The topic of bands paying taxes and the proper business entity to file as came up in a recent Facebook conversation thread, which made me realize that not all bands know exactly what they’re doing when it comes to protecting themselves and their assets. Not to mention what happens if a member leaves a band, so you don’t end up with Queensryche part two. Assuming that a band has passed the “let’s jam and get to know each other stage” and are ready to conquer the world, there are a few things they should do before rushing into the studio to record their demo or album, at least here in the U.S.A. The following may be a lot to take it, but if you are serious about being in the “music business” then you will read on.
- Have a Band Partnership Agreement written up and signed by all members. Ideally, this would be drawn up by an attorney who practices entertainment/music law in the state that the band resides. However, most bands in their infancy can’t afford legal counsel and can just find examples online to use as a template and tailor it to suit their needs. Just make sure to cover every possible aspect you can think of, it can be amended or added to later. Key points to focus on are: how the money (profit and loss) is split amongst the members, what happens in the event a member leaves the band both voluntarily and involuntarily, the obligations/roles of each member, etc. There are so many things that I couldn’t possibly list them all, but a good Band Partnership Agreement template will have these things in there. However, if you can afford outside legal help….then get it. Whether it be a lawyer or something like LegalZoom.com.
- Establish a General Partnership business entity and get a DBA account. I don’t know about all states and territories, but typically once people decide to partner up and engage in business together they are a General Partnership. A General Partnership has two or more persons engaged in a business for profit. The business is not a separately taxed entity, it is a conduit where the profit or loss flows through to the partners. The partners (band members) report their share of the partnership profit or loss on their individual income tax returns. All partners enter into partnership by either oral or written agreement that must cover all terms of the parties’ business relationship (Band Partnership Agreement). Getting a DBA is pretty easy. The process may vary slightly from state to state but in California you just register the Fictitious Business Name in the county that the band is based, there is a small fee to do this. Then run a public announcement/legal notice ad in one of the many publications that cater to such things in the county that the band is based, again…small fee. You also have to file the proof of publication to the county. If in Los Angeles County, a great place to have this all done for you is 30dollardba.com – they will file the Fictitious Business Name, run the ads, and file proof of publication with the county at a reduced cost than other sites that charge for such services. Once you get all that stuff done, take the proof of publication and Band Partnership Agreement to the bank and open up a DBA account using the band name. Once this is done, people can make a check out to the band name and you can actually deposit it. Also, this is how you keep track of most band expenses…by using the account solely for band related transactions.
- Copyright the band’s music and lyrics. File for copyright for the band’s original written songs and specify the writer(s). An album would be registered as a “collective work” with all song titles listed. More information on how to file for copyright (if U.S.A. based) can be found at copyright.gov.
- Register with a Performing Rights Organization such as ASCAP or BMI. Each member that is considered a writer for any song registers as a writer. If the band has no publishing deal yet (which is usually the case) then register the band name as the Publisher. Once this is done and everything is in the system, then you can register each song and specify each writer along with their percentage of “ownership” in the writing of each song. This is how public performance royalties get paid. If you fail to register with a PRO and start getting radio play…you will get nothing in terms of royalties.
- Once the band is making money, dissolve the General Partnership and become an LLC. Some think that a band should start off as an LLC from the beginning, but I don’t necessarily agree….unless they can afford it. It costs around $800 per year just to be an LLC, so unless a band is making enough to cover that it really doesn’t make sense to put the band in the negative just to say they’re an LLC. I recommend going the General Partnership route, which is the same as an LLC but without any liability protection. What that means is, an LLC protects each member’s personal assets in the event of legal action (lawsuits). In a General Partnership, personal assets are still fair game if someone is claiming damages in a lawsuit. So just don’t do anything stupid in the early stages that could result in any legal repercussions.
- Keep track of expenses. Pay for rehearsal space? Write it off. Pay for gas while on tour? Write it off. Eat something while on the road? Write it off. Pretty much anything that costs money that directly relates to the band and performing can be written off on taxes. Just keep receipts and put it all in a spreadsheet as you go, it will save you time come tax season.
Well, I hope that helps paint a picture of what needs to be done in order to have a band function as a business. If you have any questions, feel free to ask them in the comments and I will do my best to answer.
-Max ‘ManJewky’ Wallis
KM Co-Founder / Blog Editor