Rock Pre-Nups
Setting Up Band Agreements

by Stacey Friends, Esq.

You may be thinking, why does my band need a written band agreement? We are friends, artists, we donít need a contract! Well, you have all seen Behind the Music and various other depictions of band chemistry gone awry - of formerly happy friends and band mates fighting, usually over money. Bands often think they have everything worked out informally, only to find out later that they did not understand some of the ramifications of their informal agreements and understandings. Band agreements are a great way to formalize any informal understandings you may already have between the band members, and they come in especially handy 1) if the band is successful; 2) the band is not successful and breaks up; or 3) someone leaves the band. In any of these situations, there are issues which if left unresolved could cause major problems among band members and have even been known to cause bands to break up, or if they are already breaking up, to break up bitterly. This article will discuss the different types of band agreements and the most common issues bands should discuss, decide upon, and put into writing in their band agreement.

TYPES OF BAND AGREEMENTS:

The most common type of band agreement is essentially a partnership agreement. Usually, when more than one person is working with another on an equal or almost equal basis in a business capacity (one is not an employee or independent contractor of the other), a partnership is the default classification covering such a working relationship. A partnership assumes equal sharing among partners of profits and losses and equal sharing of control, unless stated otherwise in the partnership agreement. Partnership income and losses are accounted for on each partnerís individual tax returns.

Bands sometimes form actual entities, registered with the secretary of stateís office in the state of their choosing. Examples of such entities are corporations or limited liability companies (LLCs). A band really only needs to form an entity if it is concerned about liability for some reason - for example, if they are putting on their own shows, or if the band has employees. Most bands do not form entities until they are quite successful and need to have an entity to be responsible for contracts, payroll, income, etc. A band agreement for a band that has formed a corporation will be in the form of a shareholder agreement and/or an employment agreement, and will be more complicated because there are many corporate laws and formalities that must be followed. It is no longer as easy as dividing up the income (or losses) and accounting for it on each band memberís tax return. A band agreement for a band that has formed an LLC will be in the form of a member agreement and/or an employment agreement, or the provisions of the band agreement might be in the actual operating agreement for the LLC. LLCs have a few less formalities than corporations, and the income and losses of an LLC are accounted for on each memberís individual tax return just like a partnership, but LLCs are still not to be taken lightly. There are many tax and legal consequences involved with both entities, and bands considering corporate or LLC status should seek legal advice (in other words, donít try this at home!).

COMMON PROVISIONS IN BAND AGREEMENTS:

Band Name: The name of the band is considered a trademark and has value. First, a brief word about trademarks. Trademark law prevents people from using the same or similar names to represent similar products or services in order to avoid consumer confusion. In other words, there cannot be two bands called Aerosmith, because we would all be confused! Many a local band has had to change their name due to the existence of another band somewhere else, usually one who has just been signed and is just about to be distributed nationally. The Boston band formerly known as Blindsided (now called Changing Skin) is one example of this. Carlos Lobato, guitar player for the band, describes how they changed their name after foreign band Blindside was signed in the U.S. and started touring in New England. Fans became confused - Blindsided fans showed up at Blindside gigs and vice versa. The final straw was when both bands were booked for the same stage at Locobazooka. Blindsided knew that Blindside was using the name first, and changed their name voluntarily, but to great expense to the band. Their website, postcards, merchandise, and everything else had to be re-done. In trademark law, in general, the first user of the name wins. Therefore, bands should always do an internet search before finalizing their name to see if anyone else is already using it. Searches can be done on any internet search engine and also on the Patent and Trademark Office (PTO) website (www.uspto.gov) to see if any one else has actually registered the name with the PTO. Your band name has value not just because of all the marketing materials, web site, merchandise and other items the band might have already invested in, but due to the association the public will make between the band name and the band. So, the band name can be very important, and the band members should decide up front in their band agreement what happens to the name if the band breaks up or if someone leaves the band. For example, if the band breaks up, does a particular key person in the band get to keep the name and form a new band under that same name, or does no one get to use the name? If the majority of the band members stay together do they get to keep the name? These are scenarios that could happen, and the band members should agree on the circumstances, if any, when the name could continue to be used and by whom.

