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Many times, a deal from an independent label is quite similar to that of a major label. In cases where an independent label is distributed by a major label, the independent label itself will have to have a major-label deal. In this case, the independent label would want to be sure that their contract with their artists covers the same issues as the independent’s own contract with the major label. In other cases, independent labels offer similar contracts to major labels because they want to look more professional. An independent label that thinks it will eventually be dealing frequently with major labels will have a similar contract in order to avoid having to redraft contracts in the future. There are also plenty of cases in which independent labels have contracts that do not resemble major label contracts in any way. In general, independent labels that are not affiliated with a major label are more willing to take chances and are able to be more flexible in their deals.

Though some independent labels offer a royalty rate of 10-15% like the major labels, it is becoming increasingly more common for independent labels to offer a profit-sharing deal in which as much as 40-75% of the net profits go to the artist. In this type of contract, the net gain after all expenses have been taken out are split between the label and artist by a negotiated percentage. However, deals in this form can take longer for an artist to gain any profits since all expenses – such as manufacturing, publicity, and marketing – are also taken into account. As an independent artist becomes more popular, deals of this type are more advantageous.

Independent labels often rely heavily on free goods, or the records that are given away in promotion of an album. Artists do not receive royalties on merchandise that is given away for free. Additionally, since compilations made by independent labels are often given away, the artist receives no royalties. Major label compilations are more often sold than given away, and the artist does receive royalties.

 excerpts: wikipedia.org