Should I Start an LLC for My Recording Studio?

Starting a limited liability company (LLC) for your recording studio can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a recording studio, lawsuits can arise from things like a breach of contract with one of your artists or an artist knowingly using copyrighted music from a competing recording studio.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your recording studio seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Recording Studio?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Recording Studio

By starting an LLC for your recording studio, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Recording studios will benefit from liability protection because of the risk of trademark infringement, financial data breaches, and even workplace accidents and property damage.

Example 1: You are being sued for damages by a former worker who asserts that he was let go from his position in violation of state law. Limited liability coverage will safeguard your private assets if you are found guilty by the court and ordered to pay damages to the victim.

Example 2: A virus found its way into your computer and corrupted the recordings of a client. He has sued you for damages because you could not provide a backup file before his release date. In case of a guilty verdict and a fine levied against you, limited liability protection will ensure your private finances are safe.

Example 3: While entering your studio, a customer slipped and fell, sustaining serious injuries; she now holds you responsible because of the condition of your floor. Your limited liability coverage will keep your private assets safe in the event of a guilty verdict and a heavy penalty.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Recording Studio

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a recording studio owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Recording studios rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Recording studios need insurance to safeguard their assets from tragic occurrences like fire outbreaks and legal cases that could disrupt the business.

Common Situations Business Insurance May Cover for a Recording Studio

Example 1: During a recording session, an artist accidentally trips over some cables and falls, injuring herself. The injuries are significant enough to require a trip to a medical facility for treatment. A general liability insurance policy will likely cover the costs of treating her injuries.

Example 2: One of your employees is bringing a box of new recording components into the studio when he accidentally drops the box on the foot of a visitor, causing that visitor injury that requires medical care. The visitor decides to take legal action against your business. A general liability insurance policy would likely cover some of your legal costs, including the cost of damages should the court decide against you.

Example 3: Most recording studios do not think of their parking lots as areas of potential financial risk, but they can be if they are poorly maintained. If a visitor is injured in the parking lot due to poor maintenance and takes legal action against your business, your general liability insurance will pay the fees related to the accident.

Other Types of Coverage Recording Studios Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all recording studios should obtain:

Data Breach Insurance

The work you produce with different artists often has significant value. Unfortunately, a data breach could result in the theft of that work and the loss of income for your clients. Should they decide to take legal action against you for the losses they sustain due to the data breach, your data breach insurance policy will likely help to cover some of those costs.

Commercial Property Insurance

Your recording equipment is probably the biggest investment you have made in your business. If something happens to your equipment, such as being damaged in the event of a fire or other disaster, you want to know that you can replace it as quickly as possible and get back to business. Commercial property insurance is designed to help you cover the costs of replacing equipment for your business and any products you sell.

Home-Based Business Insurance

If you are running your recording studio out of your home, it is possible that your homeowners’ insurance may not protect you against accidents related to your business. A home-based business insurance policy is a good way to add the coverage you need to protect your business from unexpected costs.

Workers' Compensation Insurance

If your studio employs anyone to help with the business, then the laws of your state most likely require you to carry workers’ compensation insurance. There are multiple benefits to getting a workers’ compensation insurance policy. You protect your business from legal repercussions by adhering to state law, and you also protect your company against the costs associated with employee injuries or illnesses. If they are hurt on the job, your insurance policy will likely cover the cost of treatment and lost wages.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance and commercial property insurance.

Read our Recording Studio Business Insurance article for more info.

Opening a recording studio requires more talent than money. Depending on your budget, you can successfully establish a recording studio with an initial investment of $1,000–$50,000. You can cut some spending and use one of your rooms, and the rest of the money can cover the purchase of a suitable computer, headphones, and other studio equipment.

Visit our How to Start a Recording Studio guide to learn more about the costs of starting and maintaining this business.

Some of the main operating expenses for a recording studio are rent, utilities, marketing costs, and potentially payroll.

Learn more about running a recording studio.

Recording studios can make money by charging customers an hourly rate to use the studio, or they can receive a portion of the sale price for recordings they make.

Learn more about starting a recording studio.

There is a high demand for professional recording studios. This could be a commercial studio suitable for recording a full band or even a small, home studio for recording audiobooks.

Recording studios typically charge an hourly rate, which can vary considerably depending on its size and the services it offers.

Learn more about starting a recording studio.