How To Start an Independent Record Label in 13 Steps

If you're an unsigned musician, one option is to start your own record label. It will be easier to find distribution and public relations deals if you have a catalog of music to draw from and not merely a single song or record.

If you're starting a label and want to sign a collective of musical talent, decide early on what kind of talent and genre of music you want to feature. You will need to find a musical niche to stand out. It's best to make one music genre your primary focus and expand out later.

You know your musical vision better than anyone. Find a business name that expresses that vision in a word or two. Make it short but memorable. Use your creative talents or collaborate to develop a visual design and logo (mark) that goes with that name. Find a look that caters to the aesthetics of the musical genres you'll be working in.

Once you have decided on a name for your record label, you must protect it. This is true even if you don't open your new label right away. First, ensure the label name is available as an internet domain name. This is the first step in web development.

Then, visit your state's secretary of state's website to see if the name is available and register it.

Next, trademark that name and your corresponding mark with the United States Patent and Trademark Office (USPTO). It helps to hire a trademark lawyer to do this. You can then register that trademark with your state.

Your first significant legal decision is to decide which type of entity to register your business as with the state. This makes your business legitimate in the eyes of several entities, including:

• The legal system
• Banks and investors
• Potential talent
• The music industry

This decision should be a priority and made in consultation with your lawyer. Business structures all fall under state law. Unless you have experience starting companies, you will want legal advice in making these decisions.

If you're operating alone and haven't registered anywhere, your state will legally deem your business a sole proprietorship. Sole proprietorships have some significant cons. You're responsible for every bill out of your personal funds. There's also nothing in place to protect your personal assets from the debts and obligations of your business. It may be wiser to register your business as a different structure.

Most small businesses, including record labels, start as limited liability companies (LLCs). LLCs have corporate officers and incorporation papers. Under most circumstances, LLCs also keep the corporate principles from personal liability for company debts.

Suppose there are partners involved who all have the same interest in the company. In that case, you may want to form a partnership. It's also possible for the partnership to form an LLC. Legal entities can be flexible and structured to suit your needs. So, speak with your attorney about options.

You must write a formal document detailing how you intend to succeed in this highly competitive business. This is called a business plan.

Plus, most banks and financial institutions will only lend money to independent music label owners with a solid business plan.

There are several ways you can put together a solid business plan:

• Build your business plan yourself through a reputable software program
• Work with a small business attorney with expertise in writing business plans
• Look at the business plans of other successful record companies for inspiration and guidance
• Hire a business consultant to write your business plan

Consider all options before proceeding. Look at the structures of other professional business plans. Formatting is key if you intend to use this business plan to attract investors.

Marketing is a significant part of most business plans. But the music industry treats marketing differently from any other industry.

Unless you don't intend to grow the company, you should likely hire a music marketing company. You will also need to develop a front-end look that consumers will see. This look must differentiate you from other record companies.

Most small businesses start on a budget of personal savings or income. The record business is no different. But, you will also likely need some money from outside financing.

Financing is where a detailed business plan pays off. The primary source of funding for a small business is a loan from a local bank. A business plan accounting for your record label's necessities will go a long way in obtaining a loan. Still, you may need to provide some collateral to secure your business bank loan.

Another possible source of startup costs is a neighborhood grant. You can check with local nonprofits and community organizations to see if they offer grants. You still must provide them with a business plan that fits their mission.

The U.S. Small Business Administration is a great resource for entrepreneurs to secure funding for their new businesses. SBA-backed loans can simplify the process of getting needed funding for your business.

If you're successful, you will need to hire employees at some point. If you have any income, you will need to pay taxes. A business accountant can handle these aspects of your business. But there are several things you can do to keep your affairs in order:

• Obtain your federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Do this as soon as you register your name with your state or on the internet. Only secure your EIN directly from IRS.gov.
• Make sure employees are legally able to work in the United States. Fill out the proper paperwork to document this (an I-9 form) if necessary.
• Run comprehensive background checks on all new hires.
• Comply with all state and federal employment laws.
• File your employment taxes. This is best done by your accountant and can have serious consequences like fines or criminal charges if not completed correctly.

Depending on when you open up shop, you may not need insurance for your business right away. But you should look into what business insurance is appropriate for your operation.

At a minimum, you will likely need:

• Business liability insurance: Your financiers may set minimum policy limits.
• Worker's compensation insurance: Obtain this as soon as you hire your first employee.
• Commercial umbrella insurance: Consider this for accidents and the unforeseen.

You should contact an insurance agent when you start planning to understand what you will need and its cost.

Depending on where your offices and recording studio are, you may need to obey local ordinances. You may need:

• Local business license: You will need construction permits to build your space. You must pass fire inspections to receive a certificate of occupancy.
• Sales/use tax license: Depending on the jurisdiction, you may need a sales/use tax license or a sign permit.

Assuming you're renting commercial property, you'll also be subject to landlord-tenant laws.

Record companies are dependent on the musical talent they sign. The ongoing search for new and emerging talent is a necessary part of the business. Unsigned artists are everywhere.

