In 1990, Slash and Axl Rose of the celebrated hard rock group Guns N' Roses had a problem: the band's drummer, Steven Adler, was allegedly using drugs to the point that his substance abuse was severely impeding his ability to perform. Without any formalized agreement regarding the hiring or firing of members, the group had no straightforward mechanism to expel the drummer. According to Adler, the band's management handed him a stack of papers for signature with only a passing explanation that the documents were contracts. This crafty gambit failed, as court documents later revealed that the stack of “contracts” actually contained an agreement terminating his partnership interest in the band, i.e., the drummer was fired. Adler sued in 1991 to invalidate the termination agreement, claiming a temporary lack of mental capacity due to his addiction. Lead guitarist Slash testified that Adler was heavily under the influence of heroin when he executed the termination papers. Shortly before jury deliberations, the parties agreed to a $2,500,000.00 settlement payable to Adler, plus 15% of royalties for everything he recorded prior to his departure, and undoubtedly the band swallowed considerable legal fees.
While most fledgling bands start out with an understandable desire to achieve success (and success is certainly subjective), and are fueled by an intense craving to compose and practice the art of music, many groups dismiss the reality that the undertaking of a band for financial gain through the production and selling of music, is a business. Agreeably it’s a business that demands an artistic disposition, but it’s also a multi-billion dollar industry that differs little from any commercial enterprise. Call it apathy, teen angst, or simply a carefree demeanor about the future, some artists view their career path through a short-sighted lens. Even Paul McCartney once stated that he thought, at best, The Beatles would last a couple of years. Thankfully, he was wrong, yet burgeoning groups should prepare for the possibility – just as in any business venture - that the amicable relations common among budding band mates in the opening stages of a group's pilgrimage, can quickly sour into litigious battles over money, equipment, songwriting credits, ownership of the band's name, and publishing revenue and royalties.
The pop music industry is replete with accounts of band dissonance. A few illustrations help to affirm the gravity of these disputes:
David Byrne of the Talking Heads took legal action against his former band partners to block their attempt to release an album under the name The Heads. John Fogerty of the rock band Creedence Clearwater Revival (CCR) was granted a preliminary court injunction in 1995 (later reversed by the Ninth Circuit) barring former members of CCR from performing under the name Creedence Clearwater Revisited. John Densmore, original drummer of The Doors, sued in 2003 to block Robby Krieger and Ray Manzarek (both original members of the band) from touring using the Doors’ name. In 1973, The Who’s Pete Townshend and Roger Daltrey actually managed to settle a dispute without litigation; unfortunately the lads were unfamiliar with Debrett’s rules of traditional British etiquette. During an acrimonious recording session, Pete whacked Roger over the head with his guitar, so Roger countered with a single knock-out poke to Pete’s chin. Issue closed. The Eagles have faced a $50 million wrongful termination suit, and Pink Floyd litigated over band name usage. The Beatles’ very public lawsuits during the band’s final years prompted guitarist George Harrison to pen the song “Sue Me, Sue You Blues”, expressing his clear revulsion over the incessant litigation.
A band doesn't have to reach celebrity status to encounter debates that can potentially cost a bundle of money, waste time, hinder creative zeal, destroy long-term friendships, and provoke unnecessary stress. A simple, proactive solution is the drafting of a Band Partnership Agreement (BPA). A BPA formalizes the band's relationship and provides a guideline if and when disagreements arise.
Who needs a BPA? Many musicians jam for fun. They have no intention of creating a business venture or commercially viable musical act, they don’t compose songs together, so no written agreement is necessary. However, musicians who want to establish their band as a profit generating entity require an agreement, and the sooner the band puts an agreement in writing the better, thereby agreeing to boiler plate issues before they become full-blown disputes. With some basic guidance from an attorney, a BPA is reasonably easy to form.
While the most common form of a band entity is a partnership, other options such as LLC's and corporations should be examined. A band should consider these non-partnership entities when personal liability or federal/state tax issues become imminent and substantive concerns (as a general rule, partnerships operate as tax flow-through entities – income passes through the business to the owners, i.e., band partners). A group involved in extensive touring, under contract with a major label, hiring employees, creating payrolls, incurring sizable debt and generating substantial mechanical and performance royalties is best served operating as an LLC or corporation to help shield against member liability, otherwise, a partnership agreement is effective. Creating and maintaining LLC’s and corporations entail more paperwork, expense and diligence, so seeking professional assistance with formation is advised.
