Married to the Band

April 15, 2019

Alan Willaert  -  AFM Vice President from Canada

Pour voir cet article en français, cliquez ici.

Bands break up. Even The Beatles were victims of change, whether it’s external, internal, or personal.

When musicians get together and form a band in Canada, the least of their worries is the myriad of legal implications of being in a Canadian musical group. When successful, bands generally stay together longer, but eventually something triggers the split of one member or perhaps everyone. Then comes the hard part: who owns what?

If the band has taken no legal steps to define the relationship (such as incorporating), under Canadian law, the band is automatically deemed to be a partnership. In the absence of a written agreement, there is automatic equal ownership of the assets, equal distribution of income, joint and several liability, and the duties and responsibilities are not apportioned. Quite literally, you are married to the band. This can be problematic if the assets (or song writing) are heavily weighted to one or two members. To avoid the legal wrangling, one solution is to register the band as a recognized partnership.

Registration can be done online for a nominal fee. The website is www.bdc-Canada.com. You may also wish to check that your band’s name is not currently being used. One site to visit for this purpose is www.bandname.com.

The partnership contract will require some basic information, such as the names and addresses of all partners, the partnership name, and its official address. The capital (monetary) contributions of everyone must be documented. If contributions are unequal, those providing less can be offset by issuing a loan (on paper).

Other considerations are: Do the partners retain ownership of the instruments or do they become a band asset? Does everyone share equally in the net profits (or losses)? How will the earnings be distributed—will the partners draw salaries? What are expectations regarding time and priorities? Does each partner have a special duty? Is there a managing partner?

A bank account needs to be set up and the group must decide who has signing authority. The band must decide how other decisions will be dealt with—a 2/3 majority or unanimity. In the event one partner is later deemed to be a liability, what are the specific grounds required for termination?

When a member leaves, what will be the method of evaluating that partner’s interest and compensating him/her? What provisions have been made for continued use of recorded performances or the name/likeness of that partner?

In the event the partnership is dissolved, a method of evaluation should be in place. You should determine who gets what assets and what happens to the band name. Sometimes one or more partners wish to carry on with the name (or trademark) and there is some value (or goodwill) associated with that name. The group’s musical instruments, gear, and vehicle should be sold and the net profits divided. Alternatively, provisions could be made for each musician to retain his or her personal instrument. The same would go for any CDs, cash, or other undistributed profits.

Of major concern should be songs and master recordings, each dealt with respective of their copyrights. By default, songs (unless another arrangement has been made) are owned by the songwriters based on their creative input. There are royalties to consider that emanate from airplay (SOCAN), mechanical licenses (CMRRA), and private copying (CPCC).

Master recordings, by default, are partnership assets. Again, royalties will flow from the Private Copying Collective, from airplay through the Re:sound sub-collectives (MROC, RACS, and ARTISTI), as well as from record company artist royalties.

If the partnership has made a decision to divide the songwriters’ shares, there may have been a registration with SOCAN under multiple names. Again, if a partner leaves, is the publisher’s share a band asset? The assessment of shares is not simply done based on 50% lyrics/50% music. Rhythms and hooks (both lyrical and musical) are important, and for the purposes of a partnership, the division of credits may look something like this:

LYRICS:

Chorus                        ___%

Verses                        ___%

Lyrical hook               ___%       

MUSIC:

Melody                       ___%

Harmonies                 ___%

Progressions              ___%

Beat/feel                    ___%

Music hook                ___%

Solos                           ___%       

Another consideration in a partnership is disproportionate income splitting, which may be necessary under the following circumstances: a) where a partner’s cost of participating are higher (travel, transport of gear); b) where a partner has over-contributed to the partnership assets; c) where a partner over-contributes his or her time to business matters; d) where a partner misses rehearsals or other obligations; or e) where a partner contributes “in kind” value not otherwise quantified.

Of course, the best solution is incorporation, which provides limited liability, has tax advantages, and there would be no need to dissolve when a member leaves. However, the setup costs are significantly higher and often come with ongoing legal and accounting fees.

Whatever way you decide to set things up, remember that, in order to sell CDs and merchandise as a legal entity, you will need a vendor permit and HST number. Also, it is especially important to file AFM contracts on all live engagements and every recording session. It’s the right thing to do.

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