Being in a band is a liability nightmare and as a result your band needs a business entity to protect you as a person. Additionally if you endeavor to take your band seriously a business structure will be necessary to take your band to the next level.
The ways in which things can terribly wrong are innumerable and range from the expected (someone getting injured at your show after your singer yelled “take this pit to mosh city!”), to the stupid (your drummer scheduling an Australian tour without consulting anyone else). Often musicians will think, “yeah my bandmates might be morons sometime, but that’s on them, not on me”, well actually that is on ALL of you.
The issue, is that almost any band that is out playing shows and selling records, even just on a small local scale, is legally treated as a partnership by default. The reason us lawyers HATE partnerships is two-fold, for starters there is no separate entity involved in a partnership, so any debts or liabilities that accumulate are yours personally to pay or risk being sued into bankruptcy. And secondly, any member of the partnership can bind all of the partners. So in terms of a band this means that any debts or liabilities racked up in the name of the band can become the responsibility of all the members regardless of who was primarily responsible.
So absent setting up a legal entity your band IS a partnership. You essentially have three choices, either become a solo act, accept that you could be liable for your bandmates poor decisions, or (my favorite) opt-out by setting your band up as a distinct legal entity.
Speaking of bandmates, one of the best ways to dictate relations between band-members (and deal with the removal of them), is to align your new business operating agreement with a band agreement. Both of these documents are contracts and together they are extremely powerful, and as such can be very effective in solving issues quickly and quietly. Drafting these documents together allows you nearly infinite possibilities in terms of how you want to run your band. If you already have a clear vision then you can simply tell your lawyer what you want and they can make it happen, or (as is more often the case) there may be issues here that you have never considered before (what happens if the main songwriter leaves the band for example) that you can discuss with your attorney while you draft together and achieve your goals.
The first step is to select what sort of entity you would like, in most cases the best choice is a limited liability company, or LLC. Other choices are available but are beyond the scope of this article. A properly set-up and run LLC will offer everything that you need to both protect yourselves and run your band like a real business with minimal fuss and administrative headaches.
Additionally third parties are more welcoming and will deal with you on more favorable terms when you have a solid business structure in place, and some won’t deal with you at all without one. Labels, Managers, and other industry professionals, don’t want your headaches to become their headaches and some will ask you to incorporate first. You will look more serious and professional if you already have these things in place and as you may know, appearance can mean a lot in this game. However it is important to keep these business structures aligned with your contracts, you want to personally guarantee as little as possible, so anything that will go beyond your LLC needs to be a contract negotiating point.
From a money perspective, accounting is made much easier with a separate legal entity. Now this may not seem like a huge benefit while your band is in it’s infancy, but as your revenue streams multiple in number (and in dollar amount coming and going) it can be a life-saver. Not only does this allow all the band members to have a transparent view of where the money is going (stopping fights before they begin), but as your band progresses you also be contractually responsible to third parties for these numbers as well. There can be tax benefits, but in my opinion these are secondary benefits, however it does avoid the problem of who reports the income.
Of course be realistic with yourself about where your music career is at and where it is going. If your band plays local bar gigs once a month in your hometown then setting up a fully functional LLC may be overkill for your situation. I would argue there are still benefits to doing so anyways, but at the same time it is generally true that the smaller the band, the smaller the liability risk.
The cost of a setting up a proper LLC is roughly as follows:
Filing Fee – $300
Attorneys Fees – $500 – $1200
Some lawyers are fine with payment plans, so even if your band can’t come up with a grand upfront you can try to find a lawyer who will work with you and maybe do $200 a month for five months for example.
Additionally, many entertainment lawyers will be willing to accept an equity stake in your band/career in return for representation (this is typically 5%) HOWEVER lawyers are generally only willing to do this with bands and artists who are already somewhat successful. When you consider that an Entertainment Lawyer typically charges anywhere from $200-600 per hour, you can see why attorneys would not accept a 5% stake in a band that may never generate much income. That being said it never hurts to ask, sometimes a lawyer hears potential in a band and takes them under their wing even without a proven track-record, remember the worst they can say is “no thanks.” And as a fallback cash is king, every lawyer I know is more than happy to do work for upfront payment in full. An ancillary benefit is that establishing a relationship with an entertainment lawyer early in your career can be extremely helpful as many attorneys will answer questions and offer guidance free of charge to existing clients.
DIY CAUTION: I get it, many successful artists have a strong Do It Yourself ethic, however legal protection is not something you should try to power through on your own. The law is extremely complex and also very situationally dependent. While an internet article or book can provide very valuable information it will never be a substitute for the counsel of an attorney. And remember just as important as setting up a business entity is utilizing that entity correctly so that the benefits apply to you. The last thing you want is to think you are protected and find out that you are not after things have already gone to hell. An entertainment law attorney can not only set up your business structure but guide you though the day-to-day operations and steps that need to be taken to ensure you are actually protected and reaping the most benefits.
The bottom line is that if you want to take this music thing seriously either on a semi-pro or professional level then setting up a business entity is a must. Talk to an entertainment lawyer about what moves would be best for your band. Personally, I offer free 30-minute consultations that you can sign up for at my website www.mantheiylaw.com
Don’t be the band that spends more time and money on your tour passes than on your business entity.
