It turns out starting a record label, like filing your taxes for the first time or learning how to drive a car, is more intimidating than difficult. By following these seven steps and, most importantly, finding someone to be supportive throughout the process, starting a record label should be somewhere between figuring out how to operate a stick shift (initially strange and seemingly complicated) and taking the SAT (large sections of math that seem frustratingly familiar but require the aid of an expert to unravel).
Step 1: Find a LawyerIt can be confusing to have to sort through all the legal and accounting responsibilities on your own. After all, few of us are well versed on the way things like a limited liability company or a federal tax identification number work.
"It is important to get somebody to advise you on business issues," said Quinn Heraty, attorney and partner of Heraty Law. "If it's a lawyer, that's great."
But be sure to get a music or entertainment law lawyer - Heraty doesn't recommend asking your uncle the litigator to handle the nuances of record label law. The kinds of laws that govern music and entertainment are highly specialized.
Step 2: Create a Company"It's not as glamorous as a lot of people imagine - it's a lot of paperwork and filing forms with the government," said Chris Williams, who recently started the label Desiccant Records: Do Not Eat! According to Heraty, the best thing to do is create a separate legal entity: your company. She recommends a limited liability company (also known as an LLC), which is both more flexible and less formal than a corporation. LLCs are easier to form than corporations and are not subject to the same formal requirements, such as annual reports and board of director meetings.
The "limited liability" part of the name means that company members are protected against personal liability for the liabilities of the company (except in instances of fraud or blatant illegality). Essentially, the members of an LLC are only responsible for what they put into the company and they aren't personally responsible for business debts. Sole proprietorships and partnerships, other kinds of companies, do not provide company owners with limited liability.
Decide if you want to be the boss on your own or if you want a partner. There are advantages and disadvantages to both. Williams feels having complete ownership over his label allows him total artistic freedom. Heraty, though, suggested working with a partner because "it is easier to spread the responsibilities out and it broadens the range of any new business."
Step 3: Think of a Cool NamePinkStripes Records
Jumping Bean Records
Island Rock Records
My Record Company...
Whatever you come up with, make sure it hasn't already been trademarked, especially if you plan on expanding the label in the future.
It can be expensive (around $300 for the base trademark fee) to trademark your name, but it's better than making all the CD covers and discovering that someone not only has already registered your name, but that you're being issued a cease and desist letter and are involved in a lawsuit.
You can look at the Federal Trademark Register or online to see if someone's already taken your brilliant idea.
Step 4: Review and Fill Out the PaperworkLimited liability companies and corporations are, according to Heraty, "creatures of the state, not the federal government." As such, to start the limited liability company or a corporation, there is a state fee involved. Illinois, one of the most expensive in the country, charges $400 for Limited Liability Companies, but that will go up to $500 in December 2003, according to the Illinois Secretary of State's Office. Depending on the state you live in it could cost anywhere from $100 to $1,500, since there can also be a fee in some states for publishing requirements.
The paperwork to register your company with the state of Illinois isn't that extensive. The forms are offered on the secretary of state's Web site, along with a listing of the charges. It's a two-page form and the information, although fairly basic, should be looked at by a lawyer or someone else in the business. It's called "articles of organization."
If you are forming the LLC with a partner you should create an operating agreement. Some states require this to start the company. Generally a lawyer drafts this and it governs the way the company is run. Prices can vary - Heraty Law, for instance, will draw up a simple operating agreement for about one billable hour.
Step 5: Start a Business Bank AccountOnce you've created and named your company, you'll apply for a federal tax identification number, which is like a social security number for your company.
Account for every penny spent and make sure everything involved with the company's finances stays separate from your own. Start a credit card for the company and use it just for that. No dinners or clothes or runs to the drugstore. Just the company.
Heraty recommended buying money-managing software to keep track of everything. There should be a credit card, a checking account, and a petty cash amount. Many things are tax-deductible. If you are interested in signing artists, you can meet with a potential artist in a bar, and, if you pay for drinks, it has the potential to be tax-deductible. Heraty suggested talking to an accountant before counting on all the tax deductions, however.
"People need to take the time to become financially literate. This is crucial: It will make or break you," Heraty said.
Step 6: Sign Other BandsIf you want to sign other bands, you should pay them some sort of an advance and then they could use the money for studio time plus salary for engineers and day-players. Tony Piscotti, who just released his first album "Soapbox Parade," estimated the necessary upfront cost at about $10,000. Grey Flight Records, a Chicago-based label, started with three bands and has grown to five. Grant Quick, co-founder of the label, describes the experience of growing and working with his friends as the "greatest thing about my label so far."
Signing other bands is more than just putting up money - there's should be a signed agreement as well. If it's a band with an existing CD, there has to be a licensing agreement, which means the band gives the label the right to manufacture, sell, and distribute that CD. If the band or artist doesn't already have an album, however, there's an artist recording agreement. This includes things like who pays for studio time and what royalty/profit percentage cuts are.
One structure for these agreements is a 50/50 situation: a record label and an artist get together and they put out the artist's record together. Instead of royalty structure, they share the expenses then split the profits equally.
"It's a revolution in the record industry," Heraty said. "It's more fair and it's more appealing to people in our community who really love the music and want to have a fair deal all around."
Step 7: Become Famous, Accumulate Fabulous Wealth, Etc.Well, that's the plan, anyway. If your record label and the bands on it are successful, you can hire interns from local colleges and universities to help you out. If you have three or more bands on the label, consider doing a showcase at local bars and venues. Create postcards to promote your bands and your label.
(Step 8: Love What You Do)(Enough said.)
. . .Starting your own record label can be a real advantage for indie bands who are either tired of seeing demo tapes rejected or just don't want to deal with the impersonal qualities of a large record company.
It's not as complicated as it might seem (although can get expensive) to form your own company and it does have its advantages.
"It can be easier - and much less heartbreaking - to form your own label," Williams said. "You get total creative control over what you do and what you release."
Will these steps include every eventuality that might come up? No, but they should make starting your label more like finding a helpful accountant and less like getting an IRS audit.
SourcesQuinn Heraty, partner
Heraty Law PLLC
info@heratylaw.com
Tony Piscotti
tony@tonypiscotti.com
Grant Quick, co-founder
Grey Flight Records
grant@greyflight.com
Chris Williams, founder
Desiccant Records: Do Not Eat!
disclaimerwill@aol.com
Illinois Office of the Secretary of State
Business Services department
Limited Liability Company
(217) 524-8008