Should You Set Your Band Up as a Business?

Have you ever considered turning your band into a business? It has its share of advantages and disadvantages. This article will review why you may want to take this step and how to do it.

Should You Turn Your Band into a Business?

Here are some pros and cons involved in turning your band into a business.

Pros:

You Can Create a Band Bank Account

Bands are lucky if they get $100 to play a night in total. Split that up and it’s $25 each (if you’re in a 4-person band). It’s barely anything.

But if you keep the money, you earn and put it into a bank account, you can start building it. After a while, you will have enough to afford merch, or you can use it to fund a tour.

If your band isn’t a business, the bank account will need to be opened in one person’s name which can cause confusion and bad blood. If you make your band a business, you can open a band bank account under the band’s name which can be put towards band expenses.

You Can Get a Business Loan

You never know what your band might need a business loan for. A new van, a recording, new gear…you name it. If you make your band a business, you can take out a loan under the band name.

However, most lenders won’t approve you for a loan unless you can prove you are earning income. And not many bands can do that!

Taxes

Tax laws vary from state to state. But if your band is a business, you may be able to get deductions for band expenses. This means you will pay less in taxes. You may even see a return.

It Defines Roles in the Band

When you make your band a business, you will be forced to determine your band member’s status in your band. Are they partners? Are they independent contractors? And what happens if they leave the band?

Turning your band into a business will force you to answer these questions so there will be no confusion later. 

Record Labels Will be Less Hesitant to Sign You 

Record labels will understand that there is a clear understanding of who owns the rights to the music you create. It minimizes the chance that there will be legal disputes if the band splits up. It also shows that you take your career seriously.

Protection

If you set up your business as an LLC, it will offer you protection from legal matters. For example, let’s say you hit a car with your band van.

If the van is covered under your legal assets, and your insurance is under your business name, your business will be responsible for damages. Plaintiffs will never be able to go after your assets.

You’ll Get More in Royalties

When you register with a performing rights company like BMI, ASCAP, or SESAC, you are entitled to a 50% royalty every time your song gets used. The other 50% goes to the publisher.

If you are not affiliated with a publisher, you are leaving 50% on the table. If you incorporate as your own publishing company, you will get 100% of the royalties.

 (Note, starting your own publishing company will require opening a second entity, but you can simplify the process by starting it as a sole proprietorship. You won’t have the protection of an LLC, but you also won’t be subjected to as much liability as the band will).

Cons:

It Could Make Things Complicated

If the band breaks up, your business will need to be legally dissolved. 

Your Tax Filing Process May Change

If you own a business, it will be more complicated for you to do your taxes… and it’s  likely to be more expensive.

What Type of Business Should My Band Be 

There are several business structures to choose from. Here are some to consider:

• Sole Proprietorship: A sole proprietorship names one person as the sole owner of the company. Note: A company can be an LLC or a corporation if it’s owned by one person. However, it would no longer be considered a sole proprietorship.

• Partnership: A partnership is a business structure option for businesses owned by two or more people. Partnerships must file an annual information return to report their income, taxes, and losses, but they do not pay income taxes. Instead, each partner reports their income on their return. 

• Corporation: A corporation involves shareholders exchanging money or property for company stock. It takes the same deductions as a shareholder to figure out its taxable income. It also takes special deductions. It is recognized as a separate taxpaying entity. It conducts business, realizes net income and loss, and pays and distributes profits to its shareholders.

• S corporations pass their income, deductions, and credits on to shareholders for tax purposes. They report their profits and losses on their returns and must pay personal taxes. This helps them avoid double taxation on corporate income. 

• Limited Liability Company (LLC): LLCs may be subject to different tax and structural laws depending on the state they are in. But one thing that’s common among LLCs is that they will protect your income if anything happens within the company.

Bands are unlikely to have stockholders which makes corporation options unlikely. While sole proprietorships and partnerships may be considered, the protection an LLC offers makes it the best choice.

How to Set Your Company Up as an LLC

Setting your company up as an LLC is easy. Here are the steps you will need to take.

1. Appoint a registered agent: Your registered agent will be the person that accepts legal notices on your band’s behalf. This could be you, a bandmate, the band manager, or a professional registered agent service.
2. Choose an LLC Name: You may want to use your band name as your LLC name, but you will first need to do a business search to make sure it’s available in your state. You will also need to make sure your name follows state laws. Once it’s official, your business will be known as (Band Name), LLC.
3. File the Documentation and Pay a Fee: You will need to file documentation to make your LLC official. In most states, this is called the LLC Articles of Organization. You will also need to pay a fee that varies from state to state. Most states charge somewhere between $50 and $100. You will need to renew once a year or once every two years.
4. Get a Tax ID number from the IRS: A business tax ID number is called an EIN (Employer Identification Number). You can get one online from the IRS in just minutes.
5. Open a Business Bank Account: Your business bank account will keep your corporate finances separate from your finances. It will help you maintain your liability protection.
6. File State Reports and Pay Taxes: Most states require LLCs to file annual reports. Tax requirements vary by state.

Other Things to Consider

Congrats, your business is set up as an LLC! Now here are some other things you need to think about;

Are Your Bandmates Employees or Independent Contractors?

If you plan on paying your bandmates, you will need to decide whether they will be employees or independent contractors.

If you decide to treat your bandmates as employees, you will need to pay them a salary. You will also have to match the government's social security and Medicare benefits.

