This guest post was written by Daniel Ward, Legal Adviser with Altarboymusic.com who offer affordable legal services for musicians.
Most people who decide to go into business together (be them plumbers, dentists, accountants, bakers) will have a lawyer to write them a partnership agreement. However, it is common to find bands that are earning millions that never got around formalizing their relationship.
Band members either fail to see the need to make an agreement OR just don’t want to come across as ‘uncool’ for raising the issue; after all, who likes to hear about anything negative (like breakups) when everything is working well. But, when everything is going well is exactly the best time to discuss a band agreement, simply because you can do it in a friendly way. Trust me on this: it’s hard to reach an agreement when you are fighting each other, specially if there is a lot of money in question and chances are you’ll end up ‘killing the goose that lays the golden eggs’ (this means breaking up the band).
Corporation or Partnership
The main differences between Corporation and Partnership are the liability limitation and the fact that corporations cost more to set up and run. Corporations limit your liability which means that they limit the assets that can taken by someone suing you. You will only be risking whatever capital you invested in the setting up of the corporation. On the other hand with a partnership, your partnership’s assets as well as your personal assets can be taken to pay for debts, compensations and legal fees should you lose your case in a court dispute. Legal fees should be the main concern here because traditionally bands tend not to incur heavily in debt, and advances from labels are customarily not repayable (in good contracts) if band break ups or get dropped.
Either under Corporation or Partnership you can set out what is going to happen to the assets for the band if there is a fight. As an example, when dealing with the most important asset of the band (the Name!) you can decide on one of this different provision:
- No one can use the name if the band breaks up.
- Any majority of the band members performing together can use the name.
- Only the lead singer, Mariah, can use the name.
- Only the song writer who founded the band, George, can use the name.
- Only Mariah and George can use the name as long as they perform together.
The next important thing is to decide what everybody is going to be earning. Hiring people usually isn’t practical for new artists, because there is no money to them a salary. So everyone works for a percentage of the future earnings. There are no rules on this and it’s all down to bargaining between the members. If a member works harder and contributes more that the others it may be fair that he earns a higher percentage. It may also make sense that, for example, that the split is done evenly on tour money but have differently for records depending on who writes most of the music and so on.
Control and voting.
With varying percentages of earnings it may also make sense to have one or two key members control the vote or whose votes are worthier that those of the other members. Voting is important when firing and hiring members, entering into other agreements, capping expenses, amending the partnership agreement, etc. It is important to try not to have an even number of votes to prevent a deadlock (meaning an equally divided vote where nothing can be done)
In a band agreement it is also important to define what happens when a member is ousted from or quits the band. Does he/she keep the same percentage of earnings and for how long? How does he/she get bought out of their share assets of the group (buyouts), at what price and over what period or time?
All in all a band agreement deals with very tricky and emotive subjects which is why the band should deal with it at the beginning of the relationship before money starts to be earned.
A Band Agreement is a vital document that will work as a blue print that you can refer to when taking important decisions and can help you settle disputes easily!
To download music contracts written by Avenant Law, visit Music Law Contracts.
Image Source: Julishannon