This guide address Why Incorporate a Music Company or Record Label. The process of actually setting up a legal entity will differ a lot depending on the local legislation in your country. We can’t really go through all of it, so we’ll focus on Nigeria instead. If you are planning to set up a label in another country — check in with local procedures for setting up an enterprise.
How to choose an Entity Type for a Music Company
What type of entity should a Musician form?
The entity type you choose will depend on your needs. However, most bands will form an LTD. An LTD does not have as many corporate formalities and will allow you to incorporate musician rights and rules as you see fit.
The Private Limited Liability Company (LTD) is ideal for most record-label businesses. An LTD is easy and inexpensive to set up and has the least administrative requirements of any formal business entity.
What exactly is the meaning of Ltd.?
The essential characteristics of a limited company are as follows:
- The owners of a private company have limited liability. The company’s liability cannot be assumed as theirs.
- An Ltd. company has a limited number of shareholders.
- The owners are not allowed to sell shares/stocks publicly.
- The number of owners is limited to fifty shareholders.
Why Incorporate a Music Company?
Incorporating your Music Company or Record Label will provide you with many benefits, including:
- Limited Liability
Ltd. business ensures owners have limited liability. Owners’ resources will not be touched when a company owes money to other entities. To recover the debts, the authorities will only confiscate resources owned by the entity.
The shareholders will lose only their stock investments but not their savings or investments. In contrast, sole proprietorships have unlimited liability. As such, the owners are not protected in case of a lawsuit. Therefore, their assets can be used to cover the damages.
- Record label protection
The music you create under your company can be owned by the company as a separate entity. This provides the record label with protection. Should you and your artists part ways, there will be no dispute as to who owns the music.
- Continued Existence
Unlike a sole proprietorship, an Ltd. business is a separate legal entity. Typically, private companies can exist when the owners die. This is not the case in a sole proprietorship, where the owners control all business activities. The lack of legal separation connotes that the business will exist as long as the owner does. However, the Ltd. company is like a corporation, which means that it will continue its operation in case of the owner’s demise.
- Professional status
Your professional status and image will improve considerably when you start trading as a limited company. Whilst the activities, ownership structure, and internal management of your business may be the same as when you were operating as a sole trader, companies are held in much higher regard and create a better impression.
A more professional image, coupled with the benefits of corporate transparency, could also benefit your business in many other ways, such as:
- attracting new clients and investors
- accessing a wider range of lending opportunities
- expanding into different locations or markets
- creating a valuable and trusted brand identity
- competing on an even playing field with other businesses in your industry sector
- Separate legal identity
Unlike the sole trader structure, a limited company is a legal ‘person’ in its own right, with an entirely separate identity from its owners and directors. As a result, companies can enter into contracts in their own name and are responsible for their own debts and liabilities.
The owners are only liable for the value of their unpaid shares or personal guarantees, rather than the full extent of the company’s liabilities. If a company becomes insolvent, it is the business itself that is declared bankrupt, not the shareholders or directors.
Furthermore, this means that companies enjoy perpetual succession and survive the death or ownership of the original members. The business can be sold or transferred to other people at any time, thus enabling the company to continue to exist with minimal disruption to clients and employees.
- Owning Property
A company being a juristic person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim upon the property of the company so long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.
- Capacity to sue and be sued
To sue means to institute legal proceedings against or to bring a suit in a court of law. Just as one person can bring a legal action in his/her own name against another in that person’s name, a company being an independent legal entity can sue and also be sued in its own name.
- Borrowing Capacity
A company enjoys better avenues for borrowing funds. It can issue debentures, secured as well as unsecured, and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.
- Credibility and trust
The professional status of a limited company structure will add valuable prestige and credibility to your business. In fact, certain businesses and agencies are only prepared to engage with other incorporated businesses. This is usually due to the level of risk involved in the contracts they award.
- Investment and lending opportunities
Companies can have multiple owners, so it is possible to raise additional capital by selling portions (‘shares’) in the business to new investors. Generally, companies also have access to more lending opportunities than sole traders, and certain banks will only lend to incorporated businesses.
Furthermore, it is often possible to secure a loan for a company without the need for shareholders or directors to provide security against their own property.
- Protecting a company name
All company names must be entirely unique, so no two companies can be set up with the same name, or even names that are very similar to one another. The official name of your company cannot be registered and used by any other business. A sole trader’s business name does not enjoy this protection.
- Splitting income
If you own a limited-by-shares company, you can issue shares to your spouse or family members. This will allow you to split your business profits and minimize personal tax liabilities.
How to Incorporate a Music Company?
Overall, private limited companies offer several key benefits which can be extremely useful for businesses of all sizes. By incorporating and adhering to the relevant formalities, companies can enjoy limited liability, tax advantages, and more significant business credibility. In addition, private limited companies are much easier to raise capital from shareholders and third-party investors. With all these benefits in mind, it’s easy to see why this company is so popular amongst entrepreneurs and small businesses.
Incorporating a Music Company is not unlike incorporating a traditional business. While it is possible to incorporate your band on your own, it may be worth considering taking advantage of services that will take care of the incorporating process for you.
Record Label Incorporation Service
1710Media is equipped with accredited experts and the necessary resources to assist you in completing the Incorporation of a Music Company / Record Label as a Private Company Limited by Shares (LTD) in Nigeria.
- Incorporation of a Private Company Limited by Shares (LTD) in Nigeria.
- Delivery of Certificate Of Company incorporation.
- Drafting and delivery of approved Memorandum of Association and Articles of Association (MEMART).
- Delivery of Status Report.
- FIRS’ Tax Identification Number Inclusive.
- Corporate Bank account opening.
- 3 to 14 Business Days Delivery.
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