Set up a formal business. It would be sensible to incorporate a business to protect yourself from liability. The music industry is known to have a somewhat litigious history, and incorporation will help to protect your personal assets in the event of liability. A corporation may set up federally at Corporations Canada, or provincially through the provincial government of choice. It can cost as low as $200, which would be seen as a good investment in case of a lawsuit, and for tax incentives if the label is successful.
Find an artist. To begin a business as a record label, you will need an artist, ideally one with some promise. Sign the artist to a recording contract. You may need to consult a lawyer to draft such a contract. Signing a Canadian artist will likely be easier if you are based in Canada, and might also allow you to help the artist get funding from some Canadian agencies or governments, such as the Canada Council for the Arts.
Promote your artist and their work. Be a creative marketer. The traditional route of knocking down doors at radio stations to get airtime for your artist, and signing them up to play shows at popular venues is always worthwhile. Canadian media are regulated by the government and required to play a certain percentage of Canadian content. Be sure to market this aspect of your artist, as it is a selling point in Canada. The Internet has dramatically changed the music industry and there are now many ways to promote a band internationally and quite inexpensively. Justin Bieber, a Canadian artist, was discovered by Youtube videos. Most bands boast a MySpace page that offers some of their tracks for free, as well as artist information.
Manufacture and distribute the music of your artists. Depending on the recording contract, your rights and responsibilities may vary. Ordinarily, the label is responsible to cover the costs of manufacturing compact discs; however, given the meteoric rise of the MP3 as the dominant format, it will be important to choose an efficient business model based on the band's music and their audience. Distribution concerns selling individual members of the public the right to retain and enjoy your artist's music, in contrast with a public performance or radio play, which grants no rights. The Internet is encroaching upon this aspect of the business also. Getting discs sold through retailers was once the dominant method. Now bands can offer downloads through their website or other online distribution centers.
Do the math. The recording contract is paramount to figuring out how any revenues derived from the sale of the band's music or performance or other activities will be divided among the artists and the label. It is common for the label to advance money to the band and cover certain band expenses up front; however, the label will typically also get 100 percent of the revenues until any such up-front expenses are recouped.