Band Business Formation Part I: Why Should My Band Be a Business?

I just started up a band. Is there any paperwork we’re supposed to fill out?

A band is primarily a relationship: An association between two or more creative individuals for the purpose of generating music.

Like any relationship, the people entering into it may have different resources, different perspectives, and different expectations. Think of four people deciding to rent a house together. One might expect that all will contribute to hiring a cook and housekeeper to do the shopping and clean the whole place weekly. Another may see no need to clean more than once a year and have no intention of sharing meals. We’ve all had the roommate who ate everyone else’s food and took hour-long showers. The result is, shall we say, disharmonic. 

Talking through intentions and expectations ahead of time can help make the housemate or band relationship harmonious. Is the purpose of the band merely to spend time playing together for personal enjoyment? Is it a single-purpose venture, such as old friends reuniting to play for a specific occasion like a wedding or funeral? Is the goal to get paid bar gigs, or to head into the studio to record original music, do an online promotion blast and then take it on a world tour? 

Conversation – or meaningful introspection if you are a solo performer – is the first step in band business formation.  As soon as money becomes involved – in either direction, that is, spending or being paid – it becomes critically important that all the bandmates reach agreement as to who is responsible for any expenses, or how you are going to split any tips or payment you might receive. The amount of money doesn't matter -- more friendships have been destroyed, and more bands blown apart, over $25 than over $25 million. Talk to your bandmates before any expenses are undertaken or income arrives. You might decide to split your $50 tip evenly among four musicians, or you might decide that the guy driving the van gets to deduct the tank of gas first and you'll split whatever remains, if anything. The choice is up to you, but the important thing is that you all agree.  

The appearance of money, for solo performers as well as bands, raises another inconvenient complication: Taxes. When your music-generated income reaches the magic taxable threshold, the IRS and your state tax agency are going to want to know about it. You will need to have a set of books showing your expenses to offset your income. If that income was divided between multiple band members, you’re going to want to make sure that one band member doesn’t get stuck having to declare all the income and pay all the taxes. 

When money flows in and out of a band, that band is a business. Like any small business, a band can adopt any of a number of different legal structures to suit its business needs for organization: setting a format for management and assignment of tasks, minimizing risks of liability, coordinating bookkeeping and establishing a system for distributing income and apportioning expenses. 

'Choice of entity' is what the lawyers call the decision-making process by which you decide which legal structure to use for your band. Factors that play into choice of entity include how many people there are in your band, the finances of each of those band members, how much money you anticipate making, and whether you intend to use band funds for transportation and hotels, studio costs, buying equipment, marketing, paying a manager or agent, or other business expenses. 

Forming a business entity for your band does indeed require filling out some paperwork and filing that paperwork with the state. If you avoid the decision to fill out paperwork, you still are a business entity: In the absence of choosing a business entity yourself, the law will assume you are working as a partnership. As in many areas of life, not to decide is to decide – and the decision made for you instead of by you will probably come back to bite you. 

There are many advantages to forming a business entity for your band, or for yourself as a solo musician. Not only are taxes easier, but your ability to get a loan or band credit card when you decide to upgrade to a new PA system, to qualify for grants from arts agencies, or to smoothly transition band members in and out of the group with less disruption and heartache, is also greatly enhanced when you have a formal business entity. 

For most performers, a simple LLC (limited liability company) works best, but this isn’t always the case. In the next few posts, we’ll look at the options of being a sole proprietor with employees, using a trade name, partnership agreements, the LLC or LLP, and the full business corporation. Forming your business entity establishes your control over your talent, and stakes your claim as a professional in the music industry.