| 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.
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.
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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.
A corporation is the best alternative for
an artist. However, because there are costs involved in beginning
a corporation, 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).
A cooperation 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 only, not from
the artist or band members individually. Hence, under a corporate
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 contracts
with other parties for the artist's services.
For example, if the artist gets a record
deal, the corporation would sign the contract and would provide
(i.e., loan-out) the services of the band.
Music
agent or composer agent | The
Personal Manager | Music
Attorney | Business
Manager |
Negotiating
Contracts with Your Music Agents | Why
use a music entertainment agency ? |
Business
Formation | Management
Agreement |
