STARTING A RECORD LABEL

STARTING A RECORD LABEL


Releasing your own music on CD means that, for all intents and purposes, you've become your own record label, even if you didn't go about the administrative tasks of setting up a separate company. A record label is in the business of releasing records; since you've done that or plan to do it very shortly, you are already performing the job of a record label. It makes sense to take a few simple, additional steps to formalize what you are doing under the business title of Record Label.

The advantages of doing this are:

Giving your activities a separate name helps you establish an identity or a brand name, and gives it a professional look (plus, it just sounds better).
When your recordings sell, you can accept checks made out to the label, instead of Joe Blow, Musician. This establishes your income as coming from recording activities.
If you ever decide to record or release music by other musicians, their music can be produced under your label.
As a separate business you can lease equipment (computers, recording equipment), establish a commercial bank account, and accept credit cards as payment for your records.
Many labels were started by artists with the sole purpose of putting out their own music. The classic story, often repeated, is A&M Records, which Herb Alpert allegedly started with $500 and a dream. You can begin small and just put out your own music on your own label. At some point you may decide it will be time to release other musician's work on your label. There are some benefits to doing this; a multi-artist label has an easier time getting distribution deals and when your records are not selling well, income from other artists on your label may sustain you and keep the dream alive. Just ask Madonna.

Don't think it costs a lot of money to set up a record label; the costs associated with manufacturing your cassettes or CDs will far overshadow any money spent on giving your activities an official title.

For now, let's just get a record label established to release your own music.

CHOOSE A NAME

Choosing a name for your new label can be the most fun activity in this process, and also the most time consuming. That's because in your best efforts to come up with a creative, original name that fits your music or personality perfectly, you may pick a name that's already being used -- by a record label, production company, band, or even a dry cleaner. Legally you can use the same name as a dry cleaner (example, Cyclone Records and Cyclone Cleaners), you just may prefer to avoid direct name recognition competition with established businesses in your area. You obviously can't choose a name in use by someone in the same line of business.

There have even been cases where very large companies whose products and services are available around the world have prevented businesses (through lawsuits) from using their names or trademarks in any other business For example, Apple Computer did not have to change their company name, but they were prevented from entering into business activities involving music by the Beatles' record label, Apple Corps. I suggest avoiding the following label names: McDonald's Records, IBM Music, Microsoft Records, Xerox Music, etc. You might even be advised to avoid names like Microshaft Records; corporate lawyers are so powerful they might be able to cause plenty of headaches for you just when you finally secure that national distribution contract.

Having said that, choose a name that you really would be proud to be associated with if it wasn't your own label. It can give the music buyer a sense of the type of music on the label (Shrapnel Records, Earth Beat!, Higher Octave Music, Concord Jazz, Guitar Nine Records); it can be the last names or initials of the owners (A&M Records); it can be generic to reflect a wide variety of music on the label (Electra, Critique, Capitol). This label name will be your calling card when distributors, record stores, or larger labels refuse to deal with you as an individual artist or band.

To see examples of the wide variety of names in use out there, check out some of the lists of record labels and record companies on the WWW. Use a search engine like AltaVista on the Internet to help you find this information. After your record label is established, make sure you e-mail sites like these with your label name and mailing address, so the world knows your new record label exists.

Once you've chosen a name for your label, always use the word 'we' when talking about the label, even if you're a solo artist. "We started this label to bring more industrial world acid punk music to the thousands of fans who can't find it in their record stores," or "We plan four releases over the next three years". Even if you are alone at first, more than likely you will have people helping you and the label's product is really a collective effort, even if you are personally taking all the financial risks and reaping all the financial rewards.

FILE A FICTITIOUS NAME STATEMENT

All businesses must file for a fictitious name (sometimes known as a D.B.A., Doing Business As) license with the secretary of state or registrar of deeds in their home state, giving them the right to do business under that name. A search is performed to ensure that the name is not in use by another business in the state. When I started Guitar Nine Records, I went to the Registrar of Deeds office in downtown Raleigh, North Carolina, filled out the form, looked up the name in the computer with the help of one of the workers there, and paid my fee. It can take less than fifteen minutes to do, and you don't need a lawyer.

Given the fact that you may find the name you've chosen to be unavailable, select a few names in advance, so you don't waste a trip.

CHOOSE A FORM OF BUSINESS FOR YOUR LABEL

There are three basic forms of business you need to concern yourself with at this time. One is a sole proprietorship, which is a single owner situation where profits, losses, risks and liabilities are all the responsibility of you, the owner. The second is a partnership, which is simply where two or more partners share the risks and rewards. The third form is a corporation, which is a separate legal entity, which limits the owners' (known as stockholders) liability and risk to the property and assets of the corporation.

