Sneak Peek: So You Want to Start a Band?

"So you want to be a rock 'n roll star, then listen now to what I say..."
– Roger McGuinn, The Byrds, 1967

It may seem like an easy thing to do, but starting a band and making it to band practice is just half the story. Here are some important points you need to consider before you decide to hop on that tour bus.

By Kory Klein, CPA
Photo by Jody Domingue

The Band is a Business
The first and most important step in running your band’s business is to accept the fact that it is a business. Producing music is your band’s creative work. Selling that music is a business venture. Like any business, the band members should agree ahead of time how the business will run, how revenues will be distributed, what happens if one or more members leaves the band and, lastly, what type of entity structure is the most appropriate for your situation.

Legal Entities
In a sole proprietorship, you own and operate the band by yourself and are personally liable for business debts. You pay the other band members either as employees or as independent contractors. You do not file a separate business tax return. The income and expenses qualify for pass-through treatment.

Pass-through tax treatment means that the taxes of a business are "passed through" to the tax return of the individuals owning the business. Sole proprietorships, partnerships, most LLCs and Subchapter S corps qualify for pass-through status. Pass-through status also means that these business entities are not subject to double taxation as are the C-corps.

Perhaps, to the surprise of many band members, the very act of starting or joining a band is a legal decision to form an entity. When two or more people engage as co-owners in a business for profit, state laws regard that entity as a general partnership. A general partnership does not require formal creation. You could be out having drinks with some music friends, say “Let’s form a band,” and if two or more people are in agreement, then you have formed a general partnership.

The obligations of a partnership are not limited to the partnership itself or the contributions of the partners. Instead, partners are jointly and severally liable for all obligations of the partnership, which could potentially have serious consequences. Thus, most businesses form corporations or LLCs to avoid this unlimited liability.

Not all band members are partners/owners, whether through a partnership, LLC or as shareholders of a corporation. In fact, this is commonplace. The band entity may simply contract for, or employ the services of, other musicians.

…Stay tuned for the November 2015 issue to read full article!

site tip jar kory klein nov2015ABOUT KORY KLEIN
KORY KLEIN
is a CPA and the Founder and President of Klein & Company Management, Inc. located in Woodland Hills (Los Angeles), CA. He has over 30 years of experience providing business management and accounting services. Over his career Mr. Klein has been a partner/principal in highly respected business management and public accounting firms. The firm’s clients include a diverse range of music, television, film, and other entertainment industry professionals. Mr. Klein has particular expertise working with touring artists/bands and musicians. He steps into the role of CFO for many of his clients. He and his firm provide a broad range of services that include managing daily financial affairs, cash flow monitoring, investment analysis, protection and preservation of liquid and other assets, tour accounting, working in cooperation with other advisors, overseeing tax needs, and developing efficient tax strategies.