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Most bands start as a group of friends casually playing along to some of their favorite songs. Once they get a feel for each other’s style, things may start to get more serious – regular practices, a few local gigs, a fan base – and before they know it, it’s more than just a hobby.
Navigating the business side of things, like the shared ownership of assets and the management and distribution of revenue, can be a challenge. A formal structure can help, defining individual rights and responsibilities within the group. Although it can be awkward for a group of friends to formalize things, it can save a lot of frustration, animosity and legal expenses.
One of the most common and straightforward ways to define a structure is to form an LLC for the band. This helps to separate the band’s assets and business from its members’ personal assets. In the unfortunate event of a lawsuit, this will protect the members from losing assets unrelated to the band itself.
Forming a company also allows a band to create the LLC Operating Agreement. In Delaware, this document is not filed with the state, but maintained internally by the band. LLC members (who may or may not be all of the same people as the band members) have plenty of flexibility in how to define the terms.
Some important items for a band’s LLC operating agreement include:
These are just some of the things a band can formalize before issues arise. It’s best to do this in the early stages. Finding mutually agreeable terms when there is already tension can be a difficult task.
When creating the Operating Agreement, members can include as much or as little detail as they want. Typically, however, members benefit by covering as many potential situations as possible to prevent disputes. Rather than simply stating, “band members will vote on decisions,” the agreement could read, “for all matters involving financial, creative, or membership decisions, the members of this LLC will vote, with an equal weight given to all members.” If it’s a four-person group, don’t forget a tie-breaker rule!
The website MusicBizAcademy.com offers a free sample band agreement that you can use as inspiration or as a template.
Please note that there is no required format or structure for this document in Delaware. It is maintained within the LLC and it is not filed with the state. Yours can look entirely different than this sample. The Operating Agreement does have legal standing in any disputes, which is why it is so important.
Keep in mind that neither the sample band agreement on MusicBizAcademy, nor any information in this article should be considered legal advice. Consider the sample agreement and this article as a resource with which to determine your band’s needs.
Similar to other business types, bands in any state or country can decide if a Delaware LLC is best for them. A Delaware LLC provides strong protection for its members, thanks to Delaware’s business law structure and its Court of Chancery.
While a band that performs only in Ohio, for example, would likely have to pay taxes to both Delaware and Ohio when using a Delaware LLC, this additional cost may be worth the security it provides, along with the other benefits Delaware offers. Alternatively, the band could form its LLC in Ohio and pay tax to that state only. (Note: Laws governing LLCs and their Operating Agreements can differ from state to state.)
If you need any help forming an LLC for your band or understanding what’s involved with the process, our team is happy to answer any questions. Simply call us or use the live chat feature here on the website and we’ll guide you every step of the way.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.