LEGAL GUIDE
Written by attorney Christopher Nunes | Mar 7, 2011

Business Steps to Starting Your Record Label

Copyright 2011 Chris Nunes

Not for Resale

CALIFORNIARECORD LABEL FORMATION

  1. Company Formation

A. FBN ("Fictitious Business Name"- same as a DBA "Doing Business As") - typically used where there is a low risk of legal liabilities associated with the business. This would probably be the first option - but temporary - for you to run your company.

B. LLC - $70 filing fee, $20 statement of information fee, $800 per year franchise fee (all paid to the state); this option should be chosen if you intend to run the company long term and want significantly more protection than the FBN. This can be filed with one sheet of paper with the Secretary of State and will usually take a client 30-60 minutes to complete themselves, sometimes longer, depending on how quickly they can locate the information.

C. Corporations – Do it at all? Prob not. Delaware or Nevada are best choices; however, if doing business in California, you’ll have to register that corp as a foreign entity (a Delaware or NV entity) doing business in California. So this option would be for the case where your company is starting out at a fast pace, and you expect to sell your company to a larger brand at some point in the relatively near future.

i. Company Name: remember, you can't use a company name that someone else is using. You can 1) search websites for existing companies using your proposed names, 2) search the Secretary of State's website for companies that are registered using your company name, and 3) search the US Patent & Trademark Office’s website for registered names of companies. Once you're certain you can use the name, then you would register it under one of the above 3 methods (A, B or C).

D. Any of the above 3 can be done via an online service. The charge for an LLC/Inc. will depend on the fanciness of the wrapping that you buy. You don't actually need any of the fancy packages. But what you DO need is a solid operating agreement. And no matter what, they'll give a very basic operating agreement that is not sufficient for what you want. They basically just itemize the state default rules that you would be operating under anyway, so this is a waste of money in my opinion (see E below).

E. If it’s just one person in the company (you), then you don’t need an additional operating agreement. If there’s more than one (you and an investor, you and a partner, etc.), you’ll need an operating agreement. An operating agreement provided by me will have the necessary protections you'll want long term and will include specific custom terms relating to how to buy the other person out if necessary, how to handle your spouse(s), your long term vision of the company, etc. that you will not find in the online basic agreements. These custom terms probably save 10-20x their cost, should any problems come up in the future.

F. OK, so between the company registration and operating agreement, you can save a lot of money by registering the company yourself (either as a FBN or as an LLC), and then having me provide you with an operating agreement. But you'll want to talk to an accountant, to make sure you're making the right decision from a tax treatment point of view. Don't let the accountant try to give you legal advice about which kind of company is right from a liability protection standpoint.

  1. Bank Accounts – PLAN AHEAD. You'll need the registration number for your FBN, LLC or Inc to get a bank account that will allow payments and receipts made out to your company name, so it will take at least 1-6 weeks to get the company papers back from the Secretary of State (delay depends on the state budget crisis and how often the agency is closed down on a weekly basis). Don’t expect to be able to do this in one day or one week. If and when you hire employees, you'll also need an Employee ID Number (EIN) available through the IRS.

  2. Website - Need to register all the appropriate URL's. I use 1and1.com to register and host basic URL's (they're cheapest), but GoDaddy (http://x.co/Tqj8)(there's a link there for a pricing deal) for more sophisticated websites (only a little more expensive, but infinitely better to use for customization). Also, if you're using a website designer or company to create your website, you'll need to make sure they sign a "work for hire" agreement, which states that all their creative contributions are in fact owned by you.

  3. Intellectual Property

A. Company Name & Logo

i. Typefont - typically, your graphic designer will just be selecting from previously-existing typefonts for your company name. If, however, you have the designer create a custom typefont for you, you'll want to make sure that this is also a work-for-hire agreement. This one would be a little more complicated than the above website work-for-hire, due to the fact that the typefont is much more usable by other parties and groups, so therefore much more valuable.

ii. Trademarks - you might also want to create a logo for your company. A custom logo has much more value than a typefonted company name. But you'll want to trademark BOTH your company name AND your logo, if you get one made.

iii. COSTS:

(1) Federal TM: $300-400 per class, depending on when you release goods with those trademarks on them for sale to the public (i.e. if you register the trademarks before you sell stuff to the public, it will be more expensive, but more protective).

(2) State TM: $70, but it must be available for sale to the public prior to registration, and is only applicable in California. If you're selling online, you'll want a federal Trademark.

(3) A note on Trademarks: Remember that there a multiple CLASSES of goods that you'll register for trademark protection. CD’s are a different class of goods than tshirts. DJ Services are a different class than DJ equipment... EACH CLASS of good has an individual registration, and it's own registration fee. So if we register your company for both tshirts and cd’s, that would be 2 class registrations or ($3-400 x 2 = $600-800). If we add in the logo registration for each of those two classes, it adds another $600-800. So you can see this category adds up quick. You'll likely only want to register one at first, then do more as your success (and bank account) warrants it.

B. Copyrights

i. You'll want to copyright your written songs, your recorded tracks, and designs for your merch. This will provide you with more protection, and more financial options, if anyone decides to bootleg any of your stuff. You can try copyrighting the designs yourself at www.copyright.gov.

ii. Each copyright filing has a fee paid to the government of $35, so this can add up fast, depending on how you register them.

iii. Lastly, when you register multiple works as a compilation or other collection, then you might save some money on the registration. NOTE: if someone copies 1 of your songs, out of 10 on an album registration, then some courts view this as having copied only 10% of a registered work, and can either make the infringement de minimis (and throw the case out), or reduce the damages to 10% of what you otherwise would have received.

5.Contracts

A. Producer Agreements & Work for Hire Agreements

i. Approximately an hour of time to put each of these together for you.

B. Talent Agreements

i. COSTS: Vary, depending on what you want to do with them (record, sign exclusive, write, etc.)

C. In an ideal world, you have templates for these two agreements and you never vary from those. However, in the real world, any contract you give someone – especially if they have a lawyer – is going to be adjusted to each person. You have two options:

i. Make your agreements very fair to both sides

(1) when the other side is solid talent and you’re just starting out

(2) when your reputation is on the line (i.e. artist has lots of industry friends)

(a) HINT: It’s always on the line.

ii. Make your agreements favorable to you, hope they don’t negotiate, but then negotiate towards the middle.

(1) When you have a hot artist that you’re going to start pushing big and fast

(2) When they’re just an extra artist that you’re not really concerned about pushing, but you’ll add them to the stable, etc.

  1. Permits

A. Business License - in your first year, and depending on amount of revenue generate, typically $0 (in LA, for a creative industry company), but you need to at least register it with the county and you'll need your company registration number from #1 above.

B. Reseller Permit – (for merch) you can register online but you'll need your company registration number from #1 above. (http://www.boe.ca.gov/info/reg.htm)

  1. Insurance: eventually you'll want general liability business insurance, especially if you have a studio that people will be visiting, but probably not an expense you need to spend money on yet.

  2. Priorities:

  3. #5 Contracts

  4. #1 Biz registration

  5. #2 Bank accounts

  6. #3 Website

  7. #6 Permits

  8. #4.A Trademarks

  9. #4.B Copyrights

  10. #1.E Operating agreement

  11. #7 Insurance

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