Updated: Dec 31, 2019
Someone called my office this week and asked a great question. They asked, why does a band need an LLC? (Limited Liability Company) This is a great question and it's something that there seems to be a lot of misunderstanding about. The first thing I want to do is make sure you understand what an LLC is. When I say LLC, I’m talking about a real company that is registered with the state where you live. Creating an LLC is one of the first things you need to do when you are starting out in your music career. Here are three reasons why creating an LLC is one of the first things you should do when you are starting out in your music career.
1. The first reason why you, your band, whatever it is that you’re trying to protect needs an LLC is because it creates a liability shield. When I say liability shield, I’m talking about something that acts as a barrier for you, or your band. If, for example, something happens and someone has a claim, or an issue with you. Instead of having the claim directly against you as an individual, you have a limited liability company, or an LLC, to protect you and what you’re doing.
2. The second reason why you need an LLC is because, it’s just a good business practice. You’ll find as you go throughout your career that you might want to set up a couple of different LLC’s. You can create an LLC that acts as the company that you put all of your merchandising efforts into. Every time you make a contract for your merchandise endeavors, you do it on behalf of that LLC. Maybe you do another LLC that’s just for your music releases. Of course, you can always just create one singular LLC. An LLC that operates as the main functioning company for the majority of your music career.
3. The third reason why you want to start an LLC is because it makes you risk adverse. Having an LLC means that you now have a company protecting you. If your company gets sued and you lose, you get what’s called a judgement. If someone has a judgment against you, and it’s happens to be more than your company can pay, the LLC can go bankrupt. The difference ends up being that instead of you personally having to go through bankruptcy, only your LLC goes bankrupt. This takes us back to the original tip of creating a liability shield around you. It’s a lot harder to bounce back from personal bankruptcy than it would be for your LLC. The sooner that you can set up and LLC, the better. Just remember to actually use it. When you sign your contracts, sign your contracts on behalf of your company rather than your name individually. Keep yourself and your career safe behind your SHIELD of protection!
These three reasons are good, prudent steps to take to keep yourself protected, your band protected, and most importantly, to keep your fans protected. Now that you know the three important reasons why you need to set up an LLC, you can rest assured that you have now taken a big step towards really keeping yourself protected. Create your LLC and get going today.