When two or more people carry on as co-owners of a business for profit, most state law presumes the group is acting as a partnership, regardless of its intentions. This is the usual default classification of a business entity, and without a written partnership agreement, or in the event an agreement is deficient in defining a disputed partnership provision, state statutes will usually govern the relations between the partners. This default position may result in judicial determinations that are contrary to your partner’s actual objectives. This potential consequence is reflected in the Maryland Revised Uniform Partnership Act (RUPA), Maryland Code, Corporations and Associations Art., § 9A-101 et seq. RUPA also provides that, unless otherwise stated in a BPA: 1. a partner has no automatic right to additional compensation for acting on behalf of the partnership – managing partners beware!; 2. equal control is presumed regardless of the share of profits; and 3. all partners share equally in profits and losses notwithstanding their individual amounts of capital contributions. So if your band doesn't agree with RUPA, create your own agreement.
Therefore, sitting down with your partners and an attorney, and hammering out the following key BPA provisions is the most cost-effective method to prevent future confusion and disagreements.
1. PARTNERSHIP MEMBERS: List the full names and addresses of all band members who will be included in the ownership of the partnership. Exclude musicians who act only as sidemen or fill in on occasional gigs. List the service each member will provide, such as “bass player and recording artist” or “vocalist on all sound recordings and live events”. A principal place of business with street address should be included and the governing state law. Also establish the purpose of the partnership.
2. BAND NAME AND OWNERSHIP: State the band’s name and define the crucial determination of name ownership. This provision is potentially the most significant element in a BPA. A band name has value, it becomes a brand, and will be the group’s most valuable asset. Maryland partnerships may consider filing a trade name registration with the SDAT, and trademark and service mark applications with the Office of Secretary of State. A clear and rational decision must be formalized as to who would own the name in the event of a partial or full dissolution. Some possible solutions include:
A. No individual member owns the name. Any member who leaves the partnership has no interest in the band name, and in the event the entire partnership dissolves, no individual member has a right to use the name. The provision could provide that departing members have the right to be known as “ex-members” of the band – a very common resolution.
B. The band name is the exclusive property of founding member “Keith”, and only “Keith” can use the name regardless of who he performs with.
C. As long as “John” and “Paul” remain in the partnership and perform together, the name is owned by the partnership and not owned by any individual member. In the event “John” and “Paul” both leave, no member has any ownership interest in the name.
Regardless of the final decision, the key is to provide a definitive statement that can be
easily understood by a mediator or judge if litigation ensues.
3. DIVISION OF PUBLISHING INCOME FROM ORIGINAL COMPOSITIONS: For brevity, let’s for a moment only consider an abbreviated and simplistic understanding that a songwriter’s original compositions earn money from two methods: first, through the somewhat complicated system of music publishing; and second, from the sale of recordings, e.g., compact discs pursuant to a recording contract with a record label (with a mechanical license unoriginal songs can also be recorded for profit). Concerts, merchandising and television performances generate income too, but let's table those sources briefly and focus on the issues regarding the first method: the division of revenue streams from the publishing of original songs.
Entire books are devoted to illuminating the elaborate and slightly antiquated nuances of music publishing in the U.S. “Tin Pan Alley” is the name given to a section of New York City that housed the offices of publishers and songwriters who commanded the U.S. popular music industry from the 1880’s up through the 1930’s. The popular singers of the day usually didn’t write their own songs, so the big league publishers kept composers under oppressive contracts, paying writers very little in royalties. With the Copyright Act of 1909, foundation of ASCAP, advent of radio and vinyl records, and the genesis of the signer/songwriter, composers achieved better terms, resulting in publishers allowing for a split of all income 50/50 with the songwriter (creating the industry terms “writer’s share” and “publisher’s share”). This 50/50 split is important to recognize as a basic tenant of music publishing, yet the practice today has greatly evolved.
Basic publishing deals usually involve a songwriter assigning her song rights to a publisher in exchange for various services and/or money. Over the years, the roles of all the industry players have modulated. Singers (bands) compose original songs. Advances in technology have created new methods of music distribution. Publishers now come in all flavors, and offer an assortment of services to songwriters: some perform administrative duties; others focus on shopping songs for record deals; and full-service publishers work with songwriters to improve their compositions, nurture careers, and based on their industry acumen, can generate more income from a song than the songwriter can. The 50/50 split between publisher and songwriter is now commonly adjusted, and can vary greatly based on the arrangement between the parties. Often a publisher will assign one-half of his “publisher’s share” to the writer.
