Getting Started in the Music Business - Basics & Trademarks

This is for the many bands that have asked for information or tips on how to get started. I hope its helpful to you. Jim

Getting Started in The Music Business

First Start by Reading as many books as you can about how the music industry works (knowledge is power). In addition many colleges and universities that offer music courses, the music business requires a lot of on-the-job training supplemented by your ability to teach yourself through reading. As you read, try to teach yourself the questions you would ask someone who seems to be interested in you as an artist. For example, if you are talking to a prospective manager, ask questions such as: what is your typical commission from my gross or net earnings? What other artists do you currently represent? Have you secured record deals for them? With what label? Do you have a publishing company?

Don't be afraid to ask tough questions of the managers, booking agents, publishers, promoters and others you contact, or who contact you. If a tough question scares them away, you probably wouldn't have wanted to work with them in the long run anyway. Remember: nothing is "free" in this business. If someone wants to pay for you to make a recording and doesn't first offer you a contract to review, then chances are great that recording will come back to haunt you later in your career. Never sign anything without first having your attorney (one who you find on your own and who you pay for yourself) review that contract first. If someone is "in a hurry" to have you sign something, chances are excellent that you might want to slow down.

Go out to hear live music as much as your time and budget permits. By watching professionals, you'll learn the do's and don'ts of live performance. If the opportunity arises, try striking up a conversation with members of bands while they are on break or after their show. You should begin to compile information on every live music venue in your area, and who is responsible for booking talent at each. Take advantage of every opportunity you can to perform. (Practice makes perfect, even if the type of music you're playing isn't exactly your first choice.)

How can I find musicians for my band?

• Compose 25, 50 and 75 word descriptions describing your band to prospective musicians.
• Create 5 by 7-inch index cards to put on bulletin boards. Music businesses that usually have bulletin boards include record stores, musical instrument stores, college and university music departments, and rehearsal studios.
• Contact local weekly and monthly publications with music coverage to ask if they have a "musicians' referral" section in their classified ads.
• Meet local musicians (on breaks or after shows; at music-related association meetings) to see if they need additional or replacement band members, or if they have any side projects.
• Contact the local office of the musicians' union, the American Federation of Musicians (AFM)
• Talk to local club booking agents.
• Post a notice in on-line.

 

You should decide what type of business is right for our band?

There are three basic types of business entities: a sole proprietorship, a corporation and a partnership. Each business form has particular benefits and complications. An attorney or accountant can advise you on which organization best meets your current needs and how to make changes in your business as your career matures. Investigate these types of businesses and then seek professional advice when you are ready to begin setting up a business of your own. Here's a brief look at each type: 

Sole Proprietorships

When one person owns and runs an unincorporated business, he or she owns a proprietorship. If you are a solo performer, the proprietorship is probably the way you will get started. No written documents are required to set up a proprietorship, other than the filing of your business name (if it differs from your legal name.) For information on filing a business name, check with your local county government.  As self-employed persons, proprietors are responsible for all taxable income and debts of their businesses, as well as any problems that may arise. 

Corporations

Your band may wish to form a corporation, which is a separate legal entity that is owned by the band members and any other person who owns shares in the business. The term "Loan-out Corporation" is sometimes used in the music business to refer to a business structure where the band forms a corporation to "loan-out" the band's services to promoters, record labels, publishers and so forth. The corporation signs all contracts for the band and the members all sign a deal to work for the corporation as employees.

The main advantage to incorporating is that you limit your personal liability for business-related matters. Because the corporation is a separate legal entity and signs the contracts, the corporation alone is liable for the band's business problems, and your personal assets are not at risk. You also cannot be sued for something stupid that another band member does, as is the case in a partnership. On the downside, incorporating your business will involve significant start-up costs, including state incorporation fees and attorneys' fees for preparation of the shareholders' agreement. Also, the federal tax procedures for corporations are more complicated than for other types of businesses. You can defray some of these costs by contacting a non-profit agency that helps artists sort out these types of situations. To incorporate you file "articles of incorporation" with the Secretary of State. This is a document that states the basic information about your new corporation; such as name, address, purpose, number of shares and so on. The fee is currently about $300 but varies by state. More information on the filing process is available through the Corporations Section of the Office of the Secretary of State. 

