Now You’re In Business – The Business of Your Band That Is!

January 5, 2008

  • So, you’re in a band, or maybe you’re a solo artist. You spend a lot of time writing (hopefully) quality music, finding gigs, playing shows, networking with fans and other artists, working in the studio, and promoting the heck out of it all. You spend a lot of money on recording, printing, distribution, equipment, travel … seeing a pattern here? You have a lot invested in your work. In fact, you’ve got just as much invested in your work as do a good number of small business entrepreneurs. “An entrepreneur?” you may ask. “That’s not me. I’m just in a band.” Wrong!Many independent musicians never consider the fact that they may be in business. If one of your primary goals as a musician is making a profit, then more often than not, you’re in business, plain and simple.

    So, why is this important?

    For starters, if your band is legally a business, you need to take the appropriate steps to stay out of trouble. (Read: When you make it big, do you really want the “tax man” knocking down your door?) And then there are the benefits – tax deductions, security if problems arise between members of the band, and possibly the most important issue of name (not to mention other trademark and copyright) protections.

    Did you know that most indie bands don’t even have a unique name? It’s quite possible that you might not either. Sometimes you can come across 5 or 6 bands throughout the country using the same name. Is it a problem if they’re all relatively unknown and only play in their respective areas? Probably not. But if one of those bands has the potential to make it big … well, let’s look at a possible scenario:

  • You’ve got three bands throughout the country, all calling themselves Band X – #1 is from NYC, #2 is from LA, and #3 is from Houston. (Let’s assume these are the only three with that name to simplify things.)
  • Band #1 has been together for 3 years, and only plays venues in NYC and the surrounding area. They took the initiative to register a federal trademark for the name when the band started. Band #2 has been together for 4 years, and has built a strong name for themselves on the indie circuit. They’re being scouting by several labels, have built themselves a national fan base, and are in NYC to play a major show. Band #3 has been together for 5 years, doesn’t have much hype built about them (in fact, they suck), and they self-financed a small tour, including a stop in NYC.
  • Let’s assume all three bands are playing shows in NYC the same night. They all come across promotional material for each others’ shows. It leads to a legal battle over the name. Who do you think has the best chance of winning the rights to the name? (The band who had the name the longest? The band that built a reputation for themselves with that name? or … The band that paid to register the name as a trademark?)
  • You may be surprised, but the answer is Band #3. The band that had the name first is the band that would generally win, if a lawsuit arose. (As long as they could adequately prove that they had the name first, of course.) Having your reputation based on that name pretty much means squat in a trademark dispute. And registering a trademark doesn’t mean it’s really yours under all circumstances.Why doesn’t registering your name as a trademark guarantee your exclusive use? Quite simply because it’s not the government’s job to make sure you’re the first one using the name. And whoever uses it first owns what’s referred to as a common law trademark. Common law trademarks don’t have to be registered or published anywhere specific. It’s your job to find out if there’s a problem before you register. And if you lose the dispute, do you think you’ll get your registration fees back? Ha! Not a chance sucker. That’s why you should never try to register a trademark without first having an attorney do a thorough nationwide search for you.Are trademarks your only naming concern? Nope! Depending on what state you live in, you’ll need to also register your name with your state or local government, with fictitious name or DBA (doing business as) registration requirements.

    You can register your name as a trademark even if you don’t take care of the other necessities of being in business. But there are other important steps. First of all, if you’re a solo artist, you can form a sole proprietorship, the simplest business form. But, if you’re a band, you’ll need to form a partnership or other type of business model. Although there are numerous things you may need to do, only the most basic are going to be covered here. (There are lots of books you can read for more information on the topic.)

    You may need to get a Federal EIN (employer identification number) if you hire employees, like a manager. It’s not a necessity for all business types, if you don’t have employees, but rules do vary. Even if you’re a solo artist, you may want to use an EIN for tax purposes rather than using your SSN. You’ll be responsible for paying your own taxes on money earned as a musician, since there won’t be an employer taking care of it for you with each paycheck. You’ll also need to pay estimated taxes on a quarterly basis, in addition to self-employment taxes under certain business forms.

