Part II: Four Basic Forms of Business for Artists and Others--Partnerships

This is a continuation of the series of blogs describing basic forms of business entities that artists and businesses use to conduct their professional activities.  I first described Sole Proprietorships in the previous blog.  The second major form of business entity is a Partnership.

    A Partnership is an association of two or more persons or entities that conduct a business for profit as co-owners.  I have had many clients fail to understand that they are doing business as a partnership and therefore subject to all of the laws governing partnerships, including state partnership acts.  If you are in business with someone other than yourself (a band, a duo, or any business owned by more than one person or entity), if your purpose is to make a profit, if you have not incorporated or formed an LLC—well then what you are doing looks like a partnership.  If it looks like a duck, walks like a duck and quacks like a duck—then chances are it is a duck!  And if it looks like a partnership, walks like a partnership and quacks like a partnership—then chances are it is a partnership.  It doesn’t matter what you call it—if you are doing business in a manner that meets the legal definition of a partnership then you are a partnership.  So what?  Well, you are governed by the laws of partnership—that’s what.  Except in Louisiana, a partnership is traditionally viewed as an association of individuals rather than as an entity with a separate and independent legal existence.  A partnership cannot exist beyond the lives of the partners. The partners are taxed as individuals and are personally liable for the debts of the partnership. Each partner can legally bind the partnership to legal obligations.

 So if one of your partners goes out on his own and purchases a new PA for the band, the partnership is liable for the purchase price.  Or—if the seller of the PA cannot collect from the other band members he can collect the entire price from you (maybe you are the only partner who has money). Hopefully you can get reimbursed by your partners, but as between you and the seller, you have to pay it all.  That is the law of partnership—the partners are jointly and severally liable for the debts and other obligations of the partnership.  Partners also own partnership property equally.  If you are operