Record Club. It is quite common for a record club to offer records for free as an incentive for a new member to join. The problem is, since new members are given a choice of which artist's record they want for free, there is no way to really control how many copies will be given away. The only way to handle this dilemma is for the artist to restrict the number of free records which can be given away without paying a royalty. The protective language included in the record contract should provide that the number of free records given away through record clubs will not exceed the number of records sold (i.e., royalty shall be payable on not less than 50% of records distributed through record clubs).
Promos. A promotional record, or "promo", is often lumped together with the free goods because it is, in essence, also a free good since there is no royalty paid. A promo is generally a record given away to a radio station to promote airplay. It is not meant to be sold in stores and will contain a stamp on the record that reads: "not for sale". A big problem with promos is that they often ultimately wind up being sold in used record stores anyway, with the artist not being paid a royalty. Since airplay is so important to the success of a record, there generally are not restrictions placed on the number of promos sent to radio stations, etc. because in theory they are not intended for sale.
Since the number of free goods given away can substantially lower the royalty payable to the artist, the artist needs to be keenly aware of a label's policy and make sure this area is well defined in the contract.
Ben McLane Esq