How Do I Create a Music Business LLC?

By Tom Speranza, J.D.

How Do I Create a Music Business LLC?

By Tom Speranza, J.D.

If you're a musician, songwriter, DJ, producer, or other artist working in the music industry, forming a business entity such as a limited liability company (LLC) for your musical activities—which might include performing, producing, touring, or collecting royalties—can be a smart move.

Long-haired man writing on sketchbook with acoustic guitar in lap

Why Form an LLC?

Running your music business through an LLC has many upsides, including:

  • Limited liability. The primary benefit of operating your business through an LLC is that it limits the owners' liability for the business's contractual obligations, debts, and other liabilities. For example, if your band's LLC signs an agreement to perform at a venue and then cancels the concert, the venue can only recover its lost income from the LLC and its assets. If the venue secures a favorable judgment, it can try to recover money from the LLC's bank accounts or place liens on the LLC's equipment, but the venue cannot pursue the houses and vehicles owned by the band members.
  • Separate lines of business. You can use multiple LLCs to protect your different types of music activities from each other. For example, if your band forms an LLC for its touring and another for its intellectual property and royalties, a concertgoer who sues the band for injuries sustained at a concert cannot seek compensation from your royalty income. Similarly, a copyright dispute with a record company doesn't put all of your touring income at risk.
  • Professionalism. Operating your music business through an LLC looks more professional, which can help when dealing with venues, promoters, and recording companies. It can also make it easier to obtain loans and investors.
  • Collaborators. If you're not a solo act, an LLC is the easiest way to divide income and expenses among collaborators, such as your fellow band members and cowriters. It can also make it easier to deduct business expenses on your tax returns.
  • Dispute avoidance. Forming an LLC with a detailed operating agreement can help you and your collaborators resolve potential conflicts ahead of time by forcing you to discuss big issues: How are major decisions made? Who has the power to negotiate and sign contracts? How is income divided? How does someone quit the band and what continued right to income is that person entitled to? What happens if someone dies?

How to Form an LLC

An LLC for a music business is formed in the same way as any other LLC. Here are the steps involved.

1. Pick a state.

If your music activities are conducted in a compact geographical area, it probably makes sense to form your LLC in the state where you live. If you tour extensively around the country or in several states or have contracts with national promoters or recording companies, it may be better to form the LLC in a well-known business jurisdiction such as Delaware or New York.

A corporate or tax lawyer can explain the pros and cons of forming an LLC in any given state.

2. Choose a name.

You need to come up with a name for your LLC that's available in the state you chose in the previous step. Your chosen name must be unique so as to avoid confusion with existing LLCs. A name related to your stage name may not be available, so be prepared with some alternatives.

3. Draft and file formation documents and pay filing fees.

LLCs are formed by filing articles of organization or formation with the proper office in the formation state, usually the Secretary of State. A corporate lawyer can draft documents appropriate for your new LLC. Each state charges filing fees when the LLC formation documents are submitted.

4. Appoint a registered agent in the state of formation.

Unless the new LLC is in your home state, you need to appoint a third-party registered agent in the formation state to receive official notices and legal filings. For an annual fee, you can engage a corporate service company to be the LLC's registered agent in the applicable state.

5. Draft an operating agreement.

As mentioned above, an LLC must have an operating agreement that spells out the entity's governing rules and the relationship among the LLC's owners—also called members—and managers. If the LLC has just one owner, the operating agreement is short and simple. If you have collaborators who will also be LLC members, the operating agreement will be more complicated. An experienced corporate lawyer can ask all the right questions to draft an operating agreement that fits how you want to run your LLC.

6. Obtain an employer identification number (EIN).

The Internal Revenue Service issues these for LLCs by phone or online.

7. Open an LLC bank account.

To get the benefit of limited liability, you need to carefully keep the LLC's finances separate from the individual members' assets. Establish a separate bank account for the LLC and run all business income and expenses through it.

Once your music becomes more than a hobby, you should treat it like an actual business. Forming an LLC can be a good first step.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.