A band may form its own publishing company, assign its ownership interests (copyrights) to the newly formed company, and thereby circumvents the use of an external publisher. An example helps to define a few terms and illustrates the reasoning behind this approach:
Radio and television stations, nightclubs and restaurants (and others) are required by law to pay fees for playing/broadcasting a songwriter’s original compositions (songs), resulting in the accumulation of substantial sums of money called “performance royalties”. These royalties are periodically collected by performance rights organizations (PRO’s) from the broadcasters, nightclubs, etc. via a blanket licensing agreements. ASCAP and BMI are the two largest PRO’s in the U.S., with a third, SESAC, collecting a small fraction. The PRO’s then forward approximately 50% of the performance royalties directly to the songwriters (writer’s share) who have affiliated with that particular PRO (assuming that a writer's song has been broadcast frequently enough to warrant a performance royalty). The other 50% of the collected revenue (publisher’s share) is paid to the music publishers affiliated with that particular PRO and who owns the copyrights to the songs that were broadcast. Therefore, a songwriter is paid her “writer’s share” of performance royalties by the PRO, and if the songwriter has set up her own publishing company and assigned her copyrights to that company, she then also collects the “publisher’s share” from the PRO.
Remember however, if the songwriter has signed a deal with an external music publisher and transferred her original composition (song) rights to that publisher (and there are many valid reasons for doing so), she may not receive any “publisher’s share” of the performance royalties, unless, as previously noted, the publisher has agreed to split some of its own “publisher’s share” with the songwriter.
This is just one example of how publishing revenue is created from original compositions, and one way the terms “writer’s share” and “publisher’s share” of revenue can be illustrated. Song income (hopefully) flows from many other sources: mechanical royalties based on the number of CD’s pressed – not sold, digital downloads, synchronization licenses (e.g., songs used in a motion picture), printed sheet music, ring tones, pod-casting, foreign mechanical and performance royalties, etc.
Now for purposes of the BPA, decide whether the band will form its own publishing company or use an outside publisher. Next, the division of song publishing income can be a sensitive issue, so here are some possible solutions:
A. The songwriter (or songwriters) takes all the income (e.g., royalties in the form of mechanical; public and digital performance; synchronization; and printed sheet music), including both “writer's share” and any “publisher's share”. Draconian? Yes, but this imbalance can be adjusted with other income discussed below.
B. The band members split all the publishing income equally, both “writer's share” and “publisher's share”, regardless of who composed the music. Old R.E.M. albums read: “All songs, Berry, Buck, Mills, Stipe”. R.E.M. probably had agreed, as suggested here, to give every member an equal percentage of songwriting credit.
C. The songwriters split the “writer's share” proportionality, and all band members divide the “publisher's share” equally. This is a common approach with many pop and rock groups. All band members receive some song income, yet the songwriters are paid a bit more, which could be reasonable. Hit songs aren't easy to write.
Any of these examples, or other alternatives, can be augmented by the second broad source of income mentioned above: record sales, i.e., royalties paid by the record company to the performing artist – the band – based on number of records sold. While no two recording contracts are alike, and extremely difficult to obtain, a very optimistic figure is that a band could net 9% of the suggested retail list price on each compact disc sold (provided the label has recouped all of its expenses first!). Some labels will give advance money as well. Projecting the earnings this type of artist royalty may generate in today’s market is formidable, and record sales are declining and piracy is increasing, but the BPA could provide language that gives non-songwriting members a percentage share of this speculative future income. Concerts, merchandising and television performances can also provide income that should be addressed and divided in the BPA.
4. MEETINGS AND VOTES: Determine what members can be included in band meetings (should be everyone) and how a meeting can be called. There are several significant band actions that must be listed, and how each one is resolved, for example, by unanimous vote or majority vote. The crucial actions to include are: expelling a band member; hiring a new member; dissolution of the partnership; expenditures in excess of $_______ ; incurring a partnership debt greater than $_______; the selling, transferring or assigning of any band partnership property; binding the partnership or entering into any agreement or contract lasting in excess of one year; check signing rights; amending a provision in the PBA; and additional financial contributions to the partnership.
It's suggested that the firing of a band member and the termination of the partnership both require an unanimous vote. If the members are unable to reach an unanimous vote on any issue, a tie-breaker, such as the manager or allowing one key member to have two votes, could be elected to resolve the matter. To give the BPA a bit more influence, under § 9A-303 of RUPA, a partnership may file under oath with the SDAT a “statement of partnership authority” that authorizes or limits authority to some or all partners to enter into transactions on behalf of the partnership and other matters. In addition, have each member warrant that he has not done, and will not do in the future, any act that causes any harm or damage to the partnership, creates any partnership liability in tort or contract, and will refrain from any activity that prohibits the partner from performing. In order to avoid joint and several liability, each partner should indemnify one another from any claim that may arise from the breach of these warranties. Make of list of warranties or promises, the beach of which will result in the termination of that member from the partnership, e.g., the filing of personal bankruptcy.