Partnerships

A legal partnership is formed when two or more people work together as co-owners of a business for profit. "General Partnerships" are the simplest start-up organization for bands because they do not require any written documents or fees in the beginning. Once the band starts working together to make money, Texas law presumes that your group has formed a general partnership whether or not you have put anything down on paper in a written partnership agreement. Without any agreement, some standard legal conditions will apply to your band, including the following:

• All partnership members are shared owners of the business, so everyone owns the assets and profits, and everyone is responsible for any losses. Examples of a band's assets include equipment and the band's name. Losses may include any debt you incur from tour expenses, equipment costs, and so on.
• Every partnership member has the authority to act on behalf of the partnership, and the other partners will share the responsibility for that act. For instance, if a band member signs a commitment to buy the group a van in the band's name, you may all be responsible to pay for it, even if you never agreed to purchase a van.
• Everyone is responsible if something goes wrong and the band gets sued. If a fan gets hurt at one of your shows because your singer flings a bottle into the audience, the injured person can sue the band as a unit or any one member, and each member may be liable for the damages.

By drafting a written partnership agreement, you can structure your partnership around some of these conditions. You can create an agreement that sets out the rights and responsibilities of each partner, but you are all still open to a lot of liability when something goes wrong. What you can do with a partnership agreement is avoid disputes among the members later on down the road.

Call a band meeting to discuss your group's partnership. When you have reached consensus on these issues, consult an attorney to draw up the partnership agreement. Here is a sample agenda:

• Who will own the band's songs and name if the group breaks up or somebody quits?
• Who is authorized by the partners to spend money or sign contracts on behalf of the group?
• How much of the business assets and income does each member own?
• Hold a detailed discussion of important points to include in a written agreement and customize the group's discussion to fit your situation

Variations on the business organizations:

There are some additional organizational forms that you should discuss with your attorney before setting up a business. Two possibilities are "Limited Liability Companies" (LLCs) and "Limited Liability Partnerships" (LLPs). To register an LLP or LLC in most states you must carry insurance for the business and file a form with the Secretary of State. LLCs offer the limited liability of a corporation, but may allow you to choose the simpler tax structure of a partnership. A "Limited Liability Partnership" (LLP) is a variation on the general partnership with all of its tax advantages, but in this form, the partners are not liable for any debts of the group. The cost is higher, but the fee is worth the peace of mind of knowing you won't be responsible for any liability that the group may incur.

Do we need to get a business license?

If you are working under a band or stage name, you need to file an "Assumed Name Certificate" (commonly called a DBA, for "Doing Business As") at your County Clerk's office. This certificate is like a business license, and it authorizes you to take important initial steps such as opening a bank account so you can issue and cash checks in the band's name. The fees vary from county to county, but are usually around $25.

For more information, see also:

Internal Revenue Service's Starting a Business at http://www.irs.gov/businesses/small/article/0,,id=99336,00.html
United States Small Business Administration's Startup Guide at http://www.sba.gov/starting_business/startup/guide.html

Taxes - we can't forget our partner the government

Do we pay taxes on the band's income?

Yes, the income earned by a band or solo musician is taxable. If you are a sole proprietor, you can use your own social security number and tax return to report your income and losses. Band members must get their business entity an "employer identification number" (EIN), which is like a Social Security number. The EIN works the same way for your business, and federal law requires all partnerships and corporations to use an EIN. Keep track of the group's income, expenses and losses. Once you have your EIN, you can report your taxes properly.

