Week 2 - Business Structures/Band Agreements PDF

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Summary

This note talks about the details of a band agreement, and what important steps you should take when writing a contract. It also talks about different types of business structures....

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Week 2 Business Structures Band Agreements A band is a formal business organization - Earns revenues, has expenses and pays taxes Business Structures - Sole proprietor - individual carries on a business personally, there is no legal or financial separation between the business and the individual, if biz gets sued, so does individual. All assets and liabilities belong to the proprietor (owner), biz debts can be applied against owner’s home if they have one. Any profits or losses sustained by the business are taxed in the hands of owner. They appear on individual’s tax return. Can have employees, but owner cannot be one. Simplest form of business structure. Solo artists start with this biz structure. - Partnership - exists when 2 or more people carry on business in common with a view to profit. Exists by written agreement or can be implied under prov statues that regulate partnerships. Similar to sole proprietorship, partnership has no independent legal existence. Profits and losses are calculated at the partnership level, divided between all members, then each partner includes the profit/loss on their own tax return. All partners are responsible for all of the partnership’s debts and are at risk if they have personal asset available to cover debt. Each member is responsible for the other’s legal and financial actions. Partner’s obligations towards 3rd parties (promoter) are shared equally, unless a written agreement says otherwise. Can have employees but owner cannot be one. Main biz structure for bands with small revenues. - Corporation - is a separate entity in law and has the legal rights of a person. Exists in perpetuity (forever) unless dissolved by agreement. Profits and losses remain the property of the corporation. Are taxed separately from owners and differently from sole proprietors and partnerships. Is run by board of directors, articles of incorporation, bylaws. Director’s priority in decision-making is the long-term welfare of the Corp. Most bands make the band members, members of the board of directors. Other people (investor, trusted advisor) can also be member of the board) it is tricky to have manager, lawyer, accountant board members due to possible conflict of interest. Corp can issue securities aka shares in company to people for a fee. These shareholders become owners of the Corp. Shareholders have no claim on profits until dividends are declared by the Corp. dividends - money paid to shareholders are from the profits. Corp decides if and how much dividends are paid out. It is not automatic. - Shareholders claim the dividends on their tax return. - Are shielded from corp debts and legal problems. Exception is the board of directors in specific cases of misuse and conflict of interest. - Corporation act and other legislation contain many unique and complex regulations that govern accounting, legal filings, etc. - Shareholders can be employees of company - groups/artists use this form when earning lots of money and have increased liability due to large tours.

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Sophisticated form of business entity. Takes a lot more time and money to run.

Band Agreements - to formalize the business relationship of the band - Membership : key members. Firing. Quitting. Death. Responsibilities. - Decision making control - Ownership of assets - revenue/loss responsibilities - Revenue percentages - Hiring associates - Management expenses - buyouts NB: no general rules to how each band agreement wants to handle the points Its important to get all of this in writing at start of business relationship Band Members Roles and Responsibilities - Who is in the band? - What does the record contract say? - What is their role and responsibility? - Show up at gigs, rehearsals, media events, meetings? - Does someone look after getting gigs, another merch, someone else media - Is there a member who plays an instrument but does not contribute anything else to the band? If they leave will the band easily continue? - Who is/are the key members? - Are there 1 or 2 members that the group could not function without? Then they are key members and should be stated in contract Revenue Split - Who gets how much of what? - Does the 1 key member get 50% of everything? - Does the non writer get part of publishing? - Does new member get % of royalties on past songs or merch? - How is debt split up?

Decision Making Control Business - Who controls the business decisions for the band

- How does the band decide they want to fire a member 50% 75% 1 key member? - What kind of vote does it take to hire or fire manager, accountant, lawyer? - What kind of vote is required to change terms of band agreement? Creative - Hire a band member, side person, producer? - Which songs go on album? - Is 1 vote per member? Only 1 or 2 key members? Majority rules? 1 key member has veto power? - Avoid deadlock (equally divided vote where nothing can be done) by assigning a key member the equivalent of 2 votes. Or band manager or lawyer can cast the tie-breaking vote. Financial - What kind of vote do you need to make partners contribute financially to the group. Upfront money for tour, unexpected legal expenses - Who can pick up expenses and how much before getting permission? How do you make decisions around spending money? - Who signs cheques? Do cheques need 1 or 2 signatures? Band - What happens when someone dies or is severely disabled? Does the surviving spouse or guardian take over the person’s decisions making responsibilities? Band Negotiation-Revenue Split and Decision Making - Determine revenue split among band members of - Live gigs - Merchandise - Publishing - CD/digital sales - How will band make decisions on the following - Sign with manager, agent, label - Hire and fire new band member - Spending money, rehearsal space rental, buy new guitar, postage for publicity materials, etc… Band Contracts Most important - Band name (who owns it?) - What happens to name if lead singer or songwriter leaves band - No one can use the name if group breaks up, regardless of how many of you are performing together - Any majority of members performing together can use name - Only lead singer - regardless of who they are performing with - Only songwriter who founded the group and thought of name - Only if the singer and guitarist perform together - If there is a dispute, courts look at: who is the essence of the group? Is there deceiving

the public? But it is complicated Dissolution of Group - Status of band name - who can and cant use it - Recording, publishing, merch, endorsement contracts - does dissolution breach existing contract - Is there a key member clause in the recording agreement? - Gigs - how to deal with promoter for cancel gigs? - Who owns the assets? The debt? - Accounting of royalties? - Can’t quit at random due to obligations in existing contracts (label, gigs, tour) the result will be very expensive When a member leaves - Need a leaving member agreement that covers: - Can they advertise that they were part of the band - Their % of debts incurred and how it is to be repaid. This can include non-recouped record royalties. - % of revenue/royalties to receive from current recording, publishing, merchandise, endorsement deals, etc… - % of revenue/royalties of future deals. Usually none Buyouts of Leaving Members - Price equals the person’s current % of hard assets’ (equipment, stage, cash) - What royalties do they get and how much? - Do they get royalties from records they play on, merch that uses their name - Is payment all at once, in increments, quarterly, etc… - Do they have to stay with same manager, agent if they have a solo act? Band Negotiation, Band Dissolves, Member Buyouts - Can they advertise that they were part of the band - Their % of debts incurred and how it is to be repaid - % of revenue/royalties to receive from current recording, publishing, merchandise, endorsement deals, etc… - % of revenue/royalties of future deals - Buyout calculation - How are recording, publishing, merch, endorsement contracts handled? - Gigs - how to deal with promoter for cancel gigs? - Who owns the assets? The debt? - Who looks after accounting of royalties? Possible Conflict of Interest - It is advisable that each band member get independent legal advice on the band agreement

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Band lawyer has a conflict of interest in drawing up agreement. Some will still do it and band is okay with it. Lawyer will then have you sign a conflict waiver...