Why Should a Musician Form an LLC?

Establishing your own Limited Liability Company not only looks professional, but it can also help organize your business activities and provide an added layer of protection regarding potential lawsuits. Now, you may be wondering, “Why would anyone sue a musician?” But it does happen. For example, breach of contract, copyright, and trademark infringement are common legal issues musicians may run into in the ordinary course of their business. Having an LLC can help shield a person from individual liability and protect their assets in certain situations.

Let’s use a hypothetical to demonstrate how setting up an LLC (or even multiple LLCs) may be a smart move for someone who is active in the music industry.

Multiple Activities

Say Musician A is a solo artist and singer/songwriter who occasionally writes with other artists, plays in a band, and performs session work. Musician A also plans to release their own music for streaming and distribution online. From a business and intellectual property perspective, it would be a smart idea for this person to clearly establish boundaries between their activities as an individual and their activities as a band member. (It would also be wise for the band to set up its own LLC and have an operating agreement among the band members, but that’s a topic for another day).

From a Business Perspective

Before they release their own music, Musician A can create their own record label and music publishing company by creating a single member LLC (and hire an attorney to help with the formation documents and filing with the Secretary of State). They can then apply for an EIN, set up a bank account, and conduct business as a managing member of the LLC. Now, this is where it gets tricky. Can the same entity be both a record label and a publishing company? The answer is yes, and to keep the different activities straight, some people choose to file an assumed name (also known as a “DBA”) for the LLC. For example, Musician A’s LLC might be the legal name of the entity, but they can file a DBA called Musician A’s Publishing. Think of a DBA as a nickname for the business. It does not change the legal name of the entity, nor does it create a new entity, but it becomes a permissible name for the entity to use in commerce. That way, Musician A can refer to the Musician A’s LLC when speaking about their record label activities and refer to Musician A’s Publishing when referring to their publishing activities.

They can also use the LLC to hold the intellectual property they’ve created, like a catalog of songs. To do this, they would need to transfer ownership of the copyrights to the LLC. (Once they build the catalog, they can also sell the company when they sell the catalog if they choose.)

From a Liability Perspective

Musician A can also set up a “loan out” company to loan out their services as a session musician. Let’s call this LLC2. Now, let’s say Musician A, through LLC2, is hired as a guitarist for Musician B. Musician B has a problem with Musician A’s services, or lack of performance, and decides to sue the entity they contracted with, LLC2. Here, they will be going after the assets of LLC2 to recover damages rather than going after Musician A individually in litigation. Further, the assets of Musician A’s record label and publishing company are now separate and apart from the assets of LLC2. This structure will help protect the assets of Musician A’s record label and publishing company from claims against LLC2, and vice versa.

Now, it is important to note that in litigation, a court may find reasons to “pierce the corporate veil” and allow a plaintiff to recover damages against someone like Musician A on an individual level. In Texas, this is generally difficult to do, especially for contract claims, but courts look at how the LLC was actually run. Mixing personal and business money, ignoring the LLC’s formalities, or leaving the company without enough funds to cover its obligations can all weaken the protection it provides. So, it is important to treat the LLC as a real business: keep a separate bank account, sign contracts in the LLC’s name, and make sure it’s adequately funded (not just a “shell”).

An LLC is also not a one-size-fits-all type of entity. Even if someone has an LLC, they can still be held personally liable in certain situations. You’ll want to speak with an attorney who is well-versed in corporate matters as well as the entertainment industry to determine whether an LLC is the right choice for you and your business.