LLC for Music Artist: Should a Music Group Be an LLC?
If you belong to a music group or a band, you may not consider the endeavor as a traditional business, but with Venture Smarter's guidance, it may be transformed into a legal entity.
As a Mergers and Acquisitions specialist, I assisted several individuals in forming their businesses and creating joint organizations. I'll share my insights regarding the matter to provide a comprehensive answer to all musicians considering this decision.
Quick Summary
- A music group may be registered as an LLC to protect personal assets, obtain tax benefits, and be structured as a business.
- Converting a music group to an LLC is the same as forming a standard limited liability company.
- In 2024, the federal self-employment tax rate for musicians is 15.3%.
- Based on observation, music groups that convert into LLCs enhance their professional image and attract more opportunities.
Why Should A Music Group Form An LLC?
A music group should form an LLC because the business structure offers personal liability protection, tax benefits, and advantages in management and organization.
As a limited liability company, the music group or band is regarded as a separate entity from its members. The personal assets of the band members are protected from any legal action against the music group.
If you are a full-time musician or perform to supplement a mainstream profession, you are required to pay taxes based on the income generated by your music.
The structure of the LLC, as outlined by Venture Smarter, would allow you to pay taxes only on your personal return.
In examining the fiscal benefits of LLCs, it's notable that corporate taxes as a percentage of total taxes decreased from 7.1% in 1989 to 5.9% by 2002 [1]. This shift reflects broader tax strategy trends and underscores the LLC structure's potential tax efficiency for entities like music bands.
An LLC has an internal document called an operating agreement. It outlines the roles, responsibilities, and rights of the members and provides bylaws regarding management and operations.
Although it's not required by the state, as Venture Smarter, we advise clients to draft the document to clearly define rules and regulations governing the organization.
"But anyone who knows anything about the music industry knows it's not only about the music."
– Isaac Hanson, Musician
How Do I Create an LLC for a Band?
To create an LLC for a band, as Venture Smarter, we suggest you follow these steps:
1. Decide on a Business Name
First, you need to decide upon an LLC business name. You may retain the name of your music group after verifying that it is available, and not in use by another entity in the state.
I direct my clients to the business name search website to ensure that the title is available and the registration is approved.
2. Appoint a Registered Agent
Before filing for LLC status, you need to designate a registered agent that can accept official documents and provide service of process on behalf of your company.
You can appoint a member of the organization to act as the LLC registered agent, but I recommend that you employ a service provider with an expertise on the position.
3. File The Articles Of Organization With The Secretary of State Office
File the articles of organization with the Secretary of State to formally apply for an LLC status. The document should include the business name, purpose, address, registered agent details, information about the members, and the start of the LLC.
Pay the necessary state filing fees for the application to be processed.
4. Draft an Operating Agreement
An LLC operating agreement is not required by most states but it would be advisable to draft one for your business entity.
The document is legally binding after it has been agreed on and signed by all the members. If there is no operating agreement, then state laws apply by default.
5. Apply for an Employer Identification Number (EIN)
An Internal Revenue Service (IRS) Employer Identification Number is required for an LLC to file taxes, open a business bank account, and hire employees [2].
An EIN may be obtained for free by applying directly on the IRS website.
Related Articles:
- How to Start an LLC for a Cattle Company
- How to Start an LLC for a Towing Company
- Best LLC Type for a Mental Health Professional
FAQs
Are Most Bands LLCs?
Most bands are LLCs, especially those who want their musical career to be a business. The best way to learn more about what an LLC is in the music industry is by speaking to a lawyer who specializes in these matters.
Is an LLC a Good Business Structure for a Band?
An LLC is a good business structure for a band because it offers liability protection among the members and features tax benefits.
References:
- https://www.researchgate.net/publication/247722370_Do_Limited_Liability_Companies_Explain_Declining_State_Corporate_Tax_Revenues
- https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
