AllHipHop.com has always been a website for news, music, entertinment and education, this ongoing series called IN-HOUSE COUNSEL will attempted to provide vital information to help up-and-coming artist s/producers to succeed in toda’s difficult music business world. To start this series, heres a scenario: Youre an artist who feels he (or she) has
some hot ish the industry and the world needs to hear. Problem is youve been trying for years to
get a record deal but these wack-ass A&Rs are showing you no love! Then it hits you Im going to start my own
record label and put my own music out!
Congratulations!! Youre about to become an entrepreneur and follow in
the footsteps of Jay-Z, Cash Money Millionaires and 50 Cent.
So whats the first step?
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. Its either hot or its 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 doesnt
necessarily need mainstream radio to create a buzz and sell records. The Street (i.e., DJs, 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
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 thats not a good
A Partnership is an association of two or more people conducting
business on a continual basis for profit.
Theres 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 doesnt – 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 doesnt, 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 youll 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, LLCs provide limited liability and
protection of the members personal assets while allowing the members to be
treated as a partnership for ownership and tax purposes.
I suggest that you set up either
a Corporation or an LLC if you are serious about setting up
a record label and get the advice of an attorney or accountant to help you set
one up properly.
For more information
Bob Celestin, Esq.