How to Legally Set Up Your Music Business

Written By Steve Danyew

As self-employed musicians, we believe it’s essential to cultivate a business mindset. This means thinking of yourself and your work as a small business. You're the CEO.

(Fun fact: This is what we were thinking when we named this business Musician & Co.).

To do this, you need to take a step back and evaluate the big picture: You need to know where you’re headed and be able to make long-term decisions.

I remember when I first started putting together my portfolio career, I liked the feeling that I was the CEO of my own small business. I could decide what kind of music I was going to write, how I was going to market it, how much I was going to sell it for—all of those business details. This has a sense of ownership and responsibility, but also great rewards. When your business achieves success, that's your success.

In his book, Lessons From a Streetwise Professor, Ray Ricker compares a musician’s career to owning a store:

As the owner, you can decide what kinds of products you want to sell, how many brands of spaghetti you want to stock, etc. You get to make those decisions because it's your store.

But with that, comes the responsibility to manage the store and keep things running smoothly and market the products and sell them, making sure you're profitable and able to pay your bills.

There's freedom in being your own boss, but there's also an added responsibility, especially if you employ other people.

As the CEO, it's your job to know how to structure and set up your business.

In this post, we'll explore three business structures for self-employed musicians. There are certainly many more business models out there, but for the purposes of keeping things simple and concise, we’re going to mention the three most common ones that we see for musicians.

*Disclosure: We get commissions for purchases made through links in this post.

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Disclaimer

This content is for educational purposes only and should not be construed as legal advice. Please seek advice from a licensed attorney familiar with your specific situation.

Three Business Structures for Self-Employed Musicians

Sole Proprietor

Being a sole proprietor is the simplest way to start a business. This means you have your own business and you're working on your own. Your business cannot function without you. (Legally, if you’re a sole proprietor, you must use your personal name as your business name unless you have a DBA—see more below.)

It's important to note that being a sole proprietor does not give you any liability protection, so if that's something that you need in your business, take a look at the LLC model below.

Pro Tip: Sign up for an Employer Identification Number (EIN). This is a free and simple process.

An EIN is kind of like a social security number (SSN) for your business. When you fill out a W-9 form for a gig, independent contractor position, or part-time job, you can use your EIN instead of having to use your SSN, which helps protect your identity. The fewer places you have to use your SSN, the better.

DBA – Doing Business As

A DBA (also called an ABN—Assumed Business Name) is an inexpensive way to give your business a name (other than your own). This can be used by any business owner: sole proprietor, LLC, S-Corp, etc.

For example, if you're setting up a private studio in town with the ambition to create a community music school, you might consider naming your studio something like "Arco Community Music School" instead of "Hayden Smith's Studio."

There are a few benefits to this:

Checks can be made out to your business name

You can open a bank account under that name

You can open a P.O. Box and receive mail under that name

You can hire other people down the road and feel more like an organization

You can apply for a DBA at your local City Hall. This costs about $20 (on average—it varies by state). We did this for the chamber music festival we started in Massachusetts after grad school. This way, we could set up a business checking account and receive checks made out to our organization.

I've also done this in my business (Danyew Creative) to cover all the teaching, admin, and composition work that I do.

P.S. Looking for more information on registering a DBA name? Take a look at this helpful resource from Business News Daily.

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LLC – Limited Liability Company

The second business structure that is common for musicians is the Limited Liability Company (LLC). This provides liability protection, which is important and necessary for some businesses, as well as the opportunity to open accounts under your business name, hire employees, and get business licenses and permits.

That being said, there is an up-front cost to create an LLC and a yearly cost to maintain it, which is something to consider.

Related post: Sole Proprietorship vs. LLC: Which One Is Right for You?

Ready to explore the process? Visit LegalZoom to see if your business name is available and file your LLC paperwork online.

Note: You may need to create an LLC operating agreement to register your LLC in your state. Here’s a pre-written, attorney-drafted LLC template you can use.

Nonprofit

The third business structure that's used for a number of music organizations is nonprofit. This is for charitable organizations and foundations—some ensembles, community music schools, and other arts organizations.

Nonprofit doesn't mean that your business can't make money; it simply means earnings must be "dedicated to furthering the purposes for which they were organized" (source).

Once approved, your nonprofit will be classified as a 501(c)(3) organization and have tax-exempt status, which means you are "exempt from paying federal corporate income tax on income generated from activities that are substantially related to the purposes for which the entity was organized" (source).

This article on Venable LLP explains tax exemption in greater detail:

“Most associations that are tax-exempt do remain subject to a wide variety of other taxes, including federal payroll (Social Security, Medicare and unemployment) taxes, state and local unemployment taxes, real estate taxes, personal property taxes, sales and use taxes, franchise taxes, and taxes on lobbying activities, among others.

Exemptions for certain state and local taxes are sometimes provided for certain types of philanthropic organizations, as well as certain colleges and universities, hospitals and other entities" (source).

As a 501(c)(3), you'll need articles of incorporation (a collection of legal documents to establish the creation of the organization and outline its responsibilities and purpose) and a board that oversees the organization.

Which Business Entity Is Right for You?

If you’re trying to decide between two different business structures, here are four things to consider and keep in mind:

1. Liability concerns

It all comes down to risk. Some businesses may be more or less likely to face lawsuits or liability in the future. How much risk do you feel comfortable taking on?

Is your business built on contracts, products, or services that may be prone to litigation or lawsuits? Do you have valuable personal assets you want to protect? If so, an LLC or nonprofit may be the best choice for you.

2. Tax benefits

A nonprofit organization is tax-exempt, which is nice. You also have the ability to accept donations, which are tax-deductible for donors.

As an LLC, you choose whether you'd like to be taxed as a sole proprietor/partnership or as a corporation (for more on that, see Paying Taxes As an LLC: What Every Musician Should Know). An S-corp designation may save you money on your taxes if you’re making a certain amount, but this does require filing an additional tax return each year.

3. Administrative requirements

Do you want a business structure that’s simple to manage and maintain? A sole proprietorship is the easiest and simplest option. An LLC requires upfront costs and paperwork, an annual fee, and ongoing administrative work to keep it active. A nonprofit requires a board, regular meetings, upfront costs and paperwork, and ongoing administrative work.

4. Long-term goals

Do you want to build a team, bring on a partner, or share ownership of your business in the future? If so, an LLC is probably the best business structure for you.

If you like the idea of staying small and working solo, you can choose to be a sole proprietor or a single-member LLC. The deciding factor will likely be the liability protection and administrative requirements outlined above.

Another thing to consider is the mission of your business or organization. Does it align with a 501(c)(3) in serving a charitable, educational, scientific, or literary purpose? If so, a nonprofit may be the best choice

Source: Musician & Co.