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IN-HOUSE COUNSEL: Setting Up Your Label

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, here’s a scenario:  You’re an artist who feels he (or she) has

some hot ish the industry and the world needs to hear.  Problem is you’ve been trying for years to

get a record deal but these wack-ass A&R’s are showing you no love!  Then it hits you – “I’m going to start my own

record label and put my own music out!” 

Congratulations!! You’re about to become an entrepreneur and follow in

the footsteps of Jay-Z, Cash Money Millionaires and 50 Cent.

 

So what’s 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.  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.

 

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

contact: 

 

Bob Celestin, Esq.

racinfo@nyct.net

http://www.raclawfirm.com

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