For Love and Profit - EMusician

For Love and Profit

How many times have you heard someone say, Being in a band is like being married? Different personalities spending hours together in close quarters can
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How many times have you heard someone say, “Being in a band is like being married”? Different personalities spending hours together in close quarters can bring about artistic relationships that are meaningful beyond compare. Unfortunately, it can also add up to disaster. Band implosion — whether it happens to the highly publicized multi-Platinum act or to the local high school trio from down the block — is a reminder that even the most solid relationships can be challenged.

As with planning a marriage, establishing ground rules for running your band's business in the early stages of your commitment can help you avoid serious problems down the road. One of the most effective tools that family lawyers use to strengthen the bond between couples is the prenuptial agreement, which is a precommitment road map of the legal boundaries of a relationship. The analogous document for a band would be a partnership agreement or similar document. Using a prenup as a model, I'll discuss some of the issues that you may want to put in writing before “walking down the aisle” with your bandmates.

COMMUNITY PROPERTY

One issue that I often encounter in band disputes has to do with the ownership of property. Such property comes in various forms and values.

When it comes to gear, you should distinguish what is owned by each individual from what is owned by the band as a whole. Instruments owned by band members before they joined the band are easily characterized as separate property, with each instrument being the property of the respective musician. As bands get bigger and more successful, the collective purchase of equipment, such as a P.A. system or recording gear is usually treated as community property, which is co-owned by all the members of the band.

If gear is purchased with band funds but is used by an individual, the situation becomes trickier and requires clarification. Is the keyboard that the band pitched in to buy owned by the band or the keyboard player? What about that Portastudio the band bought to record itself at gigs that grew into a full-blown studio located in a home that only one band member has full access to?

Band agreements can establish a policy and procedure for “borrowing” from band funds for gear. If an instrument or a piece of gear doesn't benefit the entire band because it is used by only one member, the band could own it until fully paid for by the individual person. Consequently, the band can sell the gear or instrument if the band needs cash or if the member later leaves. Some bands even have their members sign promissory notes that accrue interest to underscore the fact that borrowing from the band is just like borrowing from a bank.

When it comes to studio time, some bands pay the member providing the service in cash as though they were using a third-party studio, especially if the member with the studio built and paid for it himself. If the band has contributed equipment for the studio, however, one solution is to develop a credit system that allows the members a certain amount of free recording time. In addition, if the person housing the studio uses it for outside projects, the parties need to figure out how much money is owed to the other band members who share ownership of the gear. It is crucial to account for “spec” producer fees or royalties when arranging these kinds of agreements with each other early on in your careers.

PATERNITY ISSUES

If issues about equipment can lead to squabbles between band members, issues over song copyrights can escalate into all-out war. Some of the most publicized band battles have been about questions stemming from what constitutes a writing contribution, who owns and controls a song, and how royalties should be divided.

One issue is how to handle songs that were written by band members before they joined the group. Say, for example, that a member wrote a song called “The Hit” three years before the band was formed. The band then records the song and includes it on a demo along with a number of other songs written by the whole group. “The Hit” catches the ear of a record-label executive, and the band is signed to a record deal. “The Hit” is released as the first single and catapults the band into stardom. Several million sales later, the band members ask whether “The Hit” made the band a success or the band made “The Hit” a success. And what is the band's musical contribution to the song's worth with regard to royalties? Clarifying each member's contribution to each song at the outset helps make these situations easier to navigate.

Another variation on this theme is when a band's singer — who plays no musical instruments — comes to a rehearsal with a roughly recorded version of a song in which he has primitively accompanied himself on the piano. The band likes the song, then works it up to fit their instrumentation and style, leaving the basic melody and lyrics intact except for three words that were changed with the singer's blessings. Do the actions of the band in making the song its own result in the members getting a songwriting credit or merely an arranging credit? If considered as writers, are their contributions equal in value with the singer's contribution, or are they of lesser value?

The band's prenuptial can range from each songwriter retaining the rights to his or her contributions to a “one for all, all for one” approach to songwriting and eventual royalties. A common middle ground is for each writer to retain his or her writer's share of the compositions while sharing all or part of the publisher's share of the composition with a publishing company owned by the band. Regardless of how a band chooses to deal with this issue, the important thing is to deal with it openly and to document it.

PRIOR ACTS

Prior commitments are a challenge to every relationship, and bands are no exception. Those can range from the simple, easy-to-fix situations to the complex, impossible ones. When entering into a new band situation, be sure to find out if any member has unfinished business that needs to be cleaned up before moving forward. If a prospective member still has gigs to do with his previous band, make sure that you don't have scheduling conflicts or that you can get subs to fill in. Sometimes prior commitments can be substantial and far-reaching, resulting in paying out significant amounts of money to rectify a situation. For example, if a band member was an involved party in a previous record deal, management deal, or studio spec deal, he or she may still owe services, royalties, or rights to another party. You can imagine how rude a surprise it would be for a band to sign a record deal only to find out that its lead singer still owes two records to another label.

