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Band Legal Status
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   The Legal Status of a Band  

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There are three main types of legal status of a musical act, employer, limited company and partnerships.  Most larger acts are a mixture of two or even all three.   A typical compound setup would be that of the Rolling Stones which is a limited company, with main shareholders, based on the older partnership, junior shareholders who are newer members, and free-lance employees who are the backing musicians, as well as sub-contractors and others.
 
Many orchestras are limited companies, owned by a partnership of senior musicians, with junior partners owning less and those coming to the orchestra for the first time, being first employees.
 
Employer
 
The typical employer-employee relationship is found in most created boy and girl bands and most orchestras.  Here a body such as a management company (for the created boy and girl bands) or a broadcaster (for the orchestra) fill find suitable members and offer them either a fixed income, or a fixed term contract as free-lance musicians.
 
The employee would expect to be paid for all time spent working with that act and not just the days he or she performs.
 
Although most rock bands are partnerships of one sort or another, some (e.g. Roxy Music) are owned by one person, with all other members being paid for their time on the road.
 
Limited Company
 
Some bands prefer to set up a company where all band members are Directors and Shareholders.
 
The cost of ‘incorporating’, or setting up a company varies, but you should typically not pay more than 500 if the company is bought “off the shelf” from a company formation agent. The formal arrangement of a limited company can put off many musicians, but in the long run it may be preferable to informally working as a partnership.
 
It would not be advisable to incorporate a company unless the band has had a certain level of success. If the band is at such an early stage that it does not have any assets or liabilities and no goodwill has built up in the band name, the legal structure of the band is less of an issue. But if you have a recording agreement and the name of the band is quickly becoming a household name, the legal status of your band should be resolved as a matter of urgency.
 
Advantages of limited companies - Limited liability
 
One benefit of incorporating a company is the protection of limited liability. With a limited liability company, so long as you have not continued to trade and take on debts that you know you have no way of paying back, the directors of the company ( i.e. the band members) should not incur any personal liability and risk their own personal assets, if the company goes bust.
 
As a general rule, with a company if everything goes wrong, the most you should lose is whatever assets or income you had in the company.
 
On the other hand however, if the band is operating as a partnership, all partners are jointly liable for group liabilities and there is no limit to that liability, so for example it is possible that band members could lose their home, car or even musical instruments if the band falls into serious debt.
 
Whether a band decides to operate as a partnership or as a limited company, it is important that key issues are resolved between the band members at an early stage – for example what share of revenue each members expects. This can be formalised as an inter band agreement or a partnership agreement.
 
 
Partnerships
 
You may be surprised to find out that even without signing an agreement, when a band is formed, there is a presumption in law that a partnership has been formed. This is due to the Partnership Act of 1870. When several people are carrying on in business together with the same purpose, it is presumed that a partnership has been created.
 
Partnership Law
 
Partnership laws can have serious and far reaching effects on the internal administration of a band – and yet many bands do not even realise they are in a legal partnership.
 
Unless it is clearly expressed otherwise, partnership law states that all partners share the partnership assets and liabilities in equal shares.
 
This will include such things as
 
• The band name itself
• All of the band’s income (this can include the songwriter’s royalties)
• All of the band’s losses and expenses.
 
The partnership ends if one partner leaves
 
This can be quite serious for a successful band. If one partner leaves, the partnership must come to an end and all of the assets and liabilities of the partnership shared out equally.
 
The assets of the band might include the name of the band. As a founder member of the band you may think the name belongs to you but without an express partnership agreement to the contrary, if the band splits up, all members of the band would be equally entitled to the use of the name.  The band members of Bucks Fizz have been fighting over the name of the band for many years for exactly this reason.
 
Another asset could be the future royalty income of the band. If it is not your intention to share all income equally, you should consider instructing a solicitor to draft a partnership agreement, which sets out how the income and liabilities of the band are to be shared and what happens if the band splits up or one member leaves.
 
If you do not like the idea of a partnership, there are other options available to you, such as one member owning all rights and paying the remaining members a fixed income.
 
Potential Issues of Concern to Musical Partnerships
 
1. Group Name - The ownership of the group name must be agreed and what happens to the name if the band splits up or if various members leave.
 
2. Partnership Property - The band members need to agree what they consider to be partnership property, so for example a new guitar is bought for the guitarist, does that become the guitarist’s personal property or is it a joint partnership asset which he has to return to the band if he leaves.
 
3. Sharing of Profits, Losses and Expenses - Remember that the presumption will be that all profits, losses and expenses are to be shared equally. If this is not the intention of the band members, any agreement should state very clearly how profits and losses are to be distributed.
 
4. Salary - If the band is in a position to pay each band member a salary then this should be specifically agreed in writing in the agreement.
 
5. New and Departing Members - It is usually when there are changes in the membership of a band that disputes arise. A good partnership agreement will set out clearly what the liabilities of a departing member will be and what right they have to future income (if any).
 
6. Voting - Partnership agreement should set out decisions within the band are to be determined. Partnership law assumes that each partner will be given one vote and that a group decision should be reached by a majority vote.
 
7. Expulsion - It is important for a partnership agreement to state exactly upon what basis band members can be expelled from the group. Many musicians would be surprised to realise that the Partnership Act provides that a partner may not be expelled, the only way to resolve this is for the partnership to split. Fame and fortune can turn your mates into monsters in a matter of weeks, and so you may consider it important that your partnership agreement allows for expulsion.
 
8. Royalties - In addition to a provision setting out how profits and losses should be distributed, it is advisable to include a provision setting out how publishing royalties are to be divided amongst the band. Again without an express provision clarifying this, all band members will share publishing royalties equally.
 
9. Dispute Resolution - Last but not least, a good partnership agreement should include a provision setting out how disputes within the band are to be resolved.
 
Membership Change
 
Sometimes, a band member leaves and decides that they want to continue to use the bands name and logo. This can cause problems, for example when Roger Waters left Pink Floyd and the other band members got custody of the name.  When a band member leaves, all group contracts are no longer deemed to include that person, but if that person has signed a recording or management agreement, they will still have certain obligations. The leaving member is entitled to take back any equipment he/she brought to the group, or to the value of same.
 
Who writes the song – who gets what share?
 
The song writing aspects of a musician’s career have the biggest financial impact, due to the fact that songwriting generates more revenue.  The income from performance royalties will be sent to the writer or partly to his/her publisher. The recognised share from writing a song is usually divided into two, allowing 50% for the music and 50% for the lyrics.
 
Writers should agree and divide the shares at the beginning, not the end!
 
If group ‘A’ had a hit record written by four members, this following split may occur.
 
Lyrics written by Smith
 
Music written by Smith/jones/james/rogers
 
Shares are as follows:
 
Smith = 62.5%
Jones =12.5%
James =12.5%
Rogers =12.5%
 
The majority share will go to the person writing the lyric and a contribution to the musical composition. There are no shares recognised for arrangements!
 
Royalty shares on A and B-sides
 
The share of royalty income generated by writers was traditionally divided as to ‘A’ and ‘B’ sides on a record. With more common formats such as CD, the royalties might be divided ‘Pro-Rata’ (between the amount of tracks contained on that release). For example a CD single may contain four tracks. The writer(s) of each song would each receive 1⁄4 of the total publishing income. In the case of a compilation album, the writers would have a royalty shared between the various writers with tracks on that album.

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