While it's the dream of many a band to achieve massive success in the industry, the road to the top is rife with financial ups and downs. This article looks at the importance of good fiscal planning in a band, and what sort of legal precautions should be taken in order to prevent trouble down the road.
Guest Post by Justin M. Jacobson, Esq., The Jacobson Firm, P.C.
While every band dreams of making it big and one day sharing the stage at a sold-out arena, the trials and tribulations that they encounter on the way to the top can leave lasting impacts on the band members as well as shape their financial and musical fates for the rest of the band member’s career. An “all for one” band member mentality, with each member receiving an equal share of all profits and equal say in the band’s operations, is great in theory; but, as money begins to roll in and problems are encountered, these sentiments are frequently tossed aside and become second-fiddle to the current situation or crisis. While it is not always the easiest conversation to have, a band should address, identify and agree to various essential points on how they operate. The creation of a band member agreement is the ideal medium to express these points.
It is advisable that each band member has their own attorney or independent legal advisor when drafting and agreeing to a band member agreement. However, if due to financial or other factors, that is an issue; then, the cost and labor of separate counsel can be avoided if each band member agrees to a written waiver of independent counsel. That would permit a single attorney to act as a scribe on behalf of the entire band and merely formalize the band members’ agreement.
Generally, the law classifies the grouping of two or more people associated for a specific business purpose as a “partnership.” That entitles each partner to equal ownership in all of the partnership’s property (tangible and intangible), profits and debts. Each partner also has the ability to obligate the other partners to legally enforceable agreements with third-parties. These are reasons why many bands select a corporation or LLC as their business entity. While this traditional partnership arrangement may be the choice the band prefers, it is best to enter into a written agreement that formalizes these points as well as addresses various other ones to ensure that all band members are in agreement and understand what they are actually entitled to and own.
There are various important issues that should be addressed in a band member agreement. A written agreement can apply to a formal corporate entity, such as a Corporation or an LLC and it can also be enforceable against the particular individuals who sign the agreement. Thus, the profits and losses from the band can be split as the parties desire, including a split by a shareholder’s stock ownership in a corporation (i.e., you own 10% of the Corporation’s shares, entitling you to 10% of income generated by the Corporation) or any other profit sharing formula that the band members agree to in writing.
Control and decision making authority are essential terms that need to be properly defined in a band member agreement. Generally, each member should be entitled to one vote with a majority vote approving most band member matters; however, this can be altered in the band member agreement to give one band member (i.e. a lead singer) additional votes or to require unanimous approval for specific matters (e.g., to amend the agreement). There can also be tie-breaking provisions, including having a third-party industry professional, perhaps the band’s manager, accountant or lawyer, break an existing tie.
Decisions as to the requirements to hire and fire a band’s music business professionals, including management, attorneys, agents and accountants, should also be decided in the band member agreement. The band agreement should also include provisions on how to remove an existing member. That would specify the vote needed - - a majority or unanimous. A code of professional conduct may be agreed to between the band members. That would outline prohibited conduct and the potential repercussions for exhibiting the prohibited behavior. Other important considerations include how financial contributions to the band are handled and whether the individual who contributes is entitled to recover any portion of their contributed funds or not. Also, provisions are necessary specifying the vote necessary to expend the band’s funds, for example, a particular set amount that requires unanimous vote as opposed to a majority decision.
Each band member must pay close attention to how and what is actually considered band member income, especially in situations where not all band members are engaged in the same activity. An example of this is with songwriters. Typically, only a songwriter receives an ownership interest in the copyrighted work and the copyright owner is generally the only individual entitled to receive certain income generated from the exploitation of the work. These sums typically include the so-called “Publishing” monies, some of the synchronization license fees for utilizing the work in a motion picture, television show or video game as well as mechanical royalties for CDs and file downloads sold containing the copyrighted work. If a band member is a non-writer, typically, they are not entitled to any of these proceeds as only the songwriter receives these monies.
