Monday, May 31, 2010

Music Business/Law Tips - "Business Formation" (Part 2)

A corporation or LLC is the best alternative for an artist. However, because there are costs involved in beginning a corporation/LLC, most artists do not incorporate until they begin making real money. A corporation is a company which is owned by stockholders (i.e., band members) and an LLC its members. A corporation/LLC is preferred because it provides two advantage that a sole proprietorship and partnership do not: (1) limited liability, and (2) tax benefits. Under the concept of limited liability, if the artist does something and gets sued, the plaintiff is limited to recovering from the corporation/LLC only, not from the artist or band members individually. Hence, under a corporate/LLC shield the artist cannot have his or her home taken away or wages garnished. An accountant or tax attorney should be contacted concerning the tax advantages. If an artist decides to incorporate, they will usually form what is known as a "loan-out" corporation. Under this concept, the corporation/LLC contracts with other parties for the artist's services. For example, if the artist gets a record deal, the corporation/LLC would sign the contract and would provide (i.e., loan-out) the services of the band.

It would be helpful for the artist to engage a professional to help select and properly set-up the above business forms.

Ben McLane Esq

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