making your band into a business

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sathyan

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re: making your band into a business
Is it a good idea?

I know this will vary by state and country (I'm in Ohio) but others experience with creating a small business may be relevant.

It looks like it will cost $125 to register my band as a Limited Liability Corporation (LLC).

What are the advantages to operating as a legal business?

Liability - protecting personal assets. If someone sues the band, only business assets are risked.


Sales/Use Tax - Don't have to pay tax anymore, right? Does a product have to be used exclusively for the band (such as a new computer)?

Small business loans.

Separate credit rating.

Write off business losses.


Business perks from other companies - any examples?


Disadvantages ?

Does this mean my (personal) property insurance won't cover business property (recording equip, instruments)? So need to get a business insurance policy.

Have to charge sales tax

More paperwork...

Registration Fee



Any other comments are appreciated.
 
I'm amazed that more bands don't register themselves as businesses. Because 90% of them lose money trying to make money, you'd have a lot to gain as far as taxes are concerned.

I'm in Canada, so things are probably a bit different here, but for a registered business, every tax dollar you lost at the end of the year is deducted from your personal income tax owed to the government. So, if you made $30k that year and paid say $9k to the government, but spent $1k in tax on your band that year, you'd get that $1k back.

Yes, you will have to charge tax on your products and services, but nobody even has to know about that. Just add an extra couple bucks to everything and do the math at home. If you're losing money, you'll get it back anyway.

I don't see many other perks other than this. I avoid insurance when I can, so I can't answer your questions there. Sorry.
 
I'm going to jump in here, having just finished taking business associations in lawschool... ie, I'm not a lawyer but working on it, not so I can be a lawyer, but so I'll never have to pay one :)

1. Tax: yes, you can in fact itemize everything, and there are books out there showing you what you can itemize... even that mix/magazine that you bought, guitar strings... all your cds, and the personal computer. However, when you total it all up, most people will still be better off taking the standard deduction, so this shouldn't really be your motivating force, unless you're buying way in excess of 6 grand... and then, only one of you will be able to take that deduction. (the other thing is, like it or not, this would have to beyour primary business, and if you itemize, you invite the probing eyes of the irs)

2. Small business loans. not a chance. a) bush has cut SBA funding, and they are not backing as many non-SBA loans this year, as a result the competition is stiff, and nobody, I mean nobody will give you a loan without a bullet proof business plan. Which is a pain to write, and would be difficult to come up with for a band, as there are so many unknowns. (That being said, whatever you decide, you should have a plan before you choose your form of business, there is also an S-corp, Limited Liability Partnership, Partnership, etc...)

3. Credit: this is and isn't true. Look at any corporate credit card app, they ask for the credit rating of one or several of the officers/owners. worth checking out before you count on this. The biggest benefit in this arena, is the members of the band can sort of combine their own credit ratings... however, if you all have heavy debt, this won't disappear, especially not behind an llc, you'd have better luck with a corporate form.

4. losses: very true, this is probably one of the strongest benefits, especially as certain losses are taken above the line, (ie before the standard deduction) if you're really interested, email me, I'll check the taxcode and let you know what can and can't be deducted like that.

5. Personal vs. Business property, if you count purchases as business assets, and throw your equipment into the business, you're right, the BUSINESS will need a wraparound policy for its equipment.

6. you don't have to charge sales tax unless you are retailing. your best bet, is to get setup with distribution, or a manager, and let him do the sales, make yours a service company, let someone else deal with the sales aspect.

All that being said, it is very important to get a contract between your band members, that while private, puts in paper where all of you stand, who gets to keep the name if you break up, etc...

If you want to talk about any of this in more depth, you can PM or email me at rich@ radium reactor .com (spaces added for bots)

I'd be happy to go over pluses and minues of the various forms as well.

Regards,

Rich
Radium Reactor
 
You should really talk to an attorney and also an accountant to find out about the various benefits to the different types of business entity. They can also help you plan for the long haul.

I have a great music business attorney named Danica Mathes linked from www.indie411.com who will help you with all of this and more. If you want more info before you contact her, she put up some great articles you can read at www.1-record-deal-music-business.com.
 
jazzrich9 said:
...All that being said, it is very important to get a contract between your band members, that while private, puts in paper where all of you stand, who gets to keep the name if you break up, etc...

Regards,

Rich
Radium Reactor
Click to expand...

This is one statement I can honestly say I fully agree with!!! No matter how casual your relationship is with your other members you need some sort of contract. Lemme give you a simple example:

Back in the mid-late 80's I was in a band called CruxSater (The 'x' is silent) ... Three of the four of us had a lot of creative energy happening. We ended up writing over 30 songs. (FYI: we were long haired head bangers). My father poited out that I might want to look into copyrighting the works for the band to protect ourselves. I agreed and when I spoke to the other members they had the typical 19yr old attitude of "Why bother... let's just play!" So, I took it upon myselt to register the bands name, set it up as a business etc... out of my own pocket. When I asked the others to sign on they didn't want to bother. All the music was subsequently registered in the band's name which was registered to me as a sole proprietor. When the band broke up finally after 3yrs there was the usual "I wrote this song... you only added a bass line..." etc. The arguement was quickly settled when I pointed out that I was the only person holding any legal claim to the music in question, and I had the documentation to back it up.

A harsh lesson for some people I was once very close to. But business is business.

- Tanlith -
 
Be careful about "deductions"

It would be a good idea to buy an hour's time from an accountant and learn the ropes about what you can and can't do. Deductions are fine, but in the States, you deduct the expenses from income derived as a result of the enterprise. No income = pretty much worthless deductions. There are exceptions, and if the band is your primary business, the deductions become real and very useful, but mostly because the income will have to be there for you to eat. You want to avoid the "hobby loss" rules. So go to an accountant, ask the basic questions, and get reliable answers.
 
Re: Be careful about "deductions"

Treeline said:
It would be a good idea to buy an hour's time from an accountant and learn the ropes about what you can and can't do. Deductions are fine, but in the States, you deduct the expenses from income derived as a result of the enterprise. No income = pretty much worthless deductions. There are exceptions, and if the band is your primary business, the deductions become real and very useful, but mostly because the income will have to be there for you to eat. You want to avoid the "hobby loss" rules. So go to an accountant, ask the basic questions, and get reliable answers.
Click to expand...

Actually if you want to save some cash, just go to your local revenu agencey office and ask there. I don't know how it works in the US, but I went to my local Revenue Canada office and asked at the information booth. I only had to wait about 10 min then I was sitting in an office with a real nice lady who was glad to answer any and all my questions about what I could and couldn't claim and she even explained why certain deductions were allowed in some businesses but not others etc.

- Tanlith -
 
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