To obtain an EIN, contact the Internal Revenue Service and request form SS-4. You may complete the form online at http://www.irs.ustreas.gov/formspubs/index.html or send it by mail.

Order the form, a Business Tax Kit and/or other tax publications by calling (800) 829-3676, or write to:

Internal Revenue Service in your area check the phone book for a listing.

What tax procedures do we follow?

Your tax obligations will depend on the type of business you create. Sole proprietors report their business income on their personal tax returns, but they follow the small business accounting and reporting procedures. Sole proprietors may be required to pre-pay quarterly taxes based on an estimate of what they expect to earn, and they pay a self-employment tax which goes into the Social Security pool.

Partnership taxation is not very complicated because the partnership itself does not pay taxes. Instead, the individual members pay the taxes for the partnership's income on their own individual tax returns. This method is called "pass-through tax treatment", because the business profits and losses are "passed on" to the partnership members. The partnership entity files a "Federal Partnership Return of Income Form 1065". This is an informational form on which you declare each member's "distributive share" of the income or losses incurred by the partnership that year. Each member then reports his distributive share along with his personal tax return. Even if you think the band will probably lose money in the first few years, keep track of the losses and report them on the Form 1065. Ask your accountant or attorney if each band member can claim his share of the losses to offset taxable income from your day jobs. If you are eligible to claim the losses, you can use them to save money that you would otherwise pay in income tax.

Corporate taxation is too complex for the scope of this discussion, but you should understand the basic difference between partnership taxation and corporate taxation before you decide whether to incorporate your band's business. In a corporation, profits are taxed at both the corporate and the shareholder levels: the corporation pays taxes on its earnings, and then the shareholders are taxed on the dividends they receive. This system of "double taxation" may end up costing more tax dollars than the pass-through system for partnerships. Talk to an attorney or accountant about tax options and strategies for corporations before you decide whether incorporating is a useful move at your current career stage.

What tax forms should we use?

Each business type requires different tax reporting procedures. Consult an accountant, and research the state and federal tax laws for small businesses. There are no state income taxes in Texas, so you need only follow the federal tax procedures for your reported income.

The IRS produces a library of booklet-sized publications on business tax topics and distributes them free of charge. The publications cover all of the forms and tax regulations in detail, including accounting procedures, deduction categories, sample returns and so on. The list below will get you started, and check the IRS website for the whole library of topics. You may download these materials and all tax forms from the IRS business information web pages at http://www.irs.ustreas.gov/formspubs/index.html, or call (800) 829-3676 to request the materials:

• Publication #334, "Tax Guide For Small Businesses"
• Publication #541, "Partnerships"
• Publication #542, "Corporations"
• Publication #535, "Business Expenses"
• Publication #583, "Starting a Business and Keeping Records"

 

Do we have to pay sales tax on merchandise we sell at gigs?

Yes. Most state laws require that you collect and pay sales tax on merchandise sold off the bandstand. Apply for a "Retail Sales Tax Permit" with the State Sales Tax Office in your area. Check the blue pages for the office closest to you.

Trademarks - Getting Started in the Music Business

What are trademarks?

Trademarks are symbols and/or words that are used to protect the identity of goods, such as name brand shoes (Nike) or food brands (Coke). Service marks are trademarks that identify the company or individual that provides a particular service, as with a travel agency or an entertainment group. As entertainers, musicians protect their trade names with a service mark so that other acts cannot perform under the same name. If your group also has a distinctive logo for T-shirts and other merchandise, you can trademark that logo as well.

You may apply to register your service mark either nationally, or statewide, or both. Register for the amount of protection your group needs. For example, if your group specializes in covers for local clubs and parties, then a statewide mark may provide sufficient protection. In Texas, you register with the Office of the Secretary of State, and the fee is $50. If your group is already touring outside of Texas and your ultimate goal is a major label deal, register with the U.S. Patent and Trademark Office. That fee is currently $335. For registration information with both agencies.

