You may be asking yourself whether starting an LLC is worthwhile for music producers and engineers. The truth of the matter is that it’s entirely up to you. However, there are several benefits of starting an LLC for music producers and engineers, which you should think about.
For music producers and engineers who conduct business regularly, there are several benefits to starting an LLC. Operating as a registered business adds legitimacy to your services. And, as a registered LLC, you limit personal liability associated with the company. There are also some tax benefits to starting an LLC for music producers and engineers.
There are a few choices available to you when looking to start your music production and engineering business. You could choose to form a sole proprietorship, partnership, LLC (limited liability company), or a C-Corp. Each business structure comes with its pros and cons. But, if you are conducting business as a music producer or engineer regularly, an LLC would be the logical choice.
Making the shift from selling your services as an individual to operating under a registered company can seem a bit daunting. There is plenty to be learned about the benefits of starting an LLC for music producers and engineers. But once you’ve done your research and know what to expect, you’ll be well on your way.
It is for this reason that we’ve put this short guide together. Below, we will highlight the benefits of starting an LLC for music producers and engineers. We’ll also cover a few tips on how to go about setting up your business.
A Closer Look at the Benefits of Starting an LLC for Music Producers and Engineers.
When you’re starting, you can get by as a sole proprietor with an EIN. This way, your clients pay you as an individual to your bank account. However, when your producing or engineering service starts generating revenue more frequently, it’s time to register your business.
You should also register as a business if you decide to partner with someone. And will look far more professional if you’re ever contracted to do work for a large organization. Either way, when it’s time to register your business, starting an LLC for music producers and engineers is the perfect option. Here’s why.
Personal Liability Protection
When you are operating as a sole proprietor, you conduct business under your name. While a sole proprietorship is less complicated to set up and run, it can place you in a vulnerable position. For instance, if your business incurs serious debt or is ever sued, you will be held personally liable.
In this case, you may endure personal financial loss if your business owes a sum of money you simply cannot afford to pay. As a sole proprietor, the state has the right to repossess your personal belongings to repay your debt.
But one of the benefits of starting an LLC is that your business is considered separate from yourself. In other words, should legal action be taken against the company for whatever reason, your personal assets would be protected. Your businesses assets, however, would be accessible to the authorities.
A registered corporation will indeed provide you with similar liability protection. But corporations are more costly and complicated to set up than an LLC. Another benefit of starting an LLC is that it’s the most straightforward type of company to register.
As the owner of a business, you would receive revenue and pay expenses through your company. You would then pay yourself a salary from the business.
As the sole member of an LLC, you will benefit from what is known as pass-through tax. This means that your business’s income and expenses will be recorded as part of your personal tax return.
You, therefore, avoid being taxed twice, as is the case with a corporation. The owner of a corporation would have to submit an income tax return for both the business and their personal capacity. The result is that the owner of a corporation would, essentially, be taxed twice.
When forming a business partnership with someone else, you could benefit from applying to be taxed as an S-corporation.
Some are under the impression that an S-corporation is a form of business structure. However, an S-corporation is, in fact, a tax classification. When operating as an S-corporation, you indicate to the Internal Revenue Service (IRS) that your business should be taxed as a partnership.
When forming a partnership as an LLC, you can choose to remain under the default LLC taxation system or apply to be taxed as an S-corporation. The S-corporation tax classification comes with a few benefits, which will see you paying less tax as a partnership than separately as individuals—having the option to approach your business tax in this way as a partnership is one of the many benefits of starting an LLC.
However, it’s crucial to remember that you’ll need to hire an attorney if you opt for an S-corporation tax classification. An attorney will help you with drawing up a legal partnership agreement and the filing of company documentation.
Validation of Services
Perhaps you are talented or fortunate enough to work with a large corporate organization. When working with a high-profile client like this, it is vital to present yourself and your company in the most professional manner possible.
Dealing with influential clients as an LLC rather than a sole proprietorship will make your business seem more legitimate and experienced. Clients will be more willing to trust you with their business because they will see you as someone who takes their business seriously.
