I recently had a guitarist come to me and ask if it made sense to form an LLC in the name of his band.
A much too short and oversimplified answer is that it depends on how much money you’re making. If it’s a lot and you’re paying taxes on that revenue, then it’s probably worth it. If you’re like most musicians and you don’t have two nickels to rub together, then it might not be worth the cost.
For those who don’t know, L.L.C. is short for limited liability company. As the “company” implies, a business entity like a corporation that is registered with the state, and as the “limited liability” implies, it means that the members of the company can’t be sued as individuals.
So let’s say your lighting guy was stoned when he set up and the club catches on fire during a gig and 100 people suffer a painful and agonizing death. The bereaved family members can sue the shit out of your band’s company but they won’t be able to get at your personal car or the money in your checking account (assuming you have any in there).
Forming an LLC also means that it will be easier to write off your band’s expenses as business expenses. Assuming you already were paying taxes on your band earnings, you can now claim guitar strings, liability insurance and the band’s van as business expenses to reduce your tax liability.
To register an LLC, you must submit an operating agreement. This agreement will set out how the company will be run. This could be your opportunity to square away those little details you’ve been avoiding talking about like how you’re going to split up the profits and/or publishing rights and what the procedure is when you want to send the talent-less lead singer out to pasture. Spelling this all out on paper now will avoid potentially monumental conflict down the road.
I’ve also heard that maintaining an LLC shows that you’ve got your shit together if that makes a difference to anyone who is concerned about your professionalism. Personally, I don’t really see it making that much of a difference, but who knows?
Sounds great, right? The catch, of course, is that forming an LLC costs money and the company has to pay at least 800 dollars in taxes every year, regardless of how much money you actually made. So unless you are making some pretty good money at playing music, it might not be worth the hassle and paperwork.
An LLC also leaves a pretty sizable paper trail. There are a lot of forms to fill out and you (or your attorney) have to keep up with the annual filings and tax returns. If you’ve been getting paid in cash and your go-to slimy club owner wants to keep it that way because he’s been telling the IRS that Friday night is open mic night, then maybe it would behoove both of you to keep things just the way they are.
Generally it takes a lawyer to do this stuff and they generally want to get paid for their work, but who knows? Maybe a lawyer who is interested in music would do it in exchange for an opportunity to represent you down the road when you hit the big time or just getting to drink on the band’s tab at your next show.
Any questions? Email me at kndix (at) hotmail (dot) com
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