Setting up a band as a business...

[Gentleman Jim]

I know it's an old thread, and chances are the OP's band either made up their minds or broke up already, but I find some of the thoughts here provocative.

Why would a small professional band have a problem with an LLC?

You get pass-through taxation, thus avoiding the Corporate Income Tax (and therefore double taxation); you get some limitation of personal liability, so if your bone-headed drummer throws the sticks into the audience and takes an eye out you probably won't lose your personal belongings; you generally have a written structure in place to rely upon when it comes to financial reward and band governance, and you have a distinct tax ID number so that nobody has to worry about using their own Social Security number and the problems that can be associated with that.

Sure, it may be an unnecessary step for most bands, but if there's real money being generated I can't see that remaining a partnership is the smartest move.

I live in NJ, where LLP's are sort of obsolete, so I can't speak to what the distinctions would be between them and LLC's.

I formed an LLC because I could see a situation where I may have some risk of liability. I don't want my kids' college funds and my house hanging out there if I make some mistake without malice.

[@?,*???&?]

I know it's an old thread, and chances are the OP's band either made up their minds or broke up already, but I find some of the thoughts here provocative.

Why would a small professional band have a problem with an LLC?

You get pass-through taxation, thus avoiding the Corporate Income Tax (and therefore double taxation); you get some limitation of personal liability, so if your bone-headed drummer throws the sticks into the audience and takes an eye out you probably won't lose your personal belongings; you generally have a written structure in place to rely upon when it comes to financial reward and band governance, and you have a distinct tax ID number so that nobody has to worry about using their own Social Security number and the problems that can be associated with that.

Sure, it may be an unnecessary step for most bands, but if there's real money being generated I can't see that remaining a partnership is the smartest move.

I live in NJ, where LLP's are sort of obsolete, so I can't speak to what the distinctions would be between them and LLC's.

I formed an LLC because I could see a situation where I may have some risk of liability. I don't want my kids' college funds and my house hanging out there if I make some mistake without malice.

Nope do it. Just be aware that all band members will need to go to the bank to withdraw $$ and deposit $$. If the band breaks up or one member leaves, it gets messy. Be prepared for that eventuality.

[Gentleman Jim]

@?,*???&? wrote:

Just be aware that all band members will need to go to the bank to withdraw $$ and deposit $$. If the band breaks up or one member leaves, it gets messy. Be prepared for that eventuality.

No, all band members, (or members of an LLC generally), wouldn't necessarily have to go to the bank together. You set up these sorts of things with your bank when you open the account - who can sign on behalf of the account/LLC, withdraw, etc. I don't know that an unauthorized person making a deposit into a bank account is really a common problem.

Also, this can be addressed in the LLC's Operating Agreement. (Again, this may or may not be specific to NJ. YMMV.) Operating Agreements are powerful documents. You can stipulate everything from the degree of democracy to ownership percentages to how to handle full or partial dissolution. But I would agree that if somebody leaves a business they helped build for emotional reasons it will get messy. The idea is to have something set up when everybody is friendly to make it clearer if there are problems later.

For instance, I know of a 4 piece band where one member writes all the material; he has a 40% voting share versus the other members all having a 20% voting share. What that means is that as long as one other person in the band agrees with him, whatever he wants goes. There have been situations where the other 3 all disagreed, and therefore they didn't do what he wanted.

Remember, it's all negotiable.

[@?,*???&?]

@?,*???&? wrote:

Just be aware that all band members will need to go to the bank to withdraw $$ and deposit $$. If the band breaks up or one member leaves, it gets messy. Be prepared for that eventuality.

No, all band members, (or members of an LLC generally), wouldn't necessarily have to go to the bank together. You set up these sorts of things with your bank when you open the account - who can sign on behalf of the account/LLC, withdraw, etc. I don't know that an unauthorized person making a deposit into a bank account is really a common problem.

Also, this can be addressed in the LLC's Operating Agreement. (Again, this may or may not be specific to NJ. YMMV.) Operating Agreements are powerful documents. You can stipulate everything from the degree of democracy to ownership percentages to how to handle full or partial dissolution. But I would agree that if somebody leaves a business they helped build for emotional reasons it will get messy. The idea is to have something set up when everybody is friendly to make it clearer if there are problems later.

For instance, I know of a 4 piece band where one member writes all the material; he has a 40% voting share versus the other members all having a 20% voting share. What that means is that as long as one other person in the band agrees with him, whatever he wants goes. There have been situations where the other 3 all disagreed, and therefore they didn't do what he wanted.

Remember, it's all negotiable.

Think of all the contingencies and try to put them in writing in the deal all of you agree to. Perhaps even stick a rule in about when during the year all of your convene to discuss the 'state of the band' as well.