Monday, January 6, 2014

Sole Proprietorship Isn’t for Musicians In the previous blog post I wrote entitled Why Record Labels Won’t Sign You, I embedded a table which listed several business entities, including Limited Liability Company (LLC), S Corporation and C Corporation (Inc.), Non-Profit, General Partnership, and Sole Proprietorship. Sole proprietors are the same as general partners, except that general partners are two or more individuals with ownership. One of the main reasons for choosing an entity is for taxing purposes, as one entity is best suited for you depending on your business. Entrepreneurs and investors weigh the pros and cons when choosing the appropriate entity. In some cases, they decide to change their entity to another, even long after the business first launched. But I want to encourage my fellow music professionals to never structure a business as a sole proprietor or general partnership. The only reason why I suggest against filing as such is because one’s personal belongings are at risk in the case of a lawsuit. When McDonald’s is sued, for example, none of the owners are personally liable for damages. That means the owners do not have to go in their personal bank accounts. The company itself is sued. However, as a sole proprietor, the individual and the business are the same. The music industry is very litigious. Too many lawsuits are filed. Copyright holders sue others in response to possible infringement. It is therefore too risky for musicians, record labels, songwriters, producers, composers/beat makers, and artist managers to file as sole proprietors. Imagine paying thousands of dollars out of your pocket. You’re bound to be in debt with the possibility of filing for bankruptcy, which isn’t good for your personal credit history. This is why those working in the music and entertainment industry are recommended to “incorporate.” The word incorporate means to create a body (person), as in a corpse. Your business becomes a person (although not human) and you conduct business on behalf of that person. So when a business face litigation, the incorporated body is in trouble, not you. On the other hand, a sole proprietorship and general partnership are considered as “unincorporated” businesses. If the business gets sued, the owner potentially loses his house, cars, and other personal possessions. Be sure to file as a limited liability company (LLC) or corporation (Inc.). If you’re already a sole proprietor or general partnership, STOP making music. Don’t do anything else. Postpone all collaborations until you change your entity. If you haven’t filed as anything at all, then the government may see you as an individual contractor, which may be just as bad (so to speak) as a sole proprietorship. Christopher Patton Hot Bird Music The business and music development services at helps you beat 90% of musicians and companies that fail.

No comments:

Post a Comment