When you got started playing music and performing, you probably weren’t thinking about the legal structure of the future band. But as you get more serious, add members, and begin making money, making things official with an LLC is something to seriously think about.
Full disclosure: Back in the day, I had an LLC formed for my now-defunct band with the help of an entertainment lawyer that cost a few thousand bucks. Today, I would use this service that allows you to register an LLC for $49 + State Fees. It is a much more affordable path to file this way instead of with a lawyer.
Long story short, I got started doing covers in Midwest bars, eventually moving to L.A. to play originals music and showcase the band. After a few years the band flamed out and the venture ended.
Like so many other bands, we got paid cash to play Lynyrd Skynyrd songs in small town bars. At this time, we didn’t have any official business entity. But after moving to Los Angeles, as a band with multiple members and LLC made sense so we could split up the ownership of the band among members and management.
As you get more serious, I think this is a smart idea to get clear on the ownership and payout structure in writing. Things might seem honkey dory in the early days, but as the months / years pass and money gets involved, certain members may feel like they need more compensation for creative efforts or marketing activities within the band. Forming an LLC is one way to make sure everyone is clear on their compensation and ownership.
Are you required by law to get LLC or a Limited Liability Company for a live band? The simple answer would be no. Live bands don’t need an LLC, just like any other businesses don’t need an LLC. But the structure can be a good choice for bands that are getting more serious. If you only plan to play a handful of gigs each year and aren’t getting paid to play, you probably don’t need any official entity right now.
Confused? Don’t worry. I go into greater detail below on the details of an LLC and other business options. If you’re at the point in your band where you plan to make consistent money, you form an LLC right here, right now.
- Should a Live Band or Musician Form an LLC?
- What type of business is a band?
- Band LLC Taxes
- What Are Some Reasons a Band Might Want to Form an LLC?
- Can a Band Be a Sole Proprietorship? LLC? S Corp?
Should a Live Band or Musician Form an LLC?
So you decided to start a live band as a business. Like all businesses, it is required of you to register the business so it becomes a legal one wherein you pay taxes and also assure your customers that you are credible and won’t run away with the money they’ve paid to hire your band.
But before you register a business, you should also know the business structure you’re going to use because not all of them function in the same way. Some have limitations while others have protection.
Here are the business structures you should know:
From the term itself, a sole proprietorship means the business only has one owner. This is typically used by small businesses since they’re only handled by the owner and needs minimal staffing. Filing of taxes is also under the owner’s personal income tax. If you are a solo singer or songwriter this is a simple and affordable option in the early days.
But there is one thing you must know when registering your business as a sole proprietorship. It’s that there is no limited liability protection. This means that when the business runs into any legal trouble or goes bankrupt, the owner will be the one to answer to these problems and their personal assets will be at stake.
In most cases, you don’t need to worry too much about bankruptcy since the main thing you’ll be investing in is musical equipment, recording equipment / software, and travel expenses to gigs.
A partnership is a type of business structure where two or more owners are registered under the business. All their resources and investments are combined to put up the business and they all agree to share profits and losses. There are both small and big businesses that register as partnerships. Filing of taxes is under the owners’ personal income tax.
However, just like a sole proprietorship, a partnership has no limited liability protection so all the risks such as legal problems are shouldered by the owners including their personal assets.
A corporation is a business structure where owners are called shareholders and each shareholder owns a percentage of the company thereby making it a single yet separate entity. One thing that differentiates a corporation from a sole proprietorship and a partnership is that a corporation has limited liability protection.
On the other hand, a corporation is double taxed. Unlike a sole proprietorship and a partnership, corporations are first taxed at the corporate level and then once more through the individual shareholders after they’ve received their profits.
Limited Liability Company (LLC)
A Limited Liability Company, better known as an LLC, is a business structure that can be owned by one person or more, or even a corporation. It’s a mix of all the different business structures mentioned above. An LLC’s profits and losses are passed to the owners. Taxes are then filed through these owners’ personal taxes
From the name itself, an LLC has limited liability protection so you don’t need to worry about any risks affecting your personal assets.
So out of these, which business structure is ideal for your live band?
Let’s take this scenario for example: you’ve started a live band with let’s say five members and these five members all have a share in the business which they can be considered as owners. Sole proprietorship is out of the choices since this business structure only allows one owner. You can opt for a partnership, but every member will have to risk their personal assets once the band runs into some legal trouble. Not to mention, what will happen when a band member leaves? So being in a partnership could pose some difficulties.
An ideal option would be a corporation or an LLC since this can help out the band when it comes to sharing their profits, filing their taxes, and dealing with legal trouble. It’s also more flexible in a way that when one member leaves, depending upon the agreement discussed and documented, the shares can be divided or transferred.
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So in a way, an LLC isn’t exactly required or needed when you register your live band. You can opt for a partnership or corporation. You may even register it as a sole proprietorship if you’re the only owner and you handle a live band. But an LLC is ideal since it can accommodate several owners (in this case, your band members) and can help protect the business from any legal problems.
