Illegal Records was formed in 1977 by Miles Copeland (2) to release the debut single by his brother's band, Police, The. Entitled "Fall Out"/"Nothing Achieving", the record sold out its initial pressing and went on to sell about 70,000 copies - an unprecedented feat for both an independent label and an "unknown" act.

Copeland went on to sign more artists and start several other indie labels including Deptford Fun City, Step-Forward Records and Total Noise, all under the blanket name of "Faulty Products". He also launched the foreign divisions Illegal Records (France) and Illegal Records (Netherlands) that released some of the same titles with different catalog numbers, and some exclusive titles as well.

In 1979, Miles decided to launch an American version of his Faulty/Illegal operation, and started the I.R.S. Records label. Many I.R.S. releases were issued through Illegal for the UK & European market.