Every semi-serious band should have a written agreement. The next and even more serious steps involve establishing your band as a business entity and setting up a separate bank account.
This isn’t right for every group. It costs a little money and time to establish a band as an LLC and set up a bank account. But this also means a band’s members are serious about what they are doing, and they are committed to trying to make it.
Before deciding to take these steps, you should ask the following questions:
• Does every member have a high commitment level?
• Do you have a proven track record of being able to grow your fan base? In other words, are more than just friends coming to shows?
• Do your members have lifestyles, jobs, and personal lives that allow them to tour?
• Are you bringing at least $500-$1,000 a month?
If the answers are yes, it is probably a good idea to get more serious about the business side of things.
Let’s start with setting up a bank account. This is cheap, sometimes free, and a great way to track your spending. Setting up a business account at a bank that has locations nationally is a smart move. This way, you can make deposits while on the road. It is a good idea to put just one member in charge of finances. If your band ever has to write checks, deposit checks or cash, and so on, he should be the one in charge of this.
Every member should be a “signer” on the account, meaning everyone has access to the bank account and has a debit card. If someone has to pay for show posters, a new batch of stickers, a tank of gas, and so on, they can just use the band card.
This way, no one is ever owed any money. Do your best to use the debit card on every transaction instead of drawing cash. That way, every transaction is on record down to the penny, and you know what you spent those pennies on. Plus, when tax season comes, it will be easy to add up your expenses for the year and write them off.
The next, and more serious step, is establishing yourselves as a business. Typically, most groups establish themselves as a Limited Liability Company, or LLC. Think of your LLC as a living, breathing person. Your LLC can be sued, and it can sue other people. It has to pay taxes. It can own things, such as a tour van. It can also own copyrights.
One of the greatest advantages to setting up an LLC is that it protects the individuals. For example, let’s say your band wrote a song, but another group believes you stole the song from them, and so they decide to sue you. If you’ve established an LLC, the LLC is what’s being sued, and not the individuals in it. In other words, the plaintiff can’t go after your individual assets, only assets owned by your LLC (Full disclosure: I am not a lawyer, and this knowledge comes from my experience working with bands, not a law degree).
There are many ins and outs to establishing an LLC, and it is always a good idea to talk to a lawyer and/or accountant who works specifically with artist clients, and even more specifically with musicians. Once you have a lawyer or accountant, they will walk you through the process of establishing your business over a period of a few weeks.
The process itself isn’t too complicated, and some people may feel comfortable doing it without a lawyer or accountant, but it does involve signing several documents and filling out legal forms: you must choose and clear your name with your county clerk; you have to fill out Articles of Organization, a document that lists your business’s name, address, service activities, members name, and registered agent (the person in your LLC that will receive all important documents for the LLC).
After you’re done registering your LLC, there are certain documents you have to turn in on a regular basis throughout the year. If you have a lawyer or accountant, they should take care of these for you. If not, make sure your registered agent is always checking the mailbox and staying on top of deadlines for you LLC.
Remember, this is a big step, and only necessary when your band is serious. But if your band is serious, then it is also absolutely necessary.