Lawyers love paperwork. There’s good reason for this. Paperwork protects you, saves you money, and prevents arguments from erupting down the line. If your band is making any money, then you should really consider how you’re handling the cash. The group may have just started as you and your friends working in your parents’ basement, but cash changes everything. One of the best ways to protect your band’s bank account is to form a limited liability company (LLC).
An LLC is a pretty straightforward entity. It’s not a corporation or a partnership. It’s actually a blend of both. An LLC has the legal protection of a corporation and the tax advantages of a partnership. Most bands are well served by preparing and filing the paperwork with the Secretary of State to formally create an LLC. There are several reasons to do this:
1. Legal liability for anything band-related is now limited to the assets of the band. So, if something goes wrong, you’re not generally not liable for monetary damages. Your personal bank account is off limits from lawsuits. Only the assets of the band can get sued.
2. Musical ownership disputes are eliminated. The company’s Operating Agreement will determine how royalties and other IP (such as the band name) shall be divided in the event of a split up or dispute. Further, it gives the band negotiating leverage when dealing with established corporate entities. It’s easier to negotiate as a single LLC than as several independent artists under the band’s banner.
3. Financial obligations are easier to manage. The band will have corporate bank accounts and likely a corporate credit card. This means that individual members’ lines of credit will not be affected when renting equipment or purchasing assets for the band.
4. Accounting is simplified. Figuring out profit and loss is easier for an LLC than for several individuals due to the LLC’s record keeping requirments.
5. Tax benefits. Remember, you can depreciate certain assets and offset income. Businesses typically receive tax favorable treatment and bands have the right to access these offsets.
Cost is always a consideration, but remember that LLCs are typically pretty inexpensive to set up. If you’re investing time and talent into your musical career don’t skimp out on protecting your legal rights.