Why Bands Should Become Businesses

bands as a business

Learning how to run the business side of your creative side is more important than you think.

As someone who has been active in the music world for over a decade now both as a musician, as well as numerous other roles, I have heard a variety of perspectives on how musicians should approach the business side of things.

While this isn’t exactly the most enjoyable part of being a musician, it’s still important that you know what you’re getting into, and make decisions that are best for you and your bandmates from both a financial and creative standpoint.

This exercise is like jogging, you hate the very idea of doing it, but after you finish you feel glad you did.

Well, let’s hope so at least.

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Types of Businesses to Consider

When becoming a business, bands generally fall into either partnerships or limited liability companies (LLC). These results are echoed by Intuit’s Business Entity Wizard, which I went through to see what it would suggest based on my band’s criteria, resulting in a tie between partnership and LLC.

should you form a partnership or llc

Image Courtesy of Intuit QuickBooks

Understanding a Partnership

Under the laws of most states, if you have not formally filed your band as a business you are functioning as a partnership by default whenever you do business, meaning that each member has both an equal responsibility and right to both debts and profits.

The primary reason you would want to remain a partnership instead of taking the time to file as an LLC is that it is simpler and has less upfront cost and paperwork. The drawbacks are that the individual members of the partnership are not protected against any debts occurred or agreements made by the group or other members.

If one member of the band signs a contract for the band to write and record a song for use in a commercial, then the other members would also be personally liable for that breach of contract, and even their personal belongings could be seized to cover damages. Also, while new members can be brought into a partnership via a unanimous vote of the existing members, if any existing member of a partnership leaves, then the partnership has legally ended, and those remaining would need to create a new partnership agreement.

Even if you want to keep things simple and remain a partnership, you should still draft a partnership agreement between the members of the band, detailing things like songwriting credits and how money earned is divided.

Understanding a Limited Liability Company (LLC)

A stronger business model for a band to use is an LLC.

An LLC is a better business model than a partnership in the long run for several reasons. The biggest reason is that an LLC protects its members from the liability of the entire group. Unlike a partnership, individuals are not held personally responsible for the debts of the entire group.

In order to form an LLC, though, the group will need to file paperwork with the state and pay a fee. With this paperwork, they must also include an agreement that covers each member’s level of ownership and responsibility, as well as how profit and debt will be divided. Adding a new member still requires a unanimous vote amongst existing members. Unlike a partnership, however, if any member leaves, the LLC agreement still fortunately stands, and does not necessitate a new one.

Since a partnership technically dissolves automatically when a member leaves and each member owns an equal share, this would mean that if the member who is leaving wanted to claim that they are owed their even split of the band’s assets, they would be legally entitled to it. So if you have four members and one of them leaves, they would be within their rights to sue you for 25% of the band’s assets.

With an LLC, however, this is not automatically the case, and the band would have a better level of financial protection.

An LLC gives a band better financial protection Click To Tweet

Next Steps

Regardless of which model you decide on, there are steps you should take in order to make sure the business side of your band runs smoothly.

After creating your partnership agreement, or filing your LLC paperwork, you should obtain a federal tax ID number (EIN). An EIN allows you to do things like open a business bank account and properly pay business taxes, which is essential as the business side of your band grows.

After you have obtained an EIN, it is a good idea to open a business bank account for your band. This makes managing your band’s expenses much simpler and also alleviates the responsibility of one person being in charge of money.

the business of being a band

A band needs to focus on the operations side of their business

Both the most common, and divisive issues that I have seen cause serious problems for a band from the financial standpoint have been from situations where one person keeps the band’s money in their personal account. These problems aren’t always intentional, and it’s understandable when mistakes and tough financial situations occur. However, the easiest way to eliminate or prevent these problems is by creating a system of accountability amongst bandmates.

After you reach a point where you actually start earning money, having a separate account for the band’s finances also allows you to have greater flexibility with how you spend that money. For instance, if the band is in need of any equipment, then the band can pay it for. As the business side of the band grows, and you have more income and expenses to keep track of, it is also a good idea to utilize accounting tools, especially a mobile one if you are touring at all, to make this part of your life easier.

Final Thought

The decision whether to formally form a business for a band or not, and what steps to take, can feel overwhelming, or maybe unnecessary. However, by taking this step before it becomes an issue, you will make things much easier for you and your bandmates.

By having the business side of the band sorted out and running smoothly, it makes it less likely that any stress or issues from this side of things will creep into the creative side of things.

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Comments

  1. I agree with the statement that bands should be businesses. Being a musician myself, it is imperative that people who create music for a living require a retirement program. How else are they going to live after they finish with music creation, gigging and selling their work?

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