Even more complex are legal issues stemming from personal actions that could affect a band. What happens, for example, when a member dies, files for bankruptcy, gets divorced, or doesn't pay his taxes? If the band doesn't take steps to keep outside parties and activities separate from the band, these third parties can potentially step in as “partners” of the rest of the band, insisting on making business decisions to protect their legal interests.

Let's face it, no one starting a band wants to consider things like death, divorce, and calamity in their lives. But, at the risk of sounding like an insurance salesman, there comes a time when you must talk about it. I suggest that bands take a business day to explore honestly a number of “What if?” scenarios with each other. Doing so can be quite creative and revealing for all. After a variety of situations are discussed, the band can then decide on the issues presented and draft into the band partnership agreement who they want involved in the business of the band and to what extent that involvement should be. For example, band members often want the right to pass their share of band profits on to their spouses or children through their wills, but with only the remaining members being allowed to participate in the carrying on of the business.

EXTRA CREDIT

Loaning a band member three bucks for a train ride home is quite different from pulling out a charge card to pay for $10,000 in travel expenses for your tour. Letting a fellow band member sleep on the floor of your apartment after a gig is very different from letting the entire band move in for six months to use your home as a base of operations and lock out your recording studio. The resulting legal issues, however, are still the same: someone owes someone else money or the equivalent of money.

Be they large or small, policies need to be set up early on regarding loans made to the band or band members by individual members. It is important to establish what is expected as financial and sweat equity contributions from each band member. Once that is agreed on, the band can determine how much money and which services go beyond the limitations of band responsibility, and should therefore be paid back.

With cash, that is relatively easy to do with a simple I.O.U. or promissory note from the lending party to the borrowing one, which sets out the amount of the loan, the interest (if any), and the length of time that the borrowing party has to pay back the loan. Things get a little trickier when a band member with established credit borrows money on behalf of the band from a bank or by using a credit card. If the band should spend the money and then kick the band member out without assuming the responsibility of the loan, the ousted band member is potentially on the hook to repay the loan all by himself. Terms and conditions for spending limits, how and when loan money is spent, and repayment of loans made by or on behalf of the whole band should be documented in writing.

In kind loans, or loans that are for services rather than cash, are even trickier. When providing services, individual members need to evaluate what their services are worth. That can apply to Web design, graphic design, or a recording studio. If a band members happens to provide one of these services, should she be expected to “take one for the group” and give these services away as a freebie or is she entitled to receive fair compensation for these services? If the band is unable to pay for the services as they are provided, how should the account be kept and repaid in the future? These issues need to be discussed in advance, written up, documented, and then signed by all band members.

STEPPING OUT

Many band lineups change over time for a variety of reasons. Whether that process is disruptive or not depends heavily on how well the band planned for it early in their careers. Procedures for firing, resigning, initiating buyouts, and handling other restructuring issues are all crucial in making personnel changes as smooth as possible.

Some high-profile bands have planned so well for their solo careers that they designed their band agreements to allow for entering into an artist deal as a group on one label with the intention of pursuing solo careers or having production relationships on separate labels as solo artists.

HAPPILY EVER AFTER

This prenuptial checklist is meant to make you think about your band's business relationship as well as its artistic one. As with marriage, not every challenge that you and your musical mates encounter means you have to break up — especially if you do your work in the beginning. A solid prenuptial framework can be crafted by being candid with each other about your individual personal and artistic goals, anticipating the possible scenarios that can result from the group efforts, and thinking of creative solutions. Documenting this framework with the help of an entertainment lawyer or other music-business professional, if necessary, can help you avoid a number of unnecessary legal and emotional problems down the road.

EMcontributor and entertainment lawyerMichael A. Aczonstarted a band with a singer named Karen in 1979, and they have been enjoying music together as husband and wife since 1982. They live with their children, Lauren and Evan, in Northern California.

CONTRACT TALKS

If you and your bandmates are considering drafting a partnership agreement yourselves, you should certainly do a little homework. Author Michael Aczon recommends the following texts and CD-ROMs as good resources. Contacting an experienced entertainment lawyer to review the agreement that you put together is also a good idea.
Mary Cosola

Automated Contracts for the Music Industry (CD-ROM), by Jonathan Earp (Entertainment Publishers, Inc., 2001).

Entertainment Industry Contracts (book or CD-ROM), Donald C. Farber, general editor, (Matthew Bender, 2002).

Note: the above book is a professional legal reference and is therefore quite expensive. You may want to try to find it at a legal library instead of purchasing it.

Music Law: How to Run Your Band's Business, by Richard Stim (2nd edition, Nolo Press, 2002).

The Partnership Book, by Denis Clifford and Ralph Warner (6th edition, Nolo Press, 2001).