    In addition to an EIN, if your state charges sales tax, you will probably need to register for a sales tax ID number or sales and use license. What that means is that you’re required to charge sales tax on all merch, CDs and other products you might sell (you can always factor it into a nice round price ahead of time), and then you need to pay that sales tax to the state government, based on their tax calendar. What it also means is that you don’t have to pay sales tax when you purchase those products for re-sale. (i.e. you won’t pay sales tax when you buy the stickers you want to sell, but you’ll charge sales tax in your price. Same goes for CD printing and duplication, and other taxable merchandise, depending on your area.)

    You should put together a Band Partnership Agreement. If you do nothing else, you probably won’t regret this one. Let’s say your band has a disagreement amongst yourselves, and it’s decided that someone needs to go. Let’s also say that the person leaving the group was responsible for writing the majority of your best songs. If you don’t have a band partnership agreement, you could be in trouble. The agreement can cover things like how many members have to agree to have someone removed, what happens to the property and band name if someone leaves, etc.

    Look into samples and other resources about business and marketing plans. They are both excellent guides for growing your band. It’s something you can refer back to on a regular basis, and it’s an important piece of the puzzle when you’re figuring out exactly how much work being a “professional” band can take. On top of that, if the IRS tries to declare that you’re not a business, but a hobby, a well researched and carefully calculated business plan can be your best tool. While most businesses can be ruled a hobby if they show losses for 5 straight years, that ruling can be reversed in an appeal if your plan demonstrates that you can realistically expect to turn a profit in the future by following that plan. (Note: you should always consult an accountant about complicated tax issues. State tax laws can vary, so be sure to find out the rules in your own locality.)

    Lots to think about, right? Maybe a little bit scary? It’s definitely a lot of work. So why do it?

    Tax deductions. You probably spend a lot of money on equipment, recording and other aspects of making your music available to your fans. When you run your band as a business, with the express purpose of turning a profit, you can deduct a lot of these expenses from the taxes that you owe, and a business loss can sometimes be used to offset other income. (Please note: if you consistently show a loss every year, the IRS can rule that you’re not in business, but instead engaging in a hobby. Hobbies do have their own tax advantages, but you’ll be required to pay back money from deductions you’ve taken in the past. Be careful, and be sure that you really qualify to file as a business. You should consult an attorney or an accountant for advice, and we recommend reading Stephen Fishman’s “Deduct It!: Lower Your Small Business Taxes” for more information.)

    Protection. By hiring the right professionals, or doing the legwork thoroughly yourself, you can make sure you protect your band’s name and work. The last thing any artist needs is a legal battle over rights when they’re finally making it on their own.
    Professionalism. Filing the necessary paperwork, researching and preparing a comprehensive business plan, and dealing with the legalities early on can make you more attractive to labels and other professionals, because it’s arguably the best way you can show your band’s commitment and ability to handle all of the work involved in making it in the music industry.

    These are all basics in running a small business. Each issue is much more complex, and you’re urged to do further research to find out what is most appropriate in your individual case. There’s a lot to running a business, and there’s a lot at stake if you don’t handle things correctly. I recommend reading Richard Stim’s Music Law: How To Run Your Band’s Business for more information. It’s a great resource all-around, covering these issues and many more. I, nor AudioXposure.com, have any affiliation with the book, author, or publisher. Yet, I have to say it’s the best band business resource I’ve come across, and no band should be without it. You can purchase a copy through the link on this page, via our affiliate Amazon.com, or simply pick up a copy at your local library.

    You should not take this article as legal or accounting advice, as rules vary by state and local municipalities, so you should contact the appropriate professionals with specific questions or for more information.


  • Jennifer Mattern - EditorThis article was written by Jennifer Mattern, founder and Editor of AudioXposure.com. To learn more about Jenn, please visit JH Mattern Communications.

    Contact Jenn.

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