Monday, May 24, 2010

Music Business/Law Tips - "Business Formation" (Part 1)

Any band or solo artist that is performing music to make money is involved in the music business. An artist must behave like a business in order to increase the chances of surviving and succeeding. Hence, the artist must decide what form of business to operate under. Basically, the three choices are: (1) sole proprietorship, (2) partnership, or (3) corporation/LLC.

A sole proprietorship is an option only if the artist is a solo artist. There is but one owner of a sole proprietorship. He or she keeps all the profits and is personally responsible for all debts. This option is unavailable for a band.

A partnership is the most popular option for a band. Most bands have a collective goal: to create music (and consequently earn money). In order to accomplish this, each member contributes their time, talent and money. In essence, there is an implied partnership agreement between the band members. When most people go into business together, there is an official written partnership agreement. However, the majority of bands - including many who are best selling acts - have never formalized their relationship. Often this can lead to expensive litigation when a band breaks up or a member leaves because there exists a question as to how profits are to be split, or who actually owns the group name. Without a written agreement to the contrary, the law assumes that each partner is bound by the actions of the other partners, and that everyone is equal. This being the case, bands should be encouraged to enter into a simple partnership agreement early on when everyone is getting along so as to specify exactly what the relationship between the members is to be concerning such matters as: (1) who owns the band name, (2) who owns the songs, and (3) what happens when someone leaves the band.

[part 2 next week]

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