Will we lose our name if we don't register a trademark?

Not necessarily. In U.S. trademark law, you can "establish rights" in a name or symbol (the "mark") without actually registering a trademark. By just going out and using your band name for business purposes, you establish some right to the name as your "mark" if no other band is already using that name in your area. If your group is currently working under a fixed name but have yet to register a service mark, you may have already established rights in the name.

However, without registering your mark your rights in the name are limited to the territory in which the group is working. In effect, your group will be able to prevent another local act from using the same name. If a group starts playing under your name on the West Coast, you will have no right to stop them unless you can prove that your group used the name first in that region.

Under these rules, multiple bands can use the same name in different parts of the country without infringing on any other group's rights. The problem arises when your group gets a record deal and needs to sell albums in those areas where other groups are using the same name. If another band has established rights to your group's name in California and Oregon, they can prevent you from selling records under the name in those states. You would be forced to either buy out the rights in the name from the other band or pick a new name before the record can be released.

What if we find out that another group has a registered trademark for our name?

Most musicians would never dream that another group would own a trademark to their band's name. After the band builds up a fan base and signs a record deal, the record company is often the bearer of the bad news that the band's record can't be released because another group has already registered a trademark for the same name. If this happens to you, don't despair until you check out whether the other group is still together. The life span of the average band is short, and when a band breaks up and abandons its name, the name is fair game for anyone to use. If a group has not used its name for two years, it is presumed to have abandoned the name under the Lanham Act on trademark law.

The best way to avoid this problem from the beginning is to choose a unique name. No matter how creative you think the name is, remember that there are thousands of bands out there working. Choose something specific to your group or otherwise highly original. As soon as you decide on the name, start searching the market and the trademark libraries for any conflicting use of your name, and then register your trademark. (And do it early on so that you have the trademark settled when your group gets its first offer.)

You can pay the pros to search for you for a fee, or you can do the work yourself for free. Trademark professionals can complete a search within 24 hours for a fee of $300 to $500. Check the Yellow Pages for "Trademark Consultants and Searches." If you prefer to investigate yourself, start by browsing Internet search resources for any use of your name or the Billboard lists of touring groups and other such print publications.  Comprehensive music search databases such as The All Music Guide at http://www.allmusic.com and the Internet Underground Music Archives at http://www.iuma.com can also be helpful. You may want to try Google, a multi-engine search mechanism at http://www.google.com to search for any use of your band's name in newspaper articles, press releases or anything else that is traceable on the web. These resources are a good place to start because they include both registered and unregistered band names that are currently in use. If you do not uncover any conflict, begin a search of registered marks. For a search of statewide marks, contact the Office of the Secretary of State. Search federally registered marks by visiting the Patent and Trademark Depository libraries. You must come in person to search. You can now research whether or not your band/company name is available to be trademarked by accessing TESS, the Trademark Electronic Search System, at http://www.uspto.gov/main/trademarks.htm

Or, you can search federally registered trademarks at the following Patent and Trademark Depository libraries (searches must be done in person; this system does not include state, international or unregistered marks):

Washington, DC: The Trademark Register
(202) 347-2138

How do we register our trademark?

For a nationwide trademark, order an application from the U.S. Patent and Trademark Office (PTO) by calling (703) 308-9000 or (800) 786-9199. Ask for their brochure entitled, Basic Facts About Registering a Trademark, or download it from the PTO web site at http://www.uspto.gov. The brochure includes the application forms and all the necessary information on registering your service mark and/or trademark. The application must include: a drawing of the word or symbol being trademarked; three examples of its use (such as newspaper clippings or a press release); the completed application form; a self-addressed stamped envelope for return receipt of your serial number; and the $325 fee. 

Note: While you are waiting for approval of your mark, document your use of the band's name through club listings, advertising, and any other evidence of your usage. Keeping a record will help you establish your rights in the name prior to official registration.