If you’re still undecided, you can always get a legal advisor and seek their counsel. It always helps when there’s someone you trust that can explain more to you about these things. Discussing with your band mates is also important especially when you’re all going to be owners. Each view and input is important so there’s no miscommunication within the group. Weigh each pros and cons that a business structure offers. Check and see which ones are suited for your live band. It’s also best to talk to other fellow live bands what their business structures are so you can understand better how it works.
What type of business is a band?
The basic definition of a band is that they’re a musical group that play musical instruments and showcase these performances to the public for entertainment. This can be for recreational purposes such as just having fun and performing for free.
From personal experience, I played just about everywhere you could think of. I played at festivals, fairs, street dances, bars, pizza shops, and even a living room.
But bands can also be a form of business wherein it generates income and can become a means of livelihood for band members. A band that is a business means that they sell their services such as playing for events such as weddings or anniversaries. A more universal approach is selling their music, selling tickets for fans to see them play, releasing albums, and agreeing to be paid to endorse products, attend radio or television show guestings, and go on tours.
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As mentioned above, a band can register their business under any type of business structure that they want. I’ve indicated there are some pros and cons to different structures, but LLC, sole proprietorship, a partnership or a corporation. But make sure all members agree on a certain business structure so no misunderstandings occur.
Band LLC Taxes
So how do you get taxed if you register your band as an LLC? Here are some options depending on how you run the business.
Income Taxes for LLCs with One Owner
If you’ve decided to run your LLC business as a single member then you’re taxed as a sole proprietorship. What this means is that the business does not have to pay taxes and does not have to file their tax returns but rather, the owner should do so via their personal income tax.
Income Taxes for LLCs with Multiple Owners
LLCs with multiple owners are treated as partnerships or corporation. If the LLC is a partnership, the tax rules for partnerships will be followed. Each owner must show their share of the income. There will be some documents to be filed and one of these is Form 1065 which is the U.S. Return of Partnership Income.
If the LLC is a corporation, corporate tax rules will be followed. This includes filing Form 1120 which is the U.S. Corporation Income Tax Return.
So in summary, filing of taxes if your business is an LLC depends on what business structure you follow whether that is a sole proprietorship, partnership or corporation. The common factor among all these is even if you file your taxes differently, you still have limited liability protection.
What Are Some Reasons a Band Might Want to Form an LLC?
What are the advantages of an LLC, you might ask. Why would a band want to form an LLC when there are other business structures they can follow? Here are some of the reasons why a band might want to form an LLC.
One main importance that an LLC has is protection. Here’s one scenario: You and your band mates are set to perform at an event. What if someone trips on one of the wires you’re using for your musical instruments? What if an accident occurs where the guest who trips suffers from an injury? You could be used and personal assets could be gone after, including savings account and house payment.
If you registered your live band as a partnership or sole proprietorship, you as the owner or owners will be the one facing these legal troubles. Lawsuits can come after your personal assets as well.
A Limited Liability Company can help you in this situation. An LLC protects you and your band members from losing personal assets assuming the other party isn’t able to pierce the vail of protection with an LLC. To do this you want to make sure you’re operating the LLC correctly, which includes having a business bank account and not mixing personal / business expenses from the same account.
Having an LLC allows you to have different types of owners. As mentioned above, you can choose whether to run the LLC as a sole proprietorship, a partnership with multiple owners or a corporation. This flexibility is a big advantage to live bands if all the members decide to be an owner.
Aside from owner flexibility, LLC also has the advantage of management flexibility. For a live band, you can choose to hire a manager to help you organize your schedules. You can also choose outside consultants to manage or compose for you. An LLC for a business can help you choose the type of management structure you want.
We’ve listed the many ways you can file your taxes above and that’s one of the advantages of an LLC. Paying your taxes depends on how you run the business whether it’s a sole proprietor, partnership, or corporation. Unlike other business structures wherein you’re stuck with only one option, an LLC gives you several to choose from.
LLCs are not difficult to setup. There may be paper works to be done and fees to comply but they are light. Ongoing requirements are also done on an annual basis. But again, this depends on the state you’re in. Some states may charge a certain fee and how much you should pay for taxes. So be sure to check your local state laws for these.
LLCs also don’t need any lawyers for you to setup although it is still recommended for you to consult with a legal advisor if you need help.
If you’re a new business, chances are that some people might not see you as a credible one. It’s normal since you’re starting out so people may have their doubts whether you’re a legit form of business or not.
With an LLC, it adds to the credibility of your business. Clients may relax around you knowing that you’re registered and that you’re serious about what you do.
Can a Band Be a Sole Proprietorship? LLC? S Corp?
A band can absolutely be a sole proprietorship, an LLC or an S Corporation. An S Corporation is also a business structure wherein it passes corporate losses, income, credit, and deduction through shareholders for tax purposes. There’s also limited liability protection. The difference between this and a corporation is that an S Corporation isn’t double taxed. They file their taxes through their ordinary income tax rates.
So there you have it! You can choose what to register your live band in a variety of business entities and that includes creating an LLC. Remember you have many options with different pros and cons. Just be sure to discuss this with your band members and get everyone on the same page before making things final.