A corporation or LLC is the best alternative for an artist. However, because there are costs involved in beginning a corporation/LLC, most artists do not incorporate until they begin making real money. A corporation is a company which is owned by stockholders (i.e., band members) and an LLC its members. A corporation/LLC is preferred because it provides two advantage that a sole proprietorship and partnership do not: (1) limited liability, and (2) tax benefits. Under the concept of limited liability, if the artist does something and gets sued, the plaintiff is limited to recovering from the corporation/LLC only, not from the artist or band members individually. Hence, under a corporate/LLC shield the artist cannot have his or her home taken away or wages garnished. An accountant or tax attorney should be contacted concerning the tax advantages. If an artist decides to incorporate, they will usually form what is known as a "loan-out" corporation. Under this concept, the corporation/LLC contracts with other parties for the artist's services. For example, if the artist gets a record deal, the corporation/LLC would sign the contract and would provide (i.e., loan-out) the services of the band.
It would be helpful for the artist to engage a professional to help select and properly set-up the above business forms.
Ben McLane Esq
benmclane.com
Monday, May 31, 2010
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]
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]
Monday, May 17, 2010
Music Business/Law Tips - "Advance" (Part 2)
The amount of the advance is based upon a number of factors. These factors include, but are not limited to, the style of music the artist creates, how badly the label wants the artist, whether the artist has had any success in the past, the projected sales of the album, and how strong the negotiators are for both sides.
In reality, it is more than possible for an artist to never even see a royalty. Remember, the advance is paid back from royalties. For example, if the artist got a $100,000.00 advance but only earned $60,000.00 in royalties, the artist is still unrecouped by $40,000.00 and would not see a dime until the label was paid back in full. Moreover, even if the artist may have sold enough records to be fully recouped, by the time the label has made an official accounting of the sales in order to pay a royalty, it will already be time for the artist to go back to the studio and borrow another budget from the label. Hence, there would not be a royalty until the artist has paid back both advances.
The key is to use the advance monies effectively and economically. Depending on the circumstances, it may be best to negotiate a smaller advance and a higher royalty rate. Furthermore, it might be smart to negotiate a smaller advance and have the label increase the amount of money used to promote the record. Finally, since advances are recoupable only from royalties, even if the record flops and the artist is dropped by the label, the artist does not owe the label personally.
Ben McLane Esq
benmclane.com
In reality, it is more than possible for an artist to never even see a royalty. Remember, the advance is paid back from royalties. For example, if the artist got a $100,000.00 advance but only earned $60,000.00 in royalties, the artist is still unrecouped by $40,000.00 and would not see a dime until the label was paid back in full. Moreover, even if the artist may have sold enough records to be fully recouped, by the time the label has made an official accounting of the sales in order to pay a royalty, it will already be time for the artist to go back to the studio and borrow another budget from the label. Hence, there would not be a royalty until the artist has paid back both advances.
The key is to use the advance monies effectively and economically. Depending on the circumstances, it may be best to negotiate a smaller advance and a higher royalty rate. Furthermore, it might be smart to negotiate a smaller advance and have the label increase the amount of money used to promote the record. Finally, since advances are recoupable only from royalties, even if the record flops and the artist is dropped by the label, the artist does not owe the label personally.
Ben McLane Esq
benmclane.com
Monday, May 10, 2010
Music Business/Law Tips - "Advance" (Part 1)
Upon being offered a record deal, most artists are very interested in the amount of money they will be paid to record the album. The money which a label pays to an artist to sign and record an album is called an "advance". However, as this article will point out, an advance is similar to a loan and thus it has to be paid back, or "recouped", from the artist's royalties. In other words, the advance has to be paid back in full before the artist sees any money.
There are essentially two kinds of advances. First, there is what is known as a "signing advance". A signing advance is a sum paid to an artist to induce the artist to sign the deal. Generally, this money will be used by the artist to live on while the artist is making and promoting the record. The other type of advance, which is more widely used today, is called the "recording fund". A recording fund is a set amount of money which is utilized to record the album. Whatever the artist does not spend on recording costs, the artist gets to keep. The label normally prefers to offer a recording fund because it is tied to a recording budget which the label has preapproved. Hence, this tends to keep the artist from recording a terrible album in order to pocket the majority of the money.
[part 2 next week]
Ben McLane Esq
benmclane.com
There are essentially two kinds of advances. First, there is what is known as a "signing advance". A signing advance is a sum paid to an artist to induce the artist to sign the deal. Generally, this money will be used by the artist to live on while the artist is making and promoting the record. The other type of advance, which is more widely used today, is called the "recording fund". A recording fund is a set amount of money which is utilized to record the album. Whatever the artist does not spend on recording costs, the artist gets to keep. The label normally prefers to offer a recording fund because it is tied to a recording budget which the label has preapproved. Hence, this tends to keep the artist from recording a terrible album in order to pocket the majority of the money.
[part 2 next week]
Ben McLane Esq
benmclane.com
Monday, May 3, 2010
Music Business/Law Tips - "Synch Deal"
Common provisions that a songwriter/artist would want to see included in a synch deal are as follows: (1) a fee, (2) a credit, (3) a reversion if the song is not used, (4) limits on how the song is used in the show/film/commercial, (5) a term, and (6) copies of cue sheets sent to writer/artist so he/she can track the usage and make sure they get paid by BMI, ASCAP or SESAC.
Ben McLane Esq
benmclane.com
Ben McLane Esq
benmclane.com
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