Wednesday, February 3, 2010

Band Wants to Share Profits But Maybe Not Losses

Dear Rich: I formed a band with 3 other guys, and while they contribute in the form of some songwriting, pretty much everything else falls on me, from the bulk of songwriting, to paying for merchandise and CD pressings and most other expenses, down to owning pretty much the full backline of the band. This arrangement is fine with me, as I'm in a better financial situation to be able to do this than they are. The question I have is that I am trying to formulate a band agreement, because I wish to compensate them for their songwriting contributions as well as playing live shows, but at the same time I want to make sure I am able to recoup the money I have put into the project. I feel like a partnership is the type of business arrangement I would like to make, but the issue I see is in the equal sharing of profits and losses, because while sharing profits is fine, the rest of the band members are unable to share the losses. No problem, just structure the partnership agreement as you describe in your letter. Having a partnership doesn't mean that everything is shared equally--that's simply the default presumption unless the partners indicate otherwise. There are many ways you can structure it. For example, you probably want to make sure that expenses are deducted and repaid from all revenue before partners are paid income. The long-form partnership agreement in our Music Law book (insert FTC disclaimer here) provides for a deduction like this. You can get as specific as you'd like -- for example, half of show income goes to paying off band debts and the other half goes to members. Also, the Dear Rich Staff advises that before you sign the partnership agreement, you should document what you are contributing -- the equipment, previous debts, etc. If properly prepared, the partnership agreement should guarantee your ability to walk away from the band with the items you've contributed (or their equivalent value).