LAW NOTES ARTICLES

BY LEON BASS:

TRADEMARK: Everything You Need to Know about Trademark Protection and Registration"

COPYRIGHT: "Why You Can't 'Copyright' Your Song If You Have Already Written It!"

BUSINESS "Takin' Care of Business: A Band's Basic Business Guide"

MUSIC DOWNLOADING: 
"Will You Face The Music? Music Downloading 101"





BUSINESS "Takin' Care of Business: A Band's Basic Business Guide"

So you’re in a band, and you think you’ve got it together?  

If so, you should have no problem answering these questions: 

1.     Who owns the band’s songs? 2.      What about the band’s name—who owns it? 3.    If two people wrote most of the songs, do they own those songs to the exclusion of the others? 4.    What about the expensive sound and light show you just bought? Do all band members own it equally?  5.     What happens if someone leaves the band? Do they still own the sound system, the songs, or the name? 6.     Can the band keep using a song that an old member wrote?  7.   Can a former band member say that they are “formerly” a member of your band on their flyers?  8.     Do all band members have an equal vote in band decisions? 9.     If your bandmate is on his way to put up flyers or deliver your new master to the CD Duplicator, and runs a red light and injurers (or kills) someone, are you liable for the damages? 

 

 If you stumbled at all, read on.  

 You Have Two Choices:      While I hate to stereotype musicians, I’m going to.  Musicians hate thinking about business.  Most don’t even want to acknowledge that they are a business. Its not that they are not smart enough.  Many musicians are among the smartest people I know. The problem is that they chose their career specifically to avoid the business world altogether.

       Maybe they don’t think about it at all.  Maybe they know about it, but don’t want to think about it.  Maybe they think they will hire managers, business mangers, attorneys and agents to handle their business for them.       If you have any level of success as a musician, you will likely have to hire others to assist you in your business.  However, the only person that can watch out for you and your business is you. Don’t forget that. There will always be people that call you babe and tell you how kick-ass you are. And they will have one arm around you and one in your pocket too (I think Paul Stanley said something like this). 

         Yes, if you want to be successful, you will need good songs, a good show, and a lot of luck.  But you will also need to pay attention to your business.  You can hire others, but you have to be on top of them.  If not, you could end up like Phish or Billy Joel, who had millions of dollars stolen from them by their managers. Or like MC Hammer and Whitney Houston who each went bankrupt after selling millions of albums.    And until you can afford to hire others, you need to take care of your own business (for a good review of the team members you should hire, check out Donald Passman’s “All You Need To Know About The Music Business”). 

 Therefore, you have two choices:  Take care of your business, or let the business take care of you. 

  Bands Are Businesses Too              In the wake of songwriting, practice, shows, and (how can I forget) the late night parties, it’s easy to forget that your band is a business. You have a product and service you are trying to sell.  You sell your CD’s, shirts, stickers, lighters, action figures, lunchboxes, flame throwers and yourselves ( . . .um . . .for live shows).  Once you form a band and become more than a few friends jamming in the garage, you have investments and will either make money or lose money.  Not treating your band as a business will work for awhile, but as you will see, not doing so will likely cause a number of problems later on, the least of which may be the relationships you have with your band mates.

 Should Bands Organize?

       If your band is more than the garage band described above (thus you are playing shows, recording, touring, shopping for a label deal, etc.), you should at least work out the basic organizational details for your band.  It is much less expensive to do this now, while you are all still friends, than later, when the money comes in and you find out you didn’t have agreements on many of the basic issues.  Forming agreements early on can cause bands to think about the major issues and come to agreements before there is actually something real to fight about.  And believe it or not, you should even consider organizing if you are a solo artist (more on this below).