Another benefit of starting an LLC is that it indicates that you are officially in business and possibly dealing with multiple clients. This, again, adds to the level of professionalism and authenticity you project as a business. This is a great way to elevate your brand within the industry when starting an LLC as a music producer or engineer.
As a registered LLC, you will be eligible to open a separate business banking account. Your business and your personal transactions will, therefore, be split between different accounts. As a result, you can keep track of your business’s income and expenses more easily.
You can also accept payment by cheque to your business account. This gives your clients additional payment options and doesn’t restrict you when accepting payments from clients. You’ll also be able to receive and make payments to clients and suppliers in different regions and countries more easily through a business bank account.
Another benefit of registering as an LLC is that you can start up subsidiary businesses or brands without hassle. These can all operate under the LLC, and your business banking account can receive payment from clients for these subsidiaries.
Forming a Partnership
You may decide to partner with a fellow music producer or engineer to conduct business together. Partnering with someone who brings a slightly different skillset to the table is always beneficial to a business. It allows you to diversify and expand on your service offering.
However, you can no longer operate as an individual under a sole proprietorship when forming a partnership. It would make far more sense to conduct business via a single business bank account. You will also benefit from being taxed as a business rather than individuals.
You’ll also need to have a partnership agreement drawn up. And you’ll have to register the business with all partners listed as members and open a bank account you can all access for business.
Registering your partnership as an LLC would be the best way to go about this. There are numerous benefits to starting an LLC for music producers and engineers who partner in this way.
Hiring an attorney to advise you and assist you with the legal paperwork will also benefit you. In addition, you may want to consult with them regarding the tax implications of a partnership.
It should be noted that multiple individuals and corporate entities can own an LLC.
Record Publishing Royalties
You may be involved in producing music where you are eligible to collect publishing royalties or points. In this case, you won’t be able to collect points as a sole proprietor. You must have a registered company to register with a PRO and collect royalties as a music publisher.
Again, an LLC is the most practical option when registering your business, as it is the least costly and complex form of business to set up. Once registered, you’ll be able to receive royalties for your work through a PRO and SoundExchange with ease.
How to Start an LLC for Music Producers and Engineers
The following are the basic steps involved in starting an LLC for music producers and engineers.
1. Name your business: Be sure to check that the name you want to use is not already used by an existing company.
2. Find a registered agent: A registered agent is an individual or company that will see to your legal documentation on behalf of your LLC in the case of a lawsuit.
3. File articles of organization: These are the legal documents that stipulate all information related to the business. Each state, however, has different requirements when it comes to the articles of organization. Be sure to check with your local corporate filing office or Secretary of State to confirm what information is required.
4. Choose between member or manager management: You can opt to have only the LLC members manage and make decisions regarding the company. Or you can appoint outsiders to be part of the management team.
5. Draw-up an LLC operating agreement: While having an official operating agreement isn’t a prerequisite, it is recommended. This is a document for internal use that outlines how the company will be managed and run.
6. Ensure that you comply with tax and regulatory requirements: You should ensure that you have all the relevant licenses, registrations, and documents needed. For instance, you will need an Employee Identification Number EIN if you have more than one member or intend to have employees. You may also need to apply for state-specific licenses. And, if you do employ staff, make sure you register for employer’s tax.
7. Open a business banking account: This is a reasonably straightforward process. Your bank of choice should assist you with the process. You can open a business banking account at one of your bank’s branches. However, many now make it possible to open a business account online.
8. Hire an accountant: You’ll need to file an annual report and income tax return for your LLC. To ensure that it is calculated and submitted correctly, you must employ the services of a registered accountant to do this for you.
You can ask your state’s corporate filing office to help you with some of the steps listed above. The office should have the means to search existing business names and a list of registered agents for you to choose from.
It’s clear that your music production and engineering business will benefit from being registered as an LLC. However, there are a few notable points to keep in mind.
Remember that there are costs involved when registering as any type of company. You will need to pay registration and annual fees. You’ll also need to hire the services of an accountant at least once per year to file your tax return.
If you are unsure of anything, don’t be scared to call a local entertainment or business lawyer for advice. Many lawyers will be more than happy to assist you with some advice over the phone or via email at no cost.