Join Richard Stim for an in-depth discussion in this video Limiting the band's liability, part of Music Law: Managing a Band's Business.
- When you operate your band business as a partnership, a creditor can collect a partnership debt against any band partner. The same is true for any lawsuit judgement against the band. Keep in mind, we're talking about band debts and obligations. Not non-band personal debts. Here are a few things band members can do to minimize your band's risk. Form an LLC or corporation. Unlike partnerships, limited liability companies, LLCs and corporations, shield individual band members from business debts and lawsuits.
Forming one of these liability limiting businesses usually requires the assistance of a lawyer or a business formation service. You can find one online. Expect to pay several hundred dollars to form one of these entities. Maybe more, depending on your state law. There are also fees and legal work involved in dismantling these entities should the band break up. Maintaining a LLC or corporation may also be expensive. For example, in California there is an annual LLC fee of $800.
Owners of LLCs and corporations are sometimes surprised to find that their personal liability is not always limited. Banks and credit card companies may demand that someone from your band be personally liable if things go badly. In addition, band members in a corporation or LLC are personally liable for negligence or intentional wrongdoing in carrying out band business. For example, if a visitor slips and falls at your rehearsal space, the visitor can sue the band LLC and the members personally for negligence.
Finally, if your band corporation or LLC was created solely to defraud creditors, someone who is owed money can pierce the corporate veil and go after band members individually. Because LLCs and corporations are not always worth the time and expense, many bands wait until they have achieved some success and have a reason why others might chase them before forming one of these entities. An LLC or corporation may be a good choice now if some band members have substantial assets and are concerned about becoming liability targets.
Another approach is to use an LLC or corporation solely for high-risk activities. For example, some bands create a separate touring business and use an LLC or corporation for that purpose. In addition, there are different tax requirements for LLCs and corporations. As a general rule, LLCs are probably easier to deal with when it comes to taxes and corporations, with the exception of what are known as S corporations.
Because you can elect to have your LLC treated and taxed like a partnership. Another common way to limit liability is to purchase insurance. Liability insurance will pay for damage caused to other people or their property for which your band is legally responsible. You can also obtain property insurance to pay for lost or stolen equipment. Ask your insurance agent or search the web for entertainer's insurance. By the way, if your band practices at someone's home, don't assume the homeowner's insurance covers you.
Many homeowner's policies specifically exclude business use. Consult an insurance agent and consider additional home business coverage. Auto insurance is also crucial. Your personal auto insurance policy may not cover use of your car for band business. So you may want to seek additional business coverage. On the other hand, if you don't do much band business driving, and particularly if you don't often have band business passengers, then you can probably get coverage simply by informing your insurance company of your planned business use, and paying a slightly higher premium.
Some other ways to limit liability, use contracts. There are ways to shift liability when drafting and entering into contracts. These strategies can be implemented in a few ways that I'll talk about in the video on contracts. Be prudent. This may seem obvious but using common sense is the simplest way to lower your band's personal liability. Act carefully and spend wisely. Don't run up huge band credit card debt and if possible, avoid contracts creating personal liability.
And of course, avoid obvious risks. Maybe those onstage pyrotechnics aren't the best idea after all.
It starts with what it means to be the manager of a band, and what types of business structures are available for bands. Once you've decided on a business structure, you can create a band partnership agreement that covers voting rights, postbreakup scenarios, new members, and terms for resolving disputes. Richard also exposes potential sources of disputes, like ownership of the band name, songs, equipment, and recordings. He includes advice on negotiating solid band contracts and managing financial basics: taxes, income, cash flow, and bookkeeping. Finally, he'll address how to protect your work, including your copyrights, band name, and songs, and explains how to find a lawyer—and save money on attorney fees.
DISCLAIMER: This course is taught by an attorney (or other instructor) and addresses US law concepts that may not apply in all countries. Neither LinkedIn (including Lynda.com) nor the instructor represents you and they are not giving legal advice. The information conveyed through this course is akin to a college or law school course; it is not intended to give legal advice, but instead to communicate information to help viewers understand the basics of the topic presented. The views (and legal interpretations) presented in this course do not necessarily represent the views of LinkedIn or Lynda.com.
- Putting together a band partnership agreement
- Working out ownership disputes
- Limiting band liability
- Protecting your copyrights and band name
- Hiring a lawyer