Choosing a sole proprietorship is the most straightforward and simplest option you have as a solo artist. Your profits or losses are reported on IRS Schedule C, which is attached to your personal income tax return at the end of each year.

Partnerships are most often started by duos or bands who each wish to contribute something (money, time, services) to running the label. I strongly advise drafting up an agreement, which states each partner's contributions and responsibilities, how profits and losses are to be divided, and how the partnership can be dissolved. Partnerships pay no additional income tax; however, an additional form must be filed by every partner each tax year, stating the total income from the partnership and the income applicable to each partner. This form is attached to your personal income tax return at the end of the year.

If you want to set up a corporation, you may have to seek the advise and help of an accountant or lawyer to help you get started. You can start out as a sole proprietorship or partnership and later incorporate if you feel it would be in your best interests. Talk it over with others who have made the decision to incorporate to find out why they felt it was necessary. I have yet to hear any really strong reasons for a small label to incorporate until they have substantial revenue, or have been in business for a number of years.

Again, what you are doing at this point is making a choice. Unless you choose to incorporate, you won't have to fill out any state or federal forms at this time. At income tax time you will want to notify your accountant or tax preparer what business form you have selected so the proper tax forms can be completed and filed.

GET A BUSINESS LICENSE

You can usually obtain a business license in person (by going to the city or county business license office), or through the mail (by requesting the forms on the phone). There is a small fee to pay for getting a business license, and one of the most important questions they will ask you is where you plan to conduct your business. If you are putting your home address down as your business address, they will usually have you speak with someone in the zoning office. The officials in zoning want you to assure them running your record label out of your home will not disturb the neighbors. If your record label is considered a mail order company or wholesale company, you usually won't have a problem with zoning. They just want to make sure Federal Express or UPS is not coming by four times a day, or that you are actually manufacturing the discs or cassettes in your home. Simply assure them this is not the case.

If you think you might be doing things that would put you technically in violation of some very strict zoning laws, you need to get a mail box (very much like a Post Office box) at Mail Boxes, Inc., or a similar company. They are usually located in at least every other strip mall in most towns and cities. The advantage over a Post Office box is they will accept UPS deliveries for you, and technically speaking. you are running your business from some place other than your home. In the government's eyes you are renting office space; it's just big enough to hold a few letters, that's all! Then when you fill out the paperwork for the business license, you can use your new 'suite' number and address on your application as your legitimate business address.

OPTIONAL: OBTAIN A TAX ID NUMBER

If you are doing business as a sole proprietor, you will not need a federal Tax Identification Number or TIN, unless you decide to hire employees. All income for sole proprietors without employees can be reported using the owners Social Security number. Partnerships and employers should go to the library or a local IRS office to request an application for a tax ID number. This form can be mailed in, and when your receive your number, use it when filing forms for state and local governments anytime a tax ID number is requested.

OPTIONAL: OBTAIN A RETAIL LICENSE

If you intend to sell some or all of your records directly to the public, you need to get a retail license or permit. Most states have sales tax laws designed to turn retail businesses into tax collectors. If you sell your CD to someone in the state, they expect you to collect the applicable state sales tax, and turn in the tax every month (sometimes quarterly) to the state Department of Revenue. Records that are sold wholesale or retail to out-of-state fans (through mail order) are exempt from sales tax.

Go down to the state Department of Revenue office or call them and ask them for the form to obtain a retail license or permit. A small fee will generally be required and in some states you must renew the license each year. Once your permit is mailed to you, you will be given detailed instructions on how to file the sales tax forms each month.

CONGRATULATIONS, YOU NOW OWN A RECORD LABEL!

There's really not much to this process after all. When I started Guitar Nine Records, I did everything I described above in one afternoon. I had the advantage of living in the state capital where many of the offices are located, but it's still not a big deal no matter where you live.

There are still some additional things you may want to do once your CD is completed. Your new record label can function as a publishing company as well if you don't want to create a new business entity to handle the publishing income from your records. You will want to join a performance rights organization like ASCAP or BMI as a publisher (using your record label name) to ensure that any performance royalties from records your label releases end up in your bank account. Visit the ASCAP (www.ascap.com) and BMI (www.bmi.com) WWW sites for more information on how to join, both as a publishing company and, separately, as a songwriter.

Get the word out that your record label exists. You can get a local artist to design a logo which can be used on stickers, posters, your CD releases, etc. Use the Internet to promote the fact that your label is in business and mention the type of music you plan to have on your label. You can get stationary and business cards made for correspondence with distributors, other labels, artists, or any other contacts you make in the music business.

However, your main responsibility as a new label owner is to record and put out the best music you are capable of releasing. We are all looking forward to the results!