The American journalist and cultural gadfly Hunter S. Thompson once described the music business as “a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.” That’s anything but a ringing endorsement, to be certain. As a writer for Rolling Stone, Thompson echoed the sentiments of artists that resented the power of the record companies and distrusted the kingmaker-businessmen (“suits”) that accompanied them. Fast forward to 2022 and the landscape has substantially changed. The term “sell out” mostly applies to ticket sales, and artists such as Taylor Swift are cheered for demonstrating savvy business acumen. Today, important matters, including liability shields, insurance, tax-planning, and brand protection, are prioritized by the business-focused artist. At the same time, Page Six and TMZ are littered with stories concerning fights and lawsuits among band members about business-related issues. The cause? Far too many artists, along with their professional advisers, continue to disregard what should be the most basic, if not the most critical, business concern related to any group: the partnership.
In most states, the members of a music group are deemed to be legal partners by virtue of operating as a group. In other words, in the absence of a formal arrangement, a group is considered a legal partnership if it presents itself as such to the public. Each member of the group is an equal partner and will share equally in the upside, as well as the downside, of the group’s activities. While this arrangement may sound appealing at first glance, equality of opportunity might also translate into shared misery for the unwary. For instance, the bad acts of a single rogue member might subject every member of the group to personal liability. Default partnership rules mean that each individual represents the group for all purposes. So, any single member can bind the whole group to contractual obligations, spend the money of the group, and use or license the property of the group — all without the consent of the other members. Put simply, “all for one, and one for all” isn’t always the best axiom when it comes to business arrangements.
A professional adviser will often recommend that working musicians form a legal entity (e.g., corporation or limited liability company) for the purpose of engaging in business operations. Entity status provides the working group with a number of legal benefits, with the most important being liability protection. While most groups are quick to heed the formality suggestion, many also fail to discuss the multitude of operational and planning concepts that are important for a musical partnership to consider, such as:
- How are group decisions made?
- Who owns group property and how can it be used?
- How is revenue shared among the group members?
- How can a member be fired and what happens if a member is fired or quits?
- Does the family of a deceased group member succeed the partnership interests of that member?
- Who can use the group name?
- How is private sensitive information about group members protected?
These are but a few of the issues that should be addressed in the group partnership agreement. However, these sometimes awkward issues are often neglected — always to the detriment of the group. It’s no surprise that “family talks” involving finances, member death, and/or breaking up tend to be delayed, if not wholly avoided. While potentially uncomfortable and certainly boring, discussing these concepts and memorializing in writing the expectations of the members will mitigate headaches and heartaches, along with legal fees, down the road. The much-publicized fight between Donald Fagen and the estate of Walter Becker concerning the ownership (and forced buy-out) of Steely Dan is yet another reminder of the importance of the group partnership agreement and planning for the unexpected.
Being a member of a successful music group is a proverbial roller coaster replete with a seemingly limitless supply of unknowns around each corner. While it’s virtually impossible to anticipate all of the challenges ahead, hammering out a mutually acceptable road map for the partnership may ultimately prove to be the most significant business-planning activity in the life of a group. Planning for the future can be a drag, but not having a plan can be far worse. It also goes without saying that friends (and bandmates) tend to be more amenable to negotiation and compromise when they still like each other. We all hope that the band goes on forever, but are you prepared for what happens when the music stops?