.

Disadvantages:

• Complex and Costly: Creating a corporation takes more time, paperwork, and money.
• Double Taxation: The corporation pays taxes on profits, and you pay taxes again on the dividends you receive.

What Is an LLC, and Why Is It the Best Choice for Most Record Labels?

An LLC (Limited Liability Company) gives you a big advantage: personal protection. What does this mean? If your record label has debts or legal issues, your personal assets—like your house or car—are protected. The LLC acts as a shield, keeping your personal life safe from business risks.

• Formation and Registration: You need to register the LLC with the Department of State and pay a fee. It’s more formal than a sole proprietorship, but it’s worth it if you want protection and credibility.

Advantages of an LLC:

1. Personal Protection: You’re not personally affected if the label faces debts or lawsuits.
2. Tax Flexibility: You can choose how to be taxed, which often means paying less.
3. Credibility and Professionalism: Operating as an LLC makes your label appear more established, which can help attract artists and partners.

Example: Let’s say you run a record label with several artists. You want to make sure that if something goes wrong—like a contract dispute—it won’t cost you your personal savings. An LLC helps protect you from these types of risks, making it a safer and more professional way to operate.

Why an LLC Is the Best Option for Most People:For about 90% of people starting a record label, an LLC is the ideal choice. It offers a great balance of protection, simplicity, and flexibility. It keeps things easy without the heavy complexity of corporations, and it’s more affordable to maintain compared to other structures. It’s perfect for independent labels, creative projects, and growing your brand with some security.

What Is the Best Structure for My Record Label: LLC, DBA, or Corporation?

• DBA (Doing Business As): This lets you operate under a different name. No legal protection is provided. It’s mostly for branding purposes.
• LLC: Best for protecting your personal assets, keeping taxes simple, and maintaining professionalism. Ideal for labels working with artists but not looking for big outside investors.
• Corporation: This is more for labels planning to expand significantly and bring in many investors. It’s much more complex and costly but allows for rapid growth and raising a lot of money. This type of structure is more suited for tech startups or businesses needing big venture capital investments.

Example: If you're just starting out with a few artists, and you want to keep things secure, an LLC is perfect. It provides the protection you need without overwhelming you with bureaucracy. On the other hand, if you have a vision of becoming the next major player in the industry and want investors involved, a corporation might make more sense—but it’s often overkill for a small or medium-sized label.

How Can I Create My LLC for a Record Label?

With Flou, creating an LLC for your label is easy and fast. Just follow these steps:

1. Choose a Business Name: We help you make sure it’s available.
2. Complete Basic Information: Answer a few questions about your label.
3. Wait for Approval: Once approved, we’ll upload your documents. That’s it!

Flou is the legal solution you need to create your record label the right way. We help you set up your LLC and provide access to all the music contracts you need, e-signatures, and more. Start today with Flou and protect your label the right way!