Once you decide to pursue music seriously, LLCs cross your mind. You've probably consumed a lot of YouTube videos on LLCs, but most of those videos are pretty standard and don't address it from a music industry perspective. This is why you feel confused about what to start with first. Knowing your starting position is the difference between mastering your business and watching it crumble.
Standard LLC (Operations + Holdings)
Operations and holdings are combined to simplify the company and build value quicker. This method is chosen when earnings are less than $120k from IP and service transactions (shows, features, etc.) are less than $1k. This method is recommended for anyone starting in this business as building an LLC for every use case can get very complex and expensive very fast.
Loan Out LLC
This type of LLC loans your services out to a record label so you don’t sign directly to the record label as a person. It is always backed up with an inducement letter stating that if your LLC fails to deliver its services, you will personally be responsible for handling it. The reason you would use this structure is because of tax purposes due to the amount of money you’ll be getting from the advance. You are still personally liable for the services you are providing to the label.
Operations LLC
This LLC is created specifically for services, such as engineering, performance, production, and writing services. When your service fees start to get really exorbitant, you don’t want them to mix with your intellectual property. This is used for tax purposes and to keep the liability away from your precious master and publishing catalog.
Holdings LLC
A Holdings LLC is designed to hold IP. Its only responsibility is equity in the ownership of songs and other IP-related assets. Some choose to create these companies in Wyoming or Nevada for anonymity and because there is no bank account to set up, making the business highly untraceable. Because it’s not making money, it is not double-taxed due to no money being passed through it. This business is primed for moving into a trust. Eventually, as the business builds value, portions of it can be sold or used as leverage for other deals based on its earnings and value.
Parent LLC
A Parent LLC owns several child LLCs. In many cases, these LLCs can consist of operations and holdings LLCs. Though you can use a parent LLC for yourself personally, most will use this LLC to acquire ownership shares in other businesses. It is an acquisition machine.
Why Should I Know This as a Beginner?
It’s always great to know where you’re going. If you can see the road ahead, your future becomes a bit brighter with each step.
When Can I Start a Parent LLC?
There are only two use cases:
When you’re ready to invest in other small record companies.
When you’ve amassed enough risk to separate your companies and shield ownership through the parent so you can secure more investment capital for all of the companies underneath it.
This is an advanced setup not meant for beginners.
Why Doesn’t the Holding Company Have a Bank Account?
To keep its anonymity, the holding company is only used to retain ownership of the intellectual property. All of the royalties earned from the property can be received through a publishing company operations LLC while the IP builds the value of the company through exploitation from the publisher and/or record company. Hence the name holdings company.
Check This Out!
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Starting Off Small
Starting off with one LLC allows you to get your bearings straight and wrap your head around operating in this business. It prepares you to separate your assets, allowing you to have a more well-executed future.
Going Big Too Fast
Going big too fast causes massive confusion because you haven’t gone through the training stages to operate these companies properly on their own. This can lead to significant mistakes and lost value, which is crucial for investment and acquisition.
Conclusion
If you were struggling with:
What LLC to choose,
How to grow your enterprise,
And how to build your empire,
You now have the means to get this done.
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