Money: Again, a partnership assumes equal sharing of income and losses unless stated otherwise. Recording royalties and money earned from shows are usually shared equally since normally, all band members had to be at the show and perform, or had to go into the studio to record. But what about publishing money? Merchandising income? What if your lead singer is very attractive, garners the most attention, and is featured solely or most prominently on your merchandise (a certain band from New Jersey comes immediately to mind)? Perhaps the merchandising income should be divided differently. Or, what if only two out of five band members write the songs? In that case, perhaps publishing income from mechanicals, performance royalties from ASCAP/BMI, and synchronization licenses should be allocated more to the songwriters. These issues about money are very important to fully discuss and include in the band agreement, because if the band is successful in getting a recording contract, the publishing and merchandise money might be the only money the band sees for a while. While it may seem fair, at first, to divide it all equally, the songwriters or other prominent members might start to rethink their position once there is real money coming in. Conversely, while non-songwriting band members might feel fine about not participating in publishing income or participating at a lower percentage at first when there is no money, they might change their mind once they see that their songwriting band mates have much more money than they do. As the song says, ìMoney changes everything.î

Control: Again, a partnership assumes equal votes for all partners. This usually works fine unless the band has an even number of members, in which case there could be deadlocks in voting if half of the band feels one way about an issue and the other half disagrees. Band agreements should specify whether the decision-making will be by equal vote or not, and if equal, how the band will resolve deadlocks. Bands could assign their manager or other trusted member of the team a vote in such instances.

Buyouts: The band agreement should specify what happens when a band member leaves, in terms of money he or she might be due for contributions to band assets or for royalties. Band members could agree to give leaving members a cash buyout, at the time of leaving or over time, equal to their percent of tangible band assets (i.e., equipment). Leaving members should also, if applicable, continue to get a percent of income from activities in which they were involved and which are still earning income. For example, if a band recorded a CD and then someone left, that band member should probably (unless there are extenuating circumstances such as the band member refused to record or did a bad job) continue to receive his or her share of recording royalties for that CD. The band agreement could specify that such contingent payouts will be made on the same accounting schedule used by the label. Songwriters should continue to receive publishing money and band members featured on merchandise should probably continue to receive a percent of any such merchandise still being sold (although, I imagine most bands would quickly yank such merchandise from the stream of commerce). Obviously, leaving members will not be entitled to income from performances by the band after they left.

Other Issues: Band agreements should also cover such issues as:

ï Under what circumstances could the band fire a band member?

ï How will the band decide what expenses to incur, and how will the will the band handle contributions by band members to cover such expenses (assuming there is no current income or savings)?

ï How can the band agreement be amended if necessary?

ï What happens if a band member leaves, becomes disabled, or dies?

ï What if the band already has some debt? How will that be paid back, and what happens if a band member leaves and the debt is not yet all paid back?

Once the band members have discussed and agreed upon how to handle all of the above issues, and any other issues particular to that band, the agreed-upon terms should be put into writing. Bands can call this document a Band Agreement, a Band Partnership Agreement, or anything else they like that makes sense. Bands can hire an attorney to help them with the agreement or do it themselves (although at some point, an attorney should at least look it over). Once the agreement is finalized and everyone agrees on the terms, all the band members should sign and date the agreement. Every band member should have a copy, and a copy should also be kept in another safe place, such as the bandís attorneyís office or with the band manager if he/she has good records.

All of the above issues are real and apply to almost all bands. The issues become particularly highlighted when a band experiences some kind of success, such as the signing of a record deal, a song garnering radio play, or being offered a tour with an already successful band. Issues that are not thoroughly discussed, understood and decided upon in advance can lead to misunderstandings, bad feelings, or even break-ups. Even the closest of friends can turn against each other over money, control, or recognition. Even bands that never ìmake it bigî but enjoy moderate success will have issues of money, expenses, leaving members, and the like. And bands that break up or lose members will also find it much more difficult to discuss and rationally decide upon such issues in the heat of the break-up. Band agreements can go a long way towards solving most, if not all, of these potential problems, at a time when the band members are still calm, cool and collected.

REFERENCES/SUGGESTED RESOURCES:

Passman, Donald S., All You Need to Know About the Music Business: Revised and Updated for the 21st Century, Simon & Schuster, NY, 2000.

Thall, Peter M., What Theyíll Never Tell You About the Music Business: The Myths, the Secrets, the Lies (& a Few Truths), Watson-Guptill Publications, NY, 2002.