A band is a business. The more you treat your band like a business, the more likely you are to succeed in the industry. There are essentially three forms a business can take. First is a sole proprietorship. If you are a solo artist, this is the route to take. However, if you are a band, this form is unavailable for obvious reasons. Therefore, your choices are between a partnership or a corporation. There are a few other forms businesses can take, limited partnerships, limited liability companies, etc., but they are too complicated to address here.

A corporation is an interesting concept. The way it works is you create a company which is owned by stockholders. This stock is not traded on the Stock Exchange, but owned by the band members. In the entertainment industry, a band which incorporates forms what is know as a loan-out corporation. What the corporation does is contract with other parties for your services. For example, if you have a loan-out corporation and you get a record deal, the corporation would sign the contract and would provide the services of the band, thus the name loan- out. The band itself does not sign contracts, but the corporation does.

Why should you form a loan-out corporation? There are a few reasons. A corporation gives you limited liability. This means if the band does something and gets sued, the person is limited to recovering money from the corporation and can't sue the band members individually. If you are a punk band and people go crazy at your shows, you may want to consider forming a corporation so if anyone hurts themselves at one of your shows and sues you, they won't be able to garnish your wages. Anthrax is being sued by a fan for when the lead singer stage-dived and injured a fan. If Anthrax is a corporation, the injured fan would be limited to recovering assets from the corporation. If they are not, the injured fan could sue the band members individually and take each of their houses. This is a simplification, but I think it makes the point clear. Another advantage to incorporating is the tax consequences. Corporate taxation is way beyond the scope of this article, but there can be important tax considerations to incorporating. Contact an accountant or attorney if you think this is the route for you.

The other alternative is a partnership. This is the route most bands will take. In fact, the band is a partnership without even doing anything at all. The general law of partnerships presumes when a group of people act together, they are a partnership. Without a written agreement to the contrary, the law will assume various things about your band. First, everyone will be liable for everyone else. This means that if one of your bandmates signs a contract obligating the band to rent rehearsal space for $10,000, each band member is responsible even though they had no part in the transaction. The law presumes that each partner will be bound by the actions of all the other partners. Also, if you break up, the law will presume that all the band members own the band name and any of them can use it in the future, since no one has exclusive possession. This means that if the band breaks up, all four members could start their own version of The Band and use the name. That certainly would lead to confusion!

Note I prefaced that paragraph with, "without a written agreement to the contrary." You can enter into a written partnership agreement with the other band members which alter many of the things the law presumes. In fact, I highly recommend that bands enter into a partnership agreement.

A partnership agreement should address a few important points. First, the band should decide who owns the right to the name of the band. Ownership of the band songs is another important issue which should be covered in a partnership agreement. Other issues include what to do when someone leaves the band? Who can spend money on behalf of the band? (Remember my rehearsal space example). How to kick someone out of the band? Virtually anything can go into an agreement among band members. Remember, it is a contract between each of you so you can include anything that is important to you.

Whether you decide to be a partnership or a corporation, the important part is to put the agreement in writing. A written agreement between band members is a contract which dictates the relationship among the members. If you do this up front, everyone knows what is expected of each other. The example I always use to stress the benefits of a written agreement is Pink Floyd. When they broke up, they spent hundreds of thousands of dollars fighting over who owned the rights to the name Pink Floyd. Granted, it was worth spending that kind of money over, but the point is that it could have been taken care of inexpensively in a partnership agreement before the dispute arose.

You can get a partnership agreement form in an office supply store (e.g. Office Max) or the County Clerk. These forms are not music specific, but it will give you a good idea of where to start. You can order the forms for incorporation from the Secretary of State. Remember, your band is a business. It is not called the Music Business-Entertainment Industry for nothing.

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