Band Business Formation

A band is a business, and like any small business, it can take the form of any number of different legal structures. 'Choice of entity' is what the lawyers call the decision-making process by which you decide which legal form to use for your band. Factors that play into the choice of entity include how many people there are in your band, the finances of each of those band members, how much money you anticipate making as a band and whether you intend to use band funds for transportation, marketing, paying a manager or agent, or other business expenses. 

Choice of entity affects the income tax paid by either the band itself or its members, and impacts on the business relationship between band members as well as the band support staff. 

If you are a high school garage band, playing a few times a summer for free at friend's parties, you probably don't need to file the paperwork to turn yourself into a legal corporation. However, by taking no action, the law assumes that you are in fact functioning as a partnership. You should sit down and have some kind of agreement among the bandmates as to who is responsible for any expenses that arise, or how you are going to split any tips or payment you might receive, even if you aren't necessarily expecting any. If you start up a blog or website with paid ads on it, you might well wind up with a bit of income. The amount of money doesn't matter -- more friendships have been destroyed over $25 than over $25 million. Talk to your bandmates up front, before any expenses are undertaken or income arrives, to make sure you are all on the same page in terms of who that money belongs to. You might decide to split your $50 tip evenly among four musicians, or you might decide that the guy driving the van gets to deduct the tank of gas first and you'll split whatever remains, if anything. That's all up to you, but the important thing is that you all agree on it.

If, like millions of professional musicians, you are a solo performer, you may not think you need to form a legal entity to carry out your band business. If you are seriously trying to make all or a substantial portion of your living from your music, however, forming a sole proprietorship Limited Liability Company (LLC) has some distinct advantages. You'll get a separate tax ID number that can help ensure that your music business funds and expenses remain distinct from any other household income. You can get business property insurance for your instruments that isn't subject to the deductible on your homeowner's insurance. And you'll have some liability insulation between the business and the rest of your life and family possessions. Consult with your local tax professional to see whether these advantages are worth it for your particular situation.

Whenever two or more musicians are gigging for money on a regular, ongoing basis, a formal legal entity for the band is a good idea. An LLC formed as a partnership allows the band to have its own bank accounts with its own tax ID number, to apply for band credit cards (did I hear someone say, Musician's Friend account?) or gas cards, even to buy a band trailer or van as well as instruments and lighting and sound equipment. Yet the income for a band LLC organized as a partnership will pass straight through to each of the members without having to be taxed at the entity level as it would for a corporation. Band partners will set out in their Operating Agreement the framework of who is responsible for what tasks, whether they are getting compensated for those tasks, who has authority to write checks or make decisions, and how the income will be split up. LLC partners can either all have an equal vote in management of the entity, or they can assign the regular business of the band to a manager and authorize him or her to pay the bills and make the purchasing decisions. 

One advantage of partnership LLCs for a band structure is that the Operating Agreement can also spell out the process by which band members can leave and new band members come in. Instead of having to wholly dissolve the band, lose the name, or sell off the equipment because no one can agree as to who owns which light rack, the band as a legal LLC entity can continue on, with individual members retaining whatever rights or property is listed in the Agreement. Remember to include copyrights and royalties in your Operating Agreement, designating who will hold them and what happens to them if a band member leaves.  The Operating Agreement can spell out the conditions under which new members will be brought  on board, including a period of time without pay or without rights to royalties for CDs and digital tracks that have already been issued.

If you are going full-time with your band, and engaging employees like roadies, bus drivers, managers, agents and public relations professionals, a more complex structure like an LLC formed as a Subchapter S corporation, or a straight-up Subchapter C business corporation, may be the more protective and effective option. These more complex entities might also be appropriate if one of the band members might have a lot of financial risk in their outside activities, or has substantial assets that he or she doesn't want band creditors to be able to access. These more complex business entity structures usually require more complicated annual report filings and separate tax returns, though, so again, consult your attorney and tax professional to figure out which entity is best for your individual situation.

The most important thing is to have the conversation with your bandmates, gather information, and make a deliberate decision as to which legal structure will work best for your band before conflicts arise over rights, obligations and money.