If you make money by playing music, you are both a musician and in business. There are several other ways to structure your business, each having advantages and disadvantages to be weighed (with the advice of a lawyer and/or accountant) against practical needs and goals. Below, we explain the most common entities. For a more detailed discussion, visit our Independent Filmmaker pages.
As a sole proprietorship, an unincorporated business owned by an individual, you have total control over all decisions, get all the profits, and pay everyone else’s salary. You also will be personally liable for all debts and legal obligations. The income generated by your business is considered personal income and is taxed accordingly by adding Schedule C to IRS Form 1040 to calculate the business’s profit or loss and then completing Schedule SE to figure self-employment tax.
• No legal steps are required, so no lawyer is needed
• Easy to create and operate.
• Few costs are involved.
• Relatively simple tax compliance.
• A good choice for solo artists and band leaders. Many solo artists initially operate as sole proprietors and graduate to a different business entity, when appropriate.
A Note About Fictitious Names
When the business name is substantially different from the owner’s full legal name, registration is required. In Illinois, file with your local county clerk’s office; in Missouri, the “fictitious name” of the business must be registered with the Secretary of State.
Most bands are partnerships. Under a partnership (either general or limited), defined as two or more persons in business together, you would split the profits among the members and share decision-making. Warning! The partners are personally liable for all debts and liabilities of the business partnership, regardless of which partner incurred the liability. Your share of the partnership income is considered personal income and is taxed as such.
You don’t have to do anything formal to create a partnership. When two or more people contribute towards a business and share in the profits without having any other agreement about the form of the business, the business is automatically classified as a partnership.
Although a general partnership can be formed by a handshake, it is strongly recommended that an attorney prepare a written partnership agreement. The most compelling reason for preparing this agreement is to guarantee the continued existence of the partnership in the event one member leaves the band; without an agreement, the departure of that partner automatically ends the band partnership.
• Lawyer recommended.
• Easy to create and operate.
• Small cost involved.
• Relatively simple to file tax returns. Owners file a federal partnership tax return, and adjust their personal tax returns to account for these profits or losses reported as a partnership.
• A legal partnership is not the same thing as a band partnership agreement.
• May be required to file a fictitious name registration.
Limited Liability Company
A limited liability company (LLC) is a partnership-corporation hybrid that provides corporate-like liability protection for the owners and partnership-like flexibility in management structure. The LLC structure is commonly used by professional performing personal services and may offer more favorable tax benefits.
• A lawyer is necessary for LLC formation, but the filing fee is relatively small ($105 in Missouri; $500 in Illinois).
• No annual registration is required in Missouri; Illinois does require annual registration along with a modest fee.
• A good business entity choice for bands that earn a substantial amount of income from touring and have serious concerns about taxes and personal liability.
• Band members have limited personal liability for business debts.
• More expensive to create and operate than a partnership or sole proprietorship.
• Requires strict compliance with IRS rules and regulations.
• A written operating agreement is strongly recommended.
If you live in Southwestern Illinois or Missouri and would like an attorney to help you decide on the most appropriate business entity for your band, please apply for assistance.