Business Entities for Bands and Musicians
If you make money by playing music or performing, you are conducting a business. Although you do not have to file as a business entity to conduct business, there are several entity types which could be beneficial for your band or group. Below is a list and explanation of the most common entities.
If you are performing or recording under a name that is different from your legal name, you may be required to register the fictitious name with your Secretary of State.
This type of entity is formed when a business is owned by an individual and is not incorporated. The owner has total control over decisions, receives all the profits and pays everyone's salaries. The owner is liable for all debts and legal liabilities personally, meaning all personal assets and property are subject to these liabilities. The income generated by the business is considered personal income and is taxed as such.
- No legal steps are required, so no lawyer is needed - Easy to create and operate - Few costs involved - Relatively simple tax compliance - Good choice for solo artists or band leaders.
Most bands operate as partnerships. A partnership is defined as two or more person in business together. Profits, losses, and decision-making responsibilities are split among the partners equally. There is a potential risk to partnerships. Each partner is personally liable for debts and liabilities of the business partnership, regardless of which partner incurred the liability. Each individual share of income is taxed as personal income.
Again, there are no formalities to creating a partnership. When two or more people do business together and share in profits without having any other agreement, the business is automatically classified as a partnership
Although a general partnership can be formed informally, it is strongly recommended that an attorney prepare a written partnership agreement. The most important reason for this is to guarantee the continued existence of the partnership in the event of a member leaving. Without an agreement, the departure automatically ends the band partnership.
- You should get a lawyer to help with this. - Easy to create and operate. - Low cost. - Relatively simple tax compliance. - A legal partnership is not the same thing as a band partnership agreement, mentioned in Issue 1 of this series. - May be required to file fictitious name registration.
Limited Liability Corporation
A limited liability corporation (LLC) is a partnership-corporation hybrid that provides corporate-like liability protection for the owners and partnership-like flexibility in management structure. The LLC structure is commonly used by professional performers and may offer more favorable tax benefits.
- A lawyer is necessary. Filing fees range from $100 - $500 depending on your state. - If you are expecting a large income, this is a good choice for your band. - Band members have limited personal liability for business debts. - More expensive to create and operate. - Requires compliance with IRS rules and regulations. - More formalities involved, likely to require a lawyer. - Written agreement is strongly recommended.