5. INCOME – PROFIT AND LOSSES/ACCOUNTS AND BOOKS: With success,
income and expenses are imminent. The use of a CPA , chosen by all members, is recommended to handle payroll, tax filings, book keeping, distribution of revenue and the payment of debts. Following the procedure of most business models, the partners should agree to share equally in all expenses and losses, and to be paid their individual agreed upon share of band profits (e.g., performance and mechanical royalties, concert revenue, record sales, digital downloads, merchandising income) only after the band's debts and other reasonable expenses are paid. Decide on a bank and open a band partnership bank account. Obtain a Federal Employee Identification Number (FEIN) using IRS Form SS-4 which helps to open the bank account and is needed when your CPA files the partnership's tax return on a Form 1065 – “U.S Partnership Return of Income”. Decide who can draw checks from the account. Accounting books must be maintained and available for inspection by all members. The BPA should include an accounting statement to be provided to each member twice a year. In addition, have your CPA draw up an inventory of current band property (Band Property Inventory) and assign a present value (not original retail cost) to each piece of equipment. Keep this Band Property Inventory maintained and updated as additional band equipment is acquired.
6. QUITTING/EXPELLED MEMBERS: Even naming your group The Roman Galley Slaves will do nothing to prevent a member from walking out on the band. Nothing. § 9A-602 of RUPA states that a partner has the power to dissociate at any time, yet notes that such a dissociation could be considered “wrongful” if done in breach of an express provision of an agreement (the BPA). Clearly state that a member who resigns voluntarily must give thirty (30) days written notice. This may allow the group just enough time to finish it's current tour or wrap up work if in the middle of a recording contract. Provide for penalties against the departing member if the thirty days is not enough time to finish the current project. (This is one provision, among others, that should reiterate that the partnership will not dissolve if one member leaves, is fired, dies, or becomes disabled). Any departing member, whether fired or not, is entitled to his continuing percentage share from band activities in which he participated, e.g., royalties from records he played on, monies from merchandising using his name or likeness, and concerts and TV shows he performed on, etc. (Remember how the terminated Steven Adler received 15% of royalties from records he performed on.) It's not unheard of to give an ex-member a reduced piece of the merchandising materials created after he departs. A leaving member should also be paid a proportionate share of the band's hard or fixed assets (using the Band Property Inventory) e.g., sound equipment, instruments, and cash. Pay out this amount to the ex-member in installments to protect the financial picture of the remaining members. The thirty (30) day notice required by quitting members, should also be given by the band to fired members.
7. TERMINATING THE PARNERSHIP: First, reiterate that the partnership will not dissolve if one member leaves, is fired, dies, or becomes disabled. The easiest way to terminate is by a written agreement executed by all members to end the partnership. This provision could be augmented by stating that in addition if “John” and “Paul” both leave, then the partnership is dissolved. But remember, dissolution does not mean “windup” i.e., the settlement of all partnership responsibilities such as distribution of assets and payment of debts. In order to guard against partners skipping off to Los Angeles as soon as the termination agreement is signed, provide in the BPA for some partnership continuation period following dissolution in order to “wind up” all required business.
8. DISTRIBUTION OF ASSETS AFTER DISSOLUTUION: Just as outlined under §9A-807 of RUPA, any income owed to the band should be collected and used first to pay off any debts and creditors. This is part of the “windup”. Any remaining cash should be divided equally among the surviving partners. The equipment contained in the Band Property Inventory can be sold with the proceeds equally divided, or distributed piece by piece to each member as equally as possible. If after termination, the band is entitled to continue to receive royalties or has control of property that will generate future income or royalties, the band may elect to designate a trustee, such as its CPA, to collect and distribute these future royalties to the former partners as per their originally agreed to respective shares.
9. MEDIATION/ARBITRATION: Agreeing to mediation and possibly arbitration is strongly suggested. At a minimum, the BPA should elect to mediate disputes with the assistance of a mutually agreed upon mediator. All members should share equally in the cost and expense of the mediator. If a solution cannot be reached, arbitration is a possibility, with the important issue of deciding whether the arbitration is binding or non-binding.
The BPA should be signed and dated by each member of the band. An attorney or notary may witness and copies given to all members. A well drafted BPA will guide a successful band (and less fortunate ones as well) through many disputes, it also puts every partner on notice of individual rights and obligations from the conception of the band, and in the long term, can save potentially thousands of dollars in litigation expenses.
THIS ARTICLE IS INTENDED TO BE INFORMATIVE, BUT PLEASE REMEMBER THE CONTENTS ARE GENERAL IN NATURE AND NOT MEANT TO SUBSTITUTE THE SPECIFIC LEGAL ADVICE GIVEN BY AN ATTORNEY BASED ON YOUR INDIVIDUAL NEEDS AND QUESTIONS.