Setting up a band as a business...

[mertmo]

I am in a band that is starting to do the work of getting out into the world. We have
finished our record, and we are planning a tour and paying for some real promotion,
etc. Basically setting ourselves up to sell CD's and downloads and be an actual
business. Except what kind of business do we want to be? This is a huge hole in
our plan. Right now it is all based on the bass player's social security number and a
bank account that he has set up for the band long ago. Obviously we do not want
to keep it this way in the long run. Some guys in the band are itching to get this
set up, and we have been talking about being an LLC. But I want to do more
research before we start setting up an LLC, because I just went through that for my
studio and it might not be appropriate for us. That's just the thing, though... what
the hell is a typical way to set up a band as a business?

For those of you who are in bands that actually make money (however little) and
have to deal with distributing it among members, how do you have this set up?

Any places online I should look for some of these answers? I am trying to take over
this task for the band, but I don't know quite where to start and I don't want
to start an LLC just because it sounds sexy.

A little background on what we are after in terms of the agreement between us:
Basically, everything is shared totally equally. Even songwriting royalties, regardless of artistic contribution.
Everyone in the band is putting in an equal amount of work in different areas.
We are seeing longevity as a real possiblity (I know, I know...) and we think that
everyone continuing to have a vested interest
is much more important than dividing up publishing accurately. So there is a brief
idea about where we are at. To sum it up, we are looking to set up something
simple that can be made more complicated later on if and when it becomes
appropriate.

Using the bass player's social and bank account is fine for now, because honestly
any money we make is going right back into the world domination. But I would
like to start working on the right setup for the fairly near future.

Any ideas? Thank you very much in advance, everyone.

[theposterkid]

I think you would regret an LLC.

I think a LLP is more up your alley. Read it about the differences somewhere online.

[orbb]

The form of business you choose is usually the result of two things: One, the amount to which you need to limit yourself from liability, and two, tax issues.

You can be a C Corp, an S Corp, an LLC, an LLP (quirky), a general partnership, or a joint venture. If you don't choose a particular form, you will likely be either a partnership or a joint venture by default. This depends on how equipment is owned and used.

The form you should be will primarily driven by tax implications. It is a good idea to get limited liability in case you run over a car full of radiologists, but the limited liability status generally won't help you with loan liability, because any lender will make you sign a personal guaranty.

Go talk to an accountant, tell them what you want to do, and they will tell you which path to go down.

Good luck.

[mertmo]

andrewh:

I have read about some of the differences, but cannot find anything that
speaks to your use of the word "regret".

Can you elaborate?

[8th_note]

Most of the touring bands that I know have not gone the route of setting up a legal entity. What several of them have done instead is to get some professional help in creating a band agreement that spells out their individual rights and obligations regarding their participation in the group.

Maybe you guys have really thought this out, but before you determine which type of legal business you want to be make sure you have discussed the nuts and bolts ramifications of going into business together. Here's a few examples of questions that are the type of things you need to think about before you engage a lawyer or accountant at $100 per hour.

What happens when a member leaves the group? Is he responsible for servicing debt? Is he going to continue to get royalties (assuming there are some) from songs that are published? What if you make it big 2 years after a member leaves? Is he still entitled to his share of the songs he cowrote?

How will the transportation costs be handled on tour? Is the band going to own the van and trailer as a company or is one individual going to own the vehicles? If the band incurs debt to buy the vehicle, and you guys figure out that after 3 months you can't stand each other, how do you make sure the members satisfy their portion of the debt?

If the company experiences negative cash flow, which it surely will in the early stages, how are the shareholders going to keep the company afloat? If one member puts in more money than another member, are you going to keep track of the shares of stock purchased so that this particular band member will own more of the corporation? If things go poorly for a year or more and one or two members are keeping the company afloat, do you lower the stock price to compensate them for their additional risk?

If a member leaves, what do you do with his stock? Do you buy it back from him? How do you determine the stock price? When a new member joins do you grant him his fractional share of the company right of the bat or does he have to buy into the company in some way?

Forming a company around a band will increase the complexity of your dealings expotentially. You can accomplish much of what you need by creating an agreement up front that spells out the rights and obligations of each member. It doesn't take care of the liability or tax issues but you likely won't be worrying about paying taxes for awhile. When the record company calls and offers you a six figure advance to record your next album, that would be a good time to get your legal status up to snuff.

Here's a couple links for band agreement information:

How To Run Your Band's Business

BBC How To: Band Agreements

[inflatable]

Good luck. My last two bands broke up because we couldn't agree on a formal business plan. Many promoters require a band to be formalized in order to insure the tour.

