Musicians are aware, of course, that music is a business, but generally don’t think of their band as a business entity not entirely unlike other small businesses. The type of business organization you want depends on the particular circumstances of your band. The key issues to look when deciding what kind of organization to go with are liability, control, and taxes.
Sole proprietorship – This essentially means that one person owns the band and the rest of the band members are either employees or independent contractors. The owner has full control of the band and is liable for the actions of any other band member in their capacities as employees/contractors. Additionally, the copyright of songs written by employees or independent contractors for the owner’s band usually belong to the owner of the band, not necessarily the creator. Choosing this kind of entity can also have big tax consequences due to withholding requirements. This type of entity may be a good choice if liability is not a major concern, the band members don’t mind the owner having full control of the band, and the owner has a good system for keeping records.
Partnership – Most bands form as partnerships. Under Louisiana law, a partnership is formed when two or more people pool their resources to achieve a common commercial goal. Each partner in the band shares in the band’s expenses and profits. The simplistic nature of a partnership makes it a natural choice for a band but there are some things to look out for. All partners are fully liable for all obligations of the band and any partner can create obligations that bind the rest of the partners. Thus, if one partner purchases $10,000 worth of music equipment for the band from a music store on credit, the store could go after the purchasing partner or any other partner for the entire $10,000 can be made to pay out of his or her personal assets, even if the purchasing partner bought the equipment without telling the other partners. The default rules for a partnership can be changed with a Band Partnership Agreement (BPA). Using the liability example from above, the band could agree that partners cannot obligate the band to a third party beyond a certain amount without having a vote and further agree that such votes must be either unanimous or majority. How extensive a BPA is depends entirely on the needs of the band. Partnerships are a good choice for most bands due to the ease of creation, shared control, and flexibility that BPAs provide.
Limited Liability Company or Corporation – When liability does become an issue, whether the band is greatly expanding or touring extensively, it may be time to start thinking of forming an LLC or corporation. Typically, LLCs are a better choice for bands because they allow members more flexibility of control than corporations offer shareholders and because LLCs are not subject to “double” taxation like corporations are. Both of these types of entities shield the band members from personal liability for the actions of the band or other band members. Creating an LLC or corporation requires more planning than other business types.
The best type of business organization for you depends on the particular circumstances of your band and the goals of the band. It is possible to do any of these by yourself, there are countless online guides and books you can buy, but the more complicated your situation becomes, the better off you are hiring a professional to help you.