An important concept for musicians to understand is that a band is a business, both generally and legally. A band (in most cases) is a group of individuals working together to achieve a profit. The legal relationship between these individuals will generally be deemed to be a partnership, whether or not the band members have formally established such a business entity. This means that the band members will be subject to the rights and obligations that apply to "partners" under relevant partnership laws.
Far too often band members experience creative differences among one another, and it is always a good idea to deal with these issues by planning for certain contingencies or future events. By having the band members agree at the outset of their musical relationship, what rules and procedures govern their relationship in various circumstances, it may be possible to avoid difficult and sometimes uncomfortable situations. If a band wishes to have more control over its affairs it is advisable to enter into a band partnership agreement, while conditions are good and relationships are strong, in order to plan ahead for potential situations that may arise during the lifetime of the band. It is a good idea to determine how to address issues such as the way in which income will be divided, what happens to the band's assets and liabilities upon a break-up, how decisions will be made prior to and after a break-up, and what to do if individuals decide to join or leave the band. By addressing these issues up front, it will avoid the potential of wasting time and money in long and expensive litigation. Other bands may choose to forgo a partnership agreement and instead choose to conduct business through the establishment of a corporation and prepare an operating agreement in order to structure their corporate entity.
Issues that arise upon the departure of a band member can be numerous and complex; the ability to reference such agreements can be especially helpful. If an agreement is not in place, it may be very difficult to resolve the situation, regardless of whether the departure is voluntary and amicable or otherwise.
If a band, being viewed essentially as a partnership or even a corporation, is well-advised to have an agreement in place to protect the rights of the individuals involved, why would this be any different for a "regular" business or corporation? The concept of protecting the interests and rights of individuals doing business with each other is universally transferrable to all business entities, and is not just limited to a group of musicians forming a band.
Even though there is no legal requirement to have a formal shareholders agreement in place for corporations, it is wise for every company with more than one shareholder to have such an agreement in place in order to protect the interests and rights of all people involved in the business venture. Entering into such an agreement is often far from the minds of the individuals involved when starting a new business; however, it is a good idea to have a shareholders agreement drafted and finalized at the outset of the business when relationships are strong and before circumstances change or resentment builds among shareholders.
There are many benefits to having a shareholders agreement in place. It will often be used to define the limits of the responsibilities of each of the shareholders and it can often provide more protection than articles of incorporation alone. Such an agreement can be used to determine the basis for important decision making with respect to the corporation. Where necessary, it can restrict the power of the board of directors in order to provide protection for the parties involved in the ownership of the company. In addition, it is beneficial to enter into a shareholders agreement in order to minimize the effect of any potential business disputes and to provide a framework for resolution.
Additionally, a shareholders agreement protects the rights of minority shareholders and the investment value of their interest. Without an agreement, it is possible for majority shareholders to force issues that are not in the minority shareholders' interest. Importantly, if there are ever any changes in the personal situation of one of the shareholders, the agreement can be used to determine, and minimize, the effect that such circumstances can have on the company itself or on its shareholders. It is a beneficial way to safeguard the financial interests of each of the shareholders as well as the interests of the shareholders' families in the event of a death or incapacity of a shareholder.
Having an agreement in place at the outset of a business relationship (whether the business entity is a band or otherwise) may be very helpful in providing much needed direction, guidance and clarity in order to move forward with the business entity. With some legal assistance and foresight, it is possible to plan ahead and prepare for the complexities that undoubtedly arise out of any business venture.
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