Starting a record label requires forming a legal business entity, setting up distribution channels, and building the infrastructure to sign artists and collect royalties. You can launch a small independent label for a few thousand dollars in your first year, though costs scale quickly once you start releasing music and marketing it. Here’s what the process looks like from start to finish.
Choose a Business Structure
Most independent record labels start as LLCs. This structure separates your personal finances from the label’s liabilities, which matters the moment you start signing contracts with artists, distributors, and vendors. If you’re launching with a partner, you can form a partnership or structure the partnership as an LLC, which gives you both liability protection and flexibility in how you split profits.
If you skip formal registration entirely, your state will treat your business as a sole proprietorship by default. That means no legal separation between you and the label. Any debts or legal claims against the business are your personal responsibility. For a business that will be signing binding contracts and handling other people’s money, forming an LLC is worth the modest filing fee.
Register Your Name and Protect It
Before you file anything, check that your label name is available in three places: as an internet domain, on your state’s secretary of state website, and with the United States Patent and Trademark Office (USPTO). You want a name you can own across all three.
Start by securing the domain. Then register the business name with your state. Once you have state registration, file a trademark application with the USPTO to protect the name and any logo or mark you plan to use nationally. You can also register the trademark at the state level for additional local protection. Taking these steps early prevents a situation where you build a brand around a name someone else already owns.
Get Your Tax ID
As soon as your business name is registered, apply for a federal Employer Identification Number (EIN) from the IRS. This is free and takes minutes if you apply online. The EIN functions like a Social Security number for your business. You’ll need it to open a business bank account, file taxes, and pay artists. Only apply directly through IRS.gov, as third-party sites sometimes charge unnecessary fees for the same service.
Open a dedicated business bank account using your EIN. Keeping label income and expenses separate from personal finances protects your LLC’s liability shield and makes accounting far simpler at tax time.
Set Up Digital Distribution
Distribution is how your music reaches Spotify, Apple Music, Amazon, and other streaming platforms. Independent labels use digital distribution services that handle delivery to these platforms in exchange for a fee, a commission on streaming revenue, or both. The pricing models vary significantly.
- DistroKid charges $2 to $7.50 per month with no commission on streaming royalties, though it takes 20% on YouTube Content ID and social media user-generated content.
- CD Baby charges a one-time fee of $9.99 per single or album and takes a 9% commission on streaming revenue (30% on YouTube Content ID).
- TuneCore charges $14.99 per year for one artist or $29.99 for multiple artists, with no commission on its standard plan.
- Ditto Music charges $19 per year for one artist or $29 and up for multiple artists, with no streaming commission.
- Symphonic offers annual starter plans at $19.99 with no commission, or partner plans with no upfront fee but a 15% or higher commission.
For a new label releasing music from multiple artists, a subscription model like DistroKid or TuneCore keeps costs predictable. If you’re starting with just one or two releases, a per-release model like CD Baby avoids ongoing fees. Pay attention to payout thresholds as well. Some services pay out with no minimum balance, while others require you to accumulate $25 or $50 before sending earnings.
Understand How Artist Contracts Work
The contract between your label and an artist is the foundation of the business relationship. It determines who owns the recordings, how long the deal lasts, and how money gets divided.
When your label pays for recording sessions, the label generally owns the master recordings (the final recorded versions of the songs). This is standard in the industry, and the contract will explicitly assign copyright in those recordings to the label. However, if an artist comes to you with music they recorded and paid for themselves, they already own those masters. In that case, you can negotiate a license to release and promote the recordings rather than requiring the artist to hand over ownership. Licensing deals are often more attractive to artists and can help a new label sign talent it otherwise couldn’t.
Contract length at major labels typically runs one year plus four option periods, covering up to five albums. As an indie label, you have more flexibility. Shorter commitments, such as a one-album deal with a one-year window for recording and release, are common and can be easier to negotiate. If your deal includes option periods, set a maximum duration so neither side is locked in indefinitely if a release stalls.
Structure Fair Royalty Splits
How you split revenue with artists will define your label’s reputation and your ability to attract talent. There’s no single standard, but transparency matters more than any specific number.
A few principles to build your contracts around: pay royalties on 100% of sales rather than using reduced-rate calculations. Avoid hidden deductions for “packaging” or “new technology,” which are holdovers from the CD era that have no basis in digital distribution. Set clear royalty rates for streaming and downloads specifically, without reductions. Consider offering escalating royalty rates, where the artist’s percentage increases after hitting certain sales milestones or with each new year of the contract. This rewards success and gives artists a reason to stay.
Many indie labels use a 50/50 profit split after recouping recording costs, though splits of 60/40 or 70/30 in the artist’s favor are increasingly common. The split you offer depends on how much the label is investing in production, marketing, and promotion versus what the artist brings to the table.
Register With Royalty Collection Organizations
Recorded music generates multiple types of royalties, and different organizations collect each type. Missing a registration means leaving money uncollected.
Performance royalties are paid when music is played on radio, in venues, on TV, or streamed. In the U.S., performing rights organizations (PROs) collect these. The main ones are ASCAP, BMI, SESAC, and GMR. Your songwriters and composers need to be registered with one of these. Note that PROs collect only performance royalties.
Mechanical royalties are generated when a song is reproduced, whether as a physical copy, a digital download, or an interactive stream. The Mechanical Licensing Collective (MLC) handles blanket mechanical royalties from streaming services in the U.S. Your publishing administration should ensure these are being collected.
SoundExchange collects digital performance royalties for sound recordings played on non-interactive platforms like Pandora, SiriusXM, and internet radio. This is separate from what PROs collect. As a label that owns or licenses master recordings, you need to register with SoundExchange directly to receive your share.
Collective management organizations like AllTrack and AMRA can collect both performance and mechanical royalties. Depending on your catalog and how your rights are structured, working with a CMO may simplify collection across multiple royalty streams.
Budget for Your First Year
A bare-bones indie label can get off the ground for under $2,000 in its first year, covering formation, branding, and basic infrastructure. Here’s what to expect:
- LLC formation: State filing fees vary but typically range from $35 to $500.
- Logo design: Around $150 from a freelance designer.
- Website and hosting: Roughly $310 per year for a basic website builder.
- Professional email: About $299 per year.
- Distribution: Free to $30 per month depending on the service and number of artists.
The real costs hit when you start releasing music. A single release with basic promotion might run $500 to $1,500, covering artwork ($100 to $120 per piece), social media advertising ($300), and PR outreach ($250 to $500). More ambitious campaigns add up fast. Spotify playlist plugging services charge $100 to $2,000 depending on the tier. Radio plugging starts around $1,500. A music video can cost $4,000 or more. Pressing 500 vinyl records runs about $2,500 plus $150 for professional mastering.
Remix fees are another variable. Hiring new, rising producers costs around $400, while established names can charge $5,000 or more. Not every release needs a remix, but it’s a common promotional tool in electronic and dance genres.
Build Before You Spend
The most successful indie labels start with a clear identity: a genre focus, a sonic aesthetic, or a community they serve. Before spending thousands on promotion, invest time in building relationships with artists, DJs, playlist curators, and music blogs in your niche. A strong reputation in a small scene is worth more than a scattered marketing budget.
Start with one or two releases to test your workflow, from recording through distribution through promotion. Learn what your audience responds to, track which marketing channels actually drive streams, and refine your approach before scaling up. Many thriving independent labels began with a single artist, sometimes the founder, and grew organically as their process and reputation developed.