The company, provisionally called V2, is already looking for acts to sign. Initially it will concentrate on what Mr Branson referred to "quality rock" and is expected to cater mainly for a middle-aged, middle-income audience.
The venture is expected to put Mr Branson back at the heart of popular music and culture, a role he has missed since selling the company he founded in the 1970s.
The head of V2 will be Jeremy Pearce, the former chief of Sony's division for foreign and independent bands, where he handled the Brit-pop heroes Oasis and and Suede, among others. The company will be launched when it announces its first signing, probably in the autumn.
A Virgin spokeswoman, Mo Foster, confirmed yesterday that Mr Branson had badly missed the music business, which had formed the cornerstone of his business empire.
"I think he has been missing the business terribly. When he sold Virgin Records he went to the staff to tell them about the decision and he left in tears," she said. "That doesn't normally happen. He is obviously very keen to be getting back into it."
Virgin Records was sold to allow Mr Branson to concentrate on his other interests, which now include his airline Virgin Atlantic, the Virgin Megastores chain of music shops, Virgin Radio and Virgin Cinemas.
In the meantime he has maintained a high profile in the media, with the launch of friendly" financial services companies and his battle with British Airways over an alleged dirty tricks campaign.
He had hoped to win the franchise to run the National Lottery. Having lost out to Camelot he is thought to have been keen to find some other arts or showbusiness venture to sink his creative teeth into.
However, under the terms of his deal with EMI, the buyers of Virgin Records, he had not been allowed to set up a new label until now. He has plunged back into the music industry as soon as the exclusion clause expired.
Mr Branson founded the original record label in 1970 and despite, or perhaps because of, being unmusical, made a splash with his 1977 signing, the Sex Pistols, who had been rejected by the more established record companies - including, ironically, EMI. His first major money-spinner was one of the most popular soft/progressive rock albums of the decade - Tubular Bells.
If the new company, which is not entitled to use the word Virgin in its title, follows in the footsteps of its predecessor, it will soon become a major player in the pop industry.Reuse content