I would go with a general partnership. It's easiest so setup and the taxes are the lowest (at least in California) for this type of work.

Do you have a Manager? You should seriously consider it. Having a third party to take care of all the bullshit while you take care of the music is really the only way to succeed in this business without losing you mind. It has to be someone everyone trusts and they also have to be a part time accountant/counselor/roadie/pimp/etc...

It's worth the 10-20%. Just think about all the money you will be missing out on without somebody thinking about the band's business.

[mertmo]

Thanks for the posts you guys, this is great. It is overwhelming to think about
all this stuff. We are doing our own management right now and it is crazy.

Thanks for the links, 8thnote. Great post, too.

We have a lot to research and think about. Any other input is most welcome,
keep it coming please.

[BradG]

You must read this book:

http://www.amazon.com/Need-Know-About-M ... 89-8155133

I didn't read it until after I had signed with a major, but it was still incredibly helpful and insightful.

[drewbass]

if i'm not mistaken, someone correct me, but i don't think you can become a LLP as a couple of people have mentioned.
they are normally reserved for lawyers, doctors, accountants etc. depending on which state you live in.

drew

[mertmo]

From what I understand, it's only in a couple of states that the LLP is literally
limited to those few professions. I don't think New Mexico is one of those
states, but I could be mistaken. More research to do and decisions to make...

Thanks again for the input everyone.

[touched1]

I've been making music for a few years, but have never sorted out my publishing, band agreements etc...

I've hired an attorney to assist with some of this. But things aren't going the way I'd like. Much of this I assume is due to the fact that we are a small self financed operation with little money going in or out.

I am wondering what other artists have used for templates for band agreements.
I am also wondering how publishing is normally broken up in band settings and in collaborative efforts (open ended recording projects with a producer or two steering the whole project).

I've got the Donald Passman book on the Music Biz. And have read a bit from that.
But if anyone that could share first hand experience or other resources (books, forums, links, videos etc...) I would appreciate it.

I'm looking into these places for getting started:
http://www.musiclegalforms.com
http://www.musiccontracts.com
http://www.indieartistsalliance.com/contracts.htm

I'll fess up now that I've not yet searched the forum for this information. I will do so now, just needed to put my objectives into text....

Thanks in advance for suggestions.

[chris harris]

MusicContracts101

[MoreSpaceEcho]

yeah, jeez, at least take 2 seconds and disguise it a little better.

[bickle]

Yeah, somebody should remove the spam for us, especially since it's utter BS: The number one source of all that stuff is legitimate entertainment lawyers. They may use form contracts, but they have better sources for them, and they actually have the knowledge to customize them for you properly.

Original poster: I'm not a lawyer, and I can't offer legal advice, but I know quite a bit about this. If things aren't "going the way you'd like," fire the attorney you've hired. His job is to ensure that things go the way you'd like, and in most states you can fire him at will without any repercussions (so long as you pay him for the services he's performed). A good entertainment lawyer can be an invaluable resource and adviser, but unfortunately there are a lot of sleazy ones out there and a lot of inexperienced people trying to get into the business. You are on the right track reading Passman - take the time to read the whole book so you'll better understand what's going on. But also make sure you've got a good attorney, especially if you're going to be paying him.

I've mentioned this service here a couple of times, but it's worth doing again: Find out if your state has an organization called "Volunteer Lawyers for the Arts," or something like that (it might have the state in the name, like "Georgia Lawyers for the Arts"). These organizations will match you with a good pro bono attorney if you qualify for free services. If you make too much money for that, they will help you find a skilled, reputable lawyer with expertise in exactly the area you need. If these services are available, make use of them - they can make the difference between you getting the legal protection you need and getting swindled.

There should be a sticky about this and about other legal issues affecting TapeOppers - I see these questions all the time, and too many people are prone to believing misinformation or placing their faith in the wrong people. A message board is not the place to get legal advice, but a community like TapeOp should be able to put people in touch with legitimate legal assistance.

[cgarges]

Yeah, somebody should remove the spam for us...

Since his post was somewhat relevant to the topic at hand, I wanted to give Mr, Cohen the opportunity to start contributing to the forum as a new member over the last couple of days. Since he hasn't, his post was deleted as spam.

There should be a sticky about this and about other legal issues affecting TapeOppers

http://messageboard.tapeop.com/viewtopic.php?t=27906

UTFSF!

Chris Garges
Charlotte, NC