 A lot of people tell me that they trust their band mates and therefore don’t need a written agreement. Yeah? Think of it like this:  A band is like a marriage. When people get married they are in love (usually).  Yet more than half of all marriages end in divorce.  You just don’t know what will happen. At least with a band mate, you have a shot at preserving a friendship if you have nothing to fight about when a band breaks up or the money comes in and you haven’t decided how things will work out. If you have a written agreement, you will have less to fight about because it will already be decided.  Plus, you will save a lot of money by not having to decide the major issues through lawsuits. For example, both the members of Deep Purple the members of the Beach Boys sued their own band mates and spent millions of dollars doing this to decide on basic issues like who could use the band’s name after they broke up!  Not a smart way to go.  Moreover, organizing your business can help you become more efficient. It may force you to think about business issues you never thought of, and cause you to delegate different jobs to different members of the band.  For example, one person may be the treasurer. Before you organized, you may have had poorly maintained financial books, or even worse, no books (like many bands).  Or perhaps, it wasn’t clear who was in charge of booking or looking into stores to sell your CD’s.  Organizing can help force you to think about this stuff.  I recommend that bands have weekly or bi-weekly businesses meetings, held on different days then practice, to go over this stuff.

Types Of Businesses             Your first step in organizing your business is choosing what type of entity to be.  Your attorney or manager should be able to help you choose. There are four main types of businesses: Sole Proprietorships, Partnerships, Corporations, and Limited Liability Companies (LLC’s).   Sole Proprietorships and Partnerships

            If you are currently a band, and you have never organized, then without knowing it you have chosen partnership as your band’s entity type.  Partnerships are considered the “default” form of business.  Basically, if two or more people get together continuously as co-owners for business reasons, they are a considered a partnership, even if they have never agreed to be a partnership or do not have a written agreement.  A Sole Proprietorship is similar, except only one person is the owner, and the other band members are considered employees.

         The biggest advantage to a partnership is that it is simple.  The biggest disadvantage (and listen up, this is important) is that each band member can be held to be legally responsible for the acts of the band and other band members! Even worse, each member is considered to have “joint and several” liability, meaning that each member could be made to pay the entire amount of damages in a lawsuit. This means that if a speaker falls on a kid at a show the band produced, or a band member gets in car accident while on band duties, any partner could be held liable for the entire amount of damages. Just to make it crystal clear, I’ll put in plain English:  If you are in a partnership, they can take your PERSONAL ASSETS (your car, house, stereo, Paul Reed Smith, bank accounts, etc.) to satisfy the debts of the band if the band can’t afford to pay. For this reason, most attorneys do not advise that bands (or just about any business) choose to form a partnership or sole proprietorship. What the Heck is a “Corporate Veil

Corporations and Limited Liability Companies (LLC’s)

          Unlike Sole Proprietorships and Partnerships, Corporations and Limited Liability Companies (hereafter referred to as LLC’s) have a “corporate veil,” which allows the owners of the business to have limited liability.  This means that the ability of someone to take the personal assets of the band members is limited. The fact that the corporate veil makes it difficult for someone to take your house or car is what makes forming an LLC or Corporation more attractive to bands (or any business for that matter).       LLC’s and Corporations are considered to be entities that are separate from their owners (unlike partnerships and sole proprietorships).  The are distinguished by the fact that they usually have an “Inc.” or “Corp.” (for Corporations) or an “LLC” or “Ltd.” (for LLC’s) in the name.        While corporations are the more traditional business entity, the newer LLC format is becoming the biggest entity trend in the business world, and especially for bands. This is because a corporation can be more complicated to set up and run than an LLC (and often will cost more too).  Further an LLC is more flexible in its organizational structure and tax structure.  In general most bands and new record labels are forming LLC’s over Corporations.  You should consult an entertainment attorney to help you decide what is best for you, but in most cases an LLC is ideal for bands, small record labels, promoters, management companies, and production companies.

 