However, you will not have to report that money as income. So, if you made $10,000 as a band and paid your bandmates $8000, you will only need to pay taxes on $2000.

If your bandmates are employees, they must fill out a W4 which will be given to your accountant. The accountant will use the form to determine their net income and calculate payroll taxes. They will get a W2 at the end of the year that they can use to do their annual taxes. 

If you decide to treat your bandmates as independent contractors, Uncle Sam will not be involved until later. You will pay them the full amount you owe them without deducting tax.

You also won’t be responsible for matching government benefits. They will be responsible for paying those taxes when tax time comes around. That’s why self-employed people pay so much in taxes.

Independent contractors fill out a W9 and are given 1099 at the end of the year.

Keep Track of Your Income

It can be hard to keep track of money when you are in a band. For example, say you are playing a gig. You have a crew out there selling merch, maybe working the door. At the end of the night, you get a pile of money stuffed into your hands. It can be hard to figure out what goes to what…especially if you’ve had a few. 

But if you’re band is a business, keeping track of money is imperative. If you overreport how much you brought in, you will pay too much in taxes. If you underreport how much you brought in, you will pay too little in taxes and you may be facing penalties later.

Fortunately, there are ways to keep track of how much you’re spending and how much your earning. These include:

• An income journal that requires making entries by hand.
• An online ledger is similar to a journal, but it is stored in the cloud making it more convenient to access.
• A money management app is likely the easiest solution. You may have to pay for a subscription, but it will do the math for you making your job simpler. It will also provide reports and keep everything organized.

Keep Track of Your Expenses

It’s important to keep track of your expenses as these can be considered ‘write-offs’. They will reduce the tax amount you pay at the end of the year.

Unfortunately, Uncle Sam doesn’t make this process easy. He’ll want to see proof of what you spent. So, you will need to develop a system to prove your annual expenses. Here are some suggestions.

• Carry a folder with you everywhere you go. Every time you incur a business expense put the receipt into the folder.
• Designate a slot in your wallet for business receipts. Be sure to take these out regularly. If you leave them in your wallet, you may lose them.
• Use an app like Venmo to keep track of your payments.

It’s advisable to enter your expenses into a ledger regularly. It’s a good backup plan if your receipts get lost or become faded.

Meet with a CPA

A CPA may seem like an added expense, but they will help you save money at tax time. They can also provide useful tips for managing your money.

If you have a business, you shouldn’t be doing your taxes on your own anyway.

Make an LLC Operating Agreement

An LLC operating agreement is a legal agreement between all LLC members. It lists the ownership interest and cover all life events that may occur relevant to the cooperation. It will include things such as: 

• The organization of the business
• The names, addresses, ownership shares, and responsibilities of each member
• Rules for voting on major issues such as when a new member joins, when a member leaves, and how dissolutions are handled

Here are some other, optional points to include:

• What each member’s share of the LLC will be: This will come into play in terms of how each member is paid and voting rights on important matters.
• The group’s songwriting policy in terms of who owns the music’s copyrights and publishing rights
• Who owns and controls the band’s intellectual property assets including copywrites, trademarks, service marks, and logos; you may want to make a list of all the band's assets and clarify who owns them and what percentage they own.
• How will assets be distributed if the band dissolves?
• What are the ownership and voting rights? How and when will band meetings occur and how will decisions get made?
• Will there be mandatory contributions to a band fund for future expenses?
• Who will be the managing members? Who will be the signers on the bank account?
• Are there any expectations or rules concerning band conduct?
• What rights will departing and replacement members have?

Trademark Your Band Name

Trademarking your brand name is a smart idea whether you decide to become a business or not. It will protect your name so it can’t be used by another band.

Here are the steps you will need to take to trademark your name:

1. Carry out a Google search: A Google search will give you some idea of whether your band name is taken. If it is, you may want to come up with another band name. Having the same name as another band will confuse fans and it can get you sued if the other band owns the trademark. Note that it will only be an issue if another band has your name. If a different entity has your name, like say a shirt-making business, that’s another story.
2. Search your local trademark database: This will be the real test of whether your name is taken.
3. File Your Application Online: To file your application online, you will need to provide the name of the person who owns the trademark. You must also provide proof that you have used the trademark and the contact of an examining attorney if there are any issues with your form.

Submit Your Work for Publishing

Bands should know how to submit their work for publishing whether they are a business or not.

You will likely be asked to fill out a submission release form. This is likely to be necessary if you are submitting the work yourself and not through an agent. It also be part of the process if you started your own publishing company, and your work is not licensed.

Submission release forms waive your right to sue for copyright infringement and breach of contract. Most companies will ask you to sign a submission release form before they even review your work.

The release form states that you need to be paid market value for your rights. It is not a contract or a promise to buy your music.

Submission release forms are not always used. Here are some other forms you may need to fill out to have your music considered for publication:

• Music release form: These grant licensing rights to the song or a complete transfer of the copyright to the music.
• Print release forms: These grant rights to personal imagery, like artwork or photography, that’s used for artistic purposes.
• Copyright release forms: These grant limited rights to commercial imagery used for promotional purposes.
• Podcast release forms: These grant rights to record, use, and publish an interview that features your voice, ideas, image, thoughts, and opinions.

Turning your band into a business is a good way to keep your assets protected, set guidelines for your band, and save money on taxes. Now that you know what’s required, you can move forward with the process if you desire. Will you be taking this important step forward?