This is an important point to address in a band member agreement, as the songwriting band members will earn additional revenues that other non-songwriting band members are not entitled to. This could cause a rift in the band. A potential approach to address this issue without the songwriter giving up its actual copyright ownership interest in the work would be to have a clause in a band member agreement that specifies that all royalties earned from the exploitation of any of the material, including any songwriting royalties, are counted as band income and is divided as such. This could be a compromise between the songwriter keeping all his future and current copyright interests in the work and ensuring other band members currently receive some of these funds as well. Alternatively, the band members can agree that each band member is entitled to keep his own songwriting interests and income; and, such an agreement should also be memorialized in a writing so all band members are aware of this fact.
Another important issue to address is what happens if a member records or performs for someone else. Is that the band’s money or does it go to the performer? As time goes by, that may become quite important. Also, who owns the band name and what rights, if any, does each band member have in the name. Typically under partnership law, each partner is a joint-owner of the name and any partner would be permitted to use the name. Use of the name becomes a big issue if the partnership is dissolved. Similarly, under U.S. trademark law, a band must actually use the name in commerce for the particular listed class of goods or services to acquire rights in the name. Each partner would be a co-owner of the group name and have a non-exclusive right to use the name under trademark law. This can result in real issues.
In order to determine name ownership, band members should agree in writing as to who owns the band name while the band is together. They should also agree as to how each band member may or may not utilize the band name after the band is dissolved or if a particular band member leaves. In some cases, the member who originally came up with the band name will be the sole owner; and, in other instances, each band member could equally own the band name or one member could own the name with the other band members still entitled to receive income based on the licensing of the band name for merchandise and other non-music related products.
Another essential issue to agree upon is how a band member who leaves is treated. The band can agree on how a band member who voluntarily quits as opposed to being fired is treated in various instances. The band should agree as to how the former band member is publicly billed, including whether the former member can utilize the band name at all. Deciding on the use of “formerly of” and how it must be billed, whether smaller font, on a promotional flyer and in public advertisement should also be addressed. Another point to define in the agreement is whether a small number of the original band members performing together can utilize the original band name or not. For example, if a group contains seven members and four of the original band members want to continue to perform together and under the original name, is that acceptable.
It is also important to agree as to how a leaving member is treated with regards to any future income earned from the band. The agreement should specify whether a leaving member is entitled to receive residual funds for any projects they were involved in or whether they will receive no additional funds after they leave the band. Other compromises could be that the leaving band member’s interest is reduced after they leave. A buy-out provision is another possibility and may also be included where the remaining band members agree to a lump sum. That sum could be payable in installments to the leaving musician as a buy-out of any future income they may be entitled to.
Furthermore, the band member agreement should address who owns any of the tangible and intangible assets of the band during the existence of the band as well as if a person leaves or if the entire band dissolves. Tangible assets such as equipment and possibly a sound system should be addressed. Considerations should be taken into who currently owns the Official Band Website, Official Band Social Media accounts (Twitter, Facebook, Instagram, etc.), merchandise and/or music inventory, the physical band equipment (instruments, recording equipment, sound equipment, lightning, etc.) and intellectual property assets (songs, images, videos, logos, recording agreements, etc.). How the property is distributed and owned upon the dissolution or upon a member leaving may be resolved by the agreement.
When a new member joins the band, the new band member should be required to sign and agree to any existing internal agreement to ensure they know what they are entitled to and what is expected of them. That should also outline whether the new member receives a portion of any existing income on recordings created prior to joining the band. What ownership rights, if any, the member has in any prior existing material as well as how any income and ownership rights going forward need to be specified. Ownership of the existing physical inventories should also be addressed.
In conclusion, history teaches us that bands will disagree, break-up and encounter disputes, the best way to deal with this is to have procedures in place that address how to deal with as many situations as they can before it’s too late.
This article is not intended as legal advice, as an attorney specializing in the field should be consulted when drafting any formal agreement.
© 2015 The Jacobson Firm, P.C.
Why A Band Member Agreement-10-13-15