What kind of Business should my Band Be?

When you are applying for a business license one question will be what kind of business are you applying for?  By understanding the importance of having a legal business entity with a tax ID number for your band will probably lead you to what kind of business are you forming.  There are in essence three kinds of businesses you can form, a sole proprietorship, a partnership and a corporation.  There are variations of these business models but by understanding the basics of these models and deciding what is best for your band, you can then determine what variation of the different models will suit your business best.

A sole proprietorship is the simplest legal structure of businesses out there.  One person is the owner of one business or in the government’s eyes the business and owner are one and the same.  This model of business is usually good for a solo artist or one man band and usually is the easiest form of business to set up.  But consider this; since a sole proprietor business has no separate existence from the owner, the owner of the business is liable both personally and financially for all aspects of the business.

A partnership is similar to a sole proprietorship with the exception of that instead of one person owning the business; more than one person owns it.   Many bands start out as partnerships where the ownership and risks are shared equally amongst the owners.  Any decisions about the business of your band are also shared and any person in the partnership can bind the others to an agreement by one signature.  So for instance, your band is contracted to play in a club, not every band member is required to sign the agreement. One signature will bind the entire band to perform the obligations set forth in the agreement.  Should one person default in the agreement, all the owners of the partnership are in default and personally liable.  The law presumes that each partner will be bound by the actions of all the other partners. But should your band break up, the law will presume that all the band members own the band name and any of them can use it in the future, since no one has exclusive possession. This means that if the band breaks up, all four members could start their own version of The Band and use the name.

The above reference is if the band goes in without a written agreement.  In most instances, most bands will create a business as if nothing will ever go wrong.  But that just isn’t sound business sense.  A written agreement with regards to the ownership of the band should be drawn out amongst its owners.  What will happen should a member decide to leave the band or the band as a collective removes a member from the band and relinquishes ownership.  Who is authorized on the bands behalf of making payments to places like rehearsal space?  By spelling out the arrangements of the partnership in writing can lead to less headache and prevent lawsuits should something happened to one or more owners of the band.  Remember, in a partnership although you allow one person to handle the financial responsibilities, each member of the band is personally liable and responsible for those finances.

If having a partnership is considered too risky or one or more members do not want to have personal risk to their personal assets then perhaps another form of business will be better for your situation.  By forming a corporation, you will be forming a business in which you will work for where the company is its own entity and your band works for that company.  So in the event that the band is sued, by being a corporation the petitioner can only go after the assets of the corporation and not the owner’s personal assets like they could with a partnership or sole proprietorship.  However for this protection brings greater responsibility both on a management level and tax level.  In the entertainment business aka music business these corporations are called loan-out corporations.  What this corporation does is contract with other parties for your services. For example, if you have a loan-out corporation and you get a record deal, the corporation would sign the contract and would provide the services of the band, thus the name loan- out. The band itself does not sign contracts, but the corporation does.  So on a contract you will see, MyBand Touring, Inc. f/s/o (for the services of) MyBand instead of d/b/a (doing business as).  Then an authorized signature which could be your manager, business manager or agent can sign on behalf of your band legally binding your band to a contract.

Of course if a corporation is just not feasible or necessary for your band yet, but you do not want to form a partnership that has every member personally liable and responsible to the business, there are other variations of business models based on the basic three.  Your band can created what is called a limited liability partnership.  This can grant you some protection that a corporation has yet still allow the owners an active role in its management.

By understanding the different models for business and the variations of each business model, finding which kind of business to create, that will best serve the needs of your band is crucial in legalizing your band as a business.  Knowing the risks that each model of business presents will help shape how you register your band.  If you are unsure, then take up legal council with a lawyer who understands the music industry that will best guide you to becoming a music entity.

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