The Benefits of Making Your Band a Business

While your passion for music is most likely what started your career, the business decisions you make along the way will ultimately guide it. As a professional musician, the success and longevity of your career depends heavily on both minimizing your personal financial burden as well as combating any legal dilemmas that you may face along the way. The business structure you chose for you or your band is essential in accomplishing these goals. There are three main types of business structures to examine when setting up your band’s business: a sole proprietorship or general partnership structure, a corporation, or a limited liability company (LLC). Your preferred entity choice will depend on your specific situation and long term goals.

In a sole proprietorship or general partnership, the business income and losses may be reported on your personal income tax returns, and the band’s legal liability may be attached to the individual members. In terms of dealing with band debt, contracts, and general liability to outside parties, each member in the band shoulders the burden as an agent of the band. For example, if one member runs up the band’s credit card, all members might be held personally accountable. Raising money for new gear or to go on tour would most likely occur through a loan with your personal credit at stake. On the other hand, sole proprietorships and general partnerships are attractive for the simplicity and informal nature of setting up and running your business. There are little formalities for corporate record keeping, voting, and even holding meetings.

Forming a corporation for your band is also a viable choice since you can sell shares in the band, allowing you to raise money for your band. Additionally, as a corporation, the legal liability of the band is most likely separate from your personal liability. For instance, if the band is forced to breach a contract, the corporation will most likely be liable instead of you as an individual. However, forming a corporation is costly, time consuming, and requires extensive managerial and financial record keeping. You are also required to adhere to other formal requirements such as shareholder and director meetings which may be burdensome for you and your band members.

Another effective business structure for many musicians is one that has the flexibility of a sole proprietorship or a general partnership as well as the limited liability and economic benefits of a corporation. A limited liability company (LLC) is flexible and cost effective for bands and operates under fewer corporate formalities. You and your band should consult with an accountant to discuss the added tax benefits of forming an LLC as well.

Creating an LLC for your band may also help avoid problems if the group dynamic changes or deteriorates. During formation, the band members will anticipate the band’s future business needs and address these needs in the Operating Agreement. The Operating Agreement governs the business and legal procedures of the LLC by addressing such issues as who controls the use of the material, performance rights of former members, and voting rights of new members.

Bands that are serious and form a solid entity can help level the playing field when dealing with larger record labels and recording companies by giving off a more polished and professional appearance. Additionally, you are defining your business and instilling confidence and credibility with people and businesses, such as financial and lending institutions.

Whether your band forms an LLC, general partnership or corporation, you should meet with an attorney to discuss the benefits of each. Together, you can identify a business structure specific to your terms to help you succeed in both the world of music and business.

Post written by: Pete Blair

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