The following is an excerpt from “Hack the Music Business” by Dave Kusek
As a note, I’ll be referring to your band, or group of musicians you frequently collaborate with, as your internal team. Not all musicians will have a “band.” A songwriter may have a lyricist she works with, a solo performing artist may hire musicians to back his live show, and a recording artist may frequently work with a certain producer or engineer.
If you have a band, it is a little easier to function without outside help because you can distribute responsibilities among each member. As you grow, you can hire outside team members like a manager or agent as you need them. Assess your situation and determine whether or not hiring a team member will benefit your business. When growing responsibilities start to draw you away from your core product, or require you to perform tasks outside your core competencies, it may be time to expand your team.
Your music is a business, and like any other business you should get organized as a legal business entity. Many bands and musicians don’t see themselves as a legal business like
Google or Southwest Airlines, but you are providing consumers with a product (your music), and/or a service (performances) just like any other business.
Organizing yourself into a legal entity will make money easier to manage and make you appear more legitimate to outside parties.
There are several options for structuring and organizing your business:
1. The basic legal entity is the “sole proprietorship.” This type of business is conducted by one person who is the sole owner in the company. Sole proprietor might be best for songwriters or session musicians who work alone without a band. This could also be a good option for a group with a “leader” who hires the band members as employees because it gives all ownership and decision making power to the leader. Sole proprietorships are very easy to set up since there is only one owner, and there are no complicated contracts or forms you must fill out. However, as a sole proprietor, your personal assets are at risk if you ever get sued.
2. The most common business structure for musicians is a “general partnership.” In a partnership, two or more people conduct a for profit business as co-owners.
This type of business is best for teams in which two or more members have divided ownership or decision power. To create a partnership, you need to write up a partnership agreement that details the rights and responsibilities of partners. The partnership agreement is very easy to set up and there are little cost associated with formation. Like sole proprietorships, your personal assets are at risk if you ever get sued. Additionally, a partnership is dissolved if one of the partners decides to leave.
3. A corporation is a business entity separate from its owners. This means that a corporation can do everything a person can do including owning property. A corporation can keep on existing even if one or all of its original founders leave. Corporations are a more complicated legal entity that are best for musicians with solid income and big teams. They are more costly to setup, requiring fees and documents. But the advantage of a corporation is that your personal assets are protected in the event of a lawsuit.
4. In order to get the best of both worlds, many musicians opt for an “LLC” or “Limited
Liability Corporation.” LLCs combine elements from the partnership and the corporation.
They’re pretty easy and inexpensive to set up, but still provide owners with protection of their personal assets.
|About the author:
|Dave Kusek is the founder and CEO of Berkleemusic.
Winner of the award for the Best Online Course eight years in a row from the University Professional & Continuing Education Association. Kusek taught music business at Berklee College of Music for 14 years and worked with thousands of musicians to help shape their careers.
Co-writer of the best-selling music business book, The Future of Music: Manifesto for the Digital Music Revolution (Berklee Press) with co-author Gerd Leonhard.
Kusek is currently founder and CEO of New Artist Model, an online music business school for musicians.
IF YOU ENJOYED THIS POST, GET UPDATES ...it's FREE.