 How To Set Up A Business And Costs

             When your band decides to organize its business, you should consider consulting an entertainment attorney. While it is not necessary to have an attorney to register for a Corporation or LLC, an attorney can help assure that you organize your business properly and most effectively to help protect your corporate veil. In addition, an entertainment attorney can help with the organizational documents, like the regulations or operating agreement (band agreements are discussed below).  You should also consult an accountant.  If you don’t do so early on, you will likely get nailed in the future when you start making money.  Moreover, through tax planning, an accountant can often save you more money than you spend on their fees!  If you don’t have one, you’re entertainment attorney should be able to give you the name of a good accountant who is knowledgeable in music industry tax issues.             When filing for an LLC or Corporation, you have to register certain documents with the State.  The first is the Articles of Organization (for LLC) or Articles of Incorporation (for a corporation).  In addition, most bands need to also file at least one fictitious name statement, which allows you to use dba’s (doing business as).  You should also look into getting a vendor’s license if you are going to sell CD’s, tee shirts, or other merchandise.  Finally, you may also want to register your band’s name or logo with your State, but you should consult your entertainment attorney to find out if this is necessary.   In Ohio, you will likely be able to get most state registrations for less than $200.00 in filing fees total (depending on exactly what you need).  You can get these forms from your attorney or the State.             Also, keep in mind that most bands ideally would form more than one business.  Bands are often made up of at least a touring company (for live shows), a record company (for CD’s and perhaps other merchandise), and a publishing company (for copyrights).  As your band grows, you will want to consider separating these entities so that you separate the assets of each behind a separate corporate veil. This helps protect your assets better because if any one of the companies are sued, the assets of the others will generally be protected from the liabilities of the company being sued.

             There are also registrations that should be made with the federal government.  Most new business will need to file for an employment identification number (EIN) even if you don’t have any employees.  Note, that in bands that have a regular income, it may be beneficial to treat the band members as employees (as well as owners).  Your business manager or accountant should be able to help you figure this out.  In addition, when you file for an EIN, if you are an LLC you can choose if you want to be taxed as an LLC C Corporation or an S Corporation. Your choice will impact how much you spend on taxes and what you can write-off as an expense.  Your accountant can assist you in minimizing taxes by this choice (and in other various ways as well). There is no fee for filing for an EIN.  The form, the SS-4 can be obtained from your accountant, attorney or from the IRS. If you have an accountant or attorney, you should ask them to fill it out for you.

             In addition, you should consider registering the band name (and possibly logo) with the federal trademark office.  There are many benefits of federal trademark registration, such as the presumption that only your business can use the name throughout the whole country.  Trademark law is complicated, and so is the registration process.  It is also expensive, at least $325.00 in filing fees (and often more).  If you don’t get your mark registered, you don’t get your filing fees back either (they Trademark office calls it an administrative processing fee).  For this reason, unlike copyrights (discussed below) it is advisable to talk to your attorney about helping you with your trademark registration.

             You should also consider registering copyrights that are owned by the band. This would include songs, recordings, artwork, etc.  Unlike trademark registration, it is pretty easy to get a copyright registered.   For more information on copyrights, please see LawNotes Vol. 1. No. 1 “Why You Cannot "Copyright" Your Song If You Have Already Written It!” 

 

Band Agreements

         Finally, whether you are a partnership, LLC, or corporation, you should have some type of Band Agreement.  Even if you can’t afford an attorney and have decided to simply stay a partnership or try to form an LLC on your own, you should at least attempt to draft a simple agreement. If it is a partnership you will have a “partnership agreement,” if it is an LLC, it will be an “operating agreement.” In both cases, if you don’t have an agreement, the law will make many of the decisions for you, some of which, you may not like. Corporations are quite different, as they have multiple levels of management.  Instead of agreements, corporations have regulations and bylaws.  All business types should have regular meetings and keep written minutes, and have resolutions for major decisions.  A lack of such written material could be a factor in a court disregarding the corporate veil and the company’s limited liability.

Conclusion

        In short, the decision not to organize is akin to a game of Russian roulette. If you don’t take the time to organize, you may not get the chamber with the bullet--but then again, you may.  While nothing is certain, if you spend some time organizing you can minimize the chances of that bullet hitting you. While running your business properly takes time, and money, these costs are part of being in business.  And not taking the time to properly run your business can be significantly more costly in the long run. 

Leon Bass is an attorney in the Central Ohio area who practices entertainment law. This article could not been written without the generous assistance of Jason Hayward, a former law student at The Ohio State University College of Law and a former law clerk in Lee’s office.

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Disclaimer:  Of course, as an attorney I have to have a disclaimer: DON’T RELY SOLELY ON MY ADVICE IN THIS COLUMN!  LawNOTES is only intended to be a general overview of some legal issues and cannot possibly be complete in the amount of space we are dealing with. It is NOT intended to replace the advice of a competent attorney.  Therefore, please consult an attorney to discuss your rights, and always, please use sound judgment when making your own decisions, with or without the assistance of an attorney.  

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