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First Steps to Setting Up a Record Label

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You may be starting a label because you love music, but remember, it’s still a business. And as with any business, one goal of a label is to make a profit. Therefore, you should establish good habits and a professional approach from the start. This will make your life much easier and help your label to grow more quickly. It isn’t difficult to set up a label, and you can do some things on your own. However, I recommend hiring an experienced attorney to help. This is a good investment, because even the simple stuff can be confusing if you don’t know how to do it, and any mistakes you make in the beginning will cost more money to correct later.

You’ll need five primary tools to set up a label: Money, an attorney, a business entity, contracts, and an accounting program. As always, cash comes first. How much? Believe it or not, you can start a label for less than $2,000. This won’t pay for employees, expensive office space, or recording time in a fancy studio, but it will get you off the ground. You can pay some of the start-up bills monthly with income from your day job, but others will require a lump sum of cash up front. After reading this book you’ll be able to put together a budget for starting your label and operating it on a day-to-day basis.

Second, when setting up your label, you’ll have to decide what type of business entity it will be: Sole proprietorship, partnership, limited liability company or corporation. If the label has more than one owner, you will have to operate it as a partnership or corporation. In any case, you’ll need an attorney who is familiar with setting up businesses to ensure that your business (the label) is properly established. An entertainment attorney may or may not have this expertise.

I do not believe in overpaying for anything, especially legal service, but some expenses are inevitable. During the label’s set-up phase, I strongly suggest meeting with an attorney to make sure you are completing and filing all the necessary government documents. An attorney can also advise you about local, state, and/or federal forms that may be needed, such as a federal tax identification number form (if you will have employees and/or your label is a partnership or corporation), assumed name certificate (doing business as), sales tax certificate, etc. Once again, the fee you pay for an attorney’s time now will save you from having to spend a lot more to fix mistakes later.

Fourth, you’ll need contracts. It’s impossible to operate a record label without them. The music business is built entirely on the acquisition and exploitation of copyrights. Federal law says any agreement related to those copyrights must be in writing if it is to be legally binding. It is not sufficient to get oral agreements or a handshake deal with artists, producers, back-up musicians, or studios. Only written contracts are binding. Without them, you might find that you don’t own the recordings you’ve spent money to produce, or that someone who worked on the recording is expecting more money in royalties than you verbally agreed to pay. Without a written contract, your rights in such cases will not be certain. Instead of referring to a clear written agreement to resolve the issue, you’ll have to hire an attorney to litigate your rights and risk losing any or all of the rights you thought you had. Start out with written contracts and avoid these problems.

Most entertainment attorneys can provide contracts via e-mail or on CD. If you purchase contracts off the Internet or obtain them from a book or a friend, spend the money to meet with an attorney to review the contracts so you understand them and are able to adapt them to your label’s specific needs. It pays to do this right the first time. After this initial onetime cost, you can use the contracts over and over. As your business grows, you will want to meet regularly with your attorney to update your contracts.

Finally, if you plan to sign artists, sell records, pay royalties, make a profit, and pay taxes, you’ll need accounting software. A relatively inexpensive program like Quicken or QuickBooks will reduce your workload considerably when it comes time to prepare accounting statements, pay royalties, and do your taxes. Many computers now even come loaded with a version of these programs. You can upgrade to more sophisticated royalty accounting software in the future, but this isn’t necessary when you’re getting started. If you have current accounting software on a computer, just use that or buy a good basic accounting program.

What does all this cost? The fees for filing an assumed or fictitious name certificate for a sole proprietorship can run $10 to $50. You will definitely want to use an attorney if you are going to set up a partnership, limited liability or a corporation (add $250.00 to $1,000.00). Accounting software will cost from $200 to $400. You will pay an entertainment attorney from $200 to $500 to help with your contracts, depending on the rates and specific services provided. Adding it all together, as little as $660 to $1,950 can get your label up and running—the right way.


Things You Can Do Today To Build Your Label

  1. Begin saving money to pay for the start-up costs.
  2. Meet with a business attorney to select a business entity for your label and file the necessary forms. Also, meet with an entertainment attorney to help with music contracts.
  3. Acquire a simple accounting program and learn how to use it before you start operating

This blog entry is an excerpt from the book titled Music Business Made Simple:Start An Independent Record Label that can be purchased at this link: Music Business Made Simple.

MusicContracts.com provides all the necessary contracts for an independent record label at this link: Record Label Contracts.

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