Most people who decide to go into business together (be them plumbers, dentists, accountants, bakers) will have a lawyer to write a partnership agreement for them. However, it is common to find bands that are earning millions that never got around formalising 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. However, it is when everything is going well exactly the best time to discuss a band agreement, simply because you can do it in a friendly way. Obviously, it is hard to reach an agreement when band members find themselves fighting with each other, specially if there is money in question and chances are the band will end up ‘killing the goose that lays the golden eggs’ (read as breaking up).
Corporation or Partnership
The main difference between Corporation and Partnership is the liability limitation. Corporations limit the liability of the shareholders to the capital they invested in the setting up of the corporation. In a partnership, by default legislation, the partnership’s assets as well as the partner’s personal assets can be taken away to pay for debts, compensations and legal fees. Legal fees should be the main concern for bands simply because they traditionally do not to incur heavily in debt and advances from labels are customarily not repayable if the band break ups or get dropped. Good news is, the partnership default arrangement (regulated by the Partnership Act 1890) can be overruled by the partners writing a new set of rules in a partnership agreement in regards to liabilities, control of the assets during and after termination, voting, division of income, etc.
As an example, when dealing with the most important asset of the band (the Name) the band can decide on one of this different provisions (although there are many different combinations possible):
- No one can use the name if the band breaks up or
- Any majority of the band members performing together can use the name or
- Only the lead singer can use the name or
- Only the song writer who founded the band can use the name or
- Only the lead singer and song writer 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 isn’t usually an option for new artists as there won’t be money to pay salaries. Therefore everyone will be working for a percentage of future earnings. There are no rules on how this income shall be divided and it’s all down to bargaining between the members. If a member works harder and in general contributes more than the others it may be fair that he/she earns an overall higher percentage. It may also make sense that, for example, the split is done evenly on tour money but proportionally for publishing income depending on who writes the music.
Control and voting.
With varying percentages of earnings it may also make sense to have one or two key members controlling the vote or whose votes are worthier that those of other members. Voting is important when hiring and firing members, entering into other agreements, capping expenses, amending the band agreement, etc. It is important to avoid having an even number of votes to prevent an equally divided vote where nothing can be done (a deadlock).
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 is he/she going to be bought out of their share assets of the group (buyouts), at what price and over what period or time are important aspects to consider.
All in all a band agreements deal with very tricky and emotive issues which is why the band should deal with them at the beginning of the relationship before money starts being earned. A Band Agreement is a vital document that will work as a blue print that artists can refer to when taking important decisions and can help settle disputes easily.
by Juan Lopez, Legal Consultant
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Images source: Yale Law Library, Mike Licht