Get creative with how you seek out up-and-coming talent. Some ideas you can try include:

• Hold talent hunts in your city
• Network at local music venues
• Attend live performances and open mic nights
• Partner with music schools and colleges
• Scan self-publishing online platforms like YouTube, SoundCloud, and Bandcamp

You must have the requisite musical tastes to find artists who are the right fit to record and promote through your label.

After finding the talent, you must negotiate with them and sign a contract. The agreement must be fair to all parties and should be in writing. Always put your deals in writing no matter what, even if the talent is your best friend.

Consider enlisting an attorney for this part of the process. Be hands-on with these deals to best represent your interests. Be prepared to negotiate several details.

First, how will your artist record their music? Some artists record professional-sounding music from their laptops. Still, a professional recording studio with equipment is necessary under most circumstances.

Renting time in a recording studio is more affordable than building your own. Still, renting can be costly unless you have money to spare. Some additional questions to consider include:

• Are you advancing any other money for extra expenses?
• How are you dividing up the potential income?
• Does the artist get approval over promotional materials and recording costs over a certain level?
• Can the musician's accountant audit the books?
• How long do the parties intend to participate in the deal?
• How many albums must the artist record in that timeframe?

Once all parties agree and sign the contract, your record company will have its first official deal with a recording artist.

There are two significant steps to selling talent: promotion and distribution. They go hand-in-hand, and you must do both well to make your way onto listener playlists.

You can't have advertising without distribution, or new music won't reach potential buyers. Likewise, you can't have distribution without advertising, or no one will know about your artists or their music.

Some companies specialize in one area or the other but aren't experts in both. If you get professional help with promotion and distribution, you may need to hire two companies.

Promotion and Marketing

Promotion these days can start with a social media blitz. It works well to coordinate this with a release to music streaming platforms.

You can also build excitement around your new label by selling merchandise. T-shirts, coffee mugs, hats, stickers, and other items are effective ways to promote your brand and bring in additional revenue.

There are many music promotion companies. Many of these promoters specialize in types of music, geographic areas, and more. The right promotion company for your label will depend on your business's needs, goals, and compatibility of your working styles.

Thoroughly research and select a company that aligns with your vision for your label. Carefully look at your budget, ask questions, and carefully review any contracts before committing to a partnership.

Distribution and Digital Platforms

The easiest way to release musical content today is through digital distribution. There are a variety of aggregating companies that serve as a pathway between your label and online streaming platforms.

These digital distributors help indie labels and musicians get their music on major online platforms (like Apple Music, iTunes, Amazon Music, or Spotify). You cannot upload your music directly to these major platforms. You must use a digital service to get content on them.

Some of these digital services include:

• CDBaby
• DistroKid
• Ditto
• TuneCore

These companies charge a fee or take a percentage of the revenue generated from the music sales or streams.

Other online platforms may be useful tools for your business. For example, SoundCloud lets artists independently upload and share their music. Bandcamp allows musicians to sell and distribute their music directly to users. Bandcamp has an artist-friendly reputation for allowing musicians to keep a larger portion of what they earn from their sales.

There are also distribution companies that specifically handle more traditional media like CDs, vinyl records, or tapes.

There's an opportunity for profit in licensing your music for use in television, radio, and video games. When researching distribution companies, ensure potential collaborators connect to those industries.

Musicians and record labels make money when end-users pay to access their content. This happens when:

• Customers buy a vinyl record or other physical media
• Users stream music or music videos
• There are licensing fees (like a movie, commercial, or video game using the music)

The record label must own the copyright on the version of the song used to get paid for the music's use.

Understand the Two Types of Copyrights

Record labels and musicians make money through two different types of copyrights. These copyrights are:

1. Common law copyrights
2. Master copyrights

A common law copyright goes to the person who wrote the song itself. This is also called the "song" or "composition" copyright.

You don't have to register a common law copyright to enforce it. You do have to be able to prove ownership. But you can register your songs with the U.S. Copyright Office through the Performing Arts registration form. Registering allows you to secure attorney's fees and damages.

The recording company (or the musician if the music is self-recorded) owns the master copyright (also called a “sound recording" copyright).

Both types of copyrights can be a source of royalties.

Income Through Royalties

Anyone who wants to play copyrighted material must pay royalties to the business owners on both copyrights. There are two primary types of royalties you will need to know: mechanical and performance.

Mechanical royalties are paid when music (either digital or physical media) is sold. This includes:

• Physical media sales (like CDs and vinyl)
• Digital streaming
• Song downloads

Today, mechanical royalties cover most streaming. Mechanical royalties are also paid when another artist covers and releases a song.

In the United States, the Harry Fox Agency and the Mechanical Licensing Collective (MLC) collect and distribute mechanical royalties.

Performance royalties are paid whenever the music is played in public. This includes:

• Radio play
• Movie and videogame soundtracks
• Commercial use (like in a restaurant, bar, or at sporting event)
• Streamed publicly through a platform like Spotify or Apple Music

The performing rights organizations ASCAP, BMI, and SESAC collect performance royalties. These organizations generally don't collect mechanical royalties.

In short, when others play the music you created and distributed, you and other rights holders collect royalties and get paid.

As of 2021, the Music Modernization Act added wrinkles to copyright law. You will need a lawyer to decipher these new regulations and how they affect you and your business.