Do You Have to Form a Corporation to Sell Original Songs?
Songwriting can be a lucrative career. If an individual is contemplating a songwriting career, then they must have the proper business structure for tax accounting and also, guard against copyright infringement and publishing claims. A corporate structure can be implemented to control copyrights, performance rights and publishing rights for a songwriter who wants to keep his/her independence while at the same time, enjoy the fruits of their labor.
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Forming a Corporation
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The most desirable form of corporation to form as a single songwriter is a Limited Liability Company (LLC). An LLC combines aspects of partnerships and corporations. An LLC has more flexibility than an S or C corporation, and offers protection and various tax breaks for a small business venture. The LLC structure is fast becoming the most popular form of corporate structure for individuals who don’t want to subject themselves to the tax rates of being a sole proprietor. Check with your applicable state for filing procedures.
Copyright Issues
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When assigning copyright status to your original music, you can create an online account at the Library of Congress (www.loc.gov). You can use your company name and copyright those songs under your personal or company name. For example, if you create a company called “Four Knights Music Co” then, you can actually assign those copyrights in the Library of Congress catalog under your company name. When you complete the process, you will receive a receipt with a copyright number on it for your records. You can also search your records for more information through the query function on the Library of Congress web-site.
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Publishing Issues
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Publishing rights allow musicians to make money by using the established rates established by Congress to allow other artists to use their music. When another artist wants to record or use a song on a sound recording, they must pay royalty rates to the original composer(s) of the song. A corporate structure helps in the area of tax write-offs and accounting. A segment of your create company can address publishing issues. For example, a corporate structure can hold various companies. You can create a “Four Knights Publishing Company” as a subsidiary function of your corporate structure.
Working with Distributors
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A corporate structure also helps when it comes to establishing music distribution deals. A distribution deal is when a music distributor makes an agreement with an artist to distribute music for a certain fee or cost. Most distributors prefer dealing with a songwriter who has a viable corporate and legal structure and some of these music distributors will ask for a Federal tax identification number for tax purposes. At the end of the year, distributors send a Statement of Earnings which a songwriter must report on their taxes. A corporate structure allows the musician to keep track of distribution fees with the potential of writing those fees off as a small business.
Benefits
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The benefits of a corporation are three fold. It helps define organizational order if a songwriter is creating a publishing company to compliment his or her copyrighted works. It allows you legal control over your creation and how you distribute your “intellectual property” and it provides special tax breaks which would not happen if the songwriter is a sole proprietor. The tax rates would be extremely high. With new technologies in the business area of music, a corporation is more viable for songwriters who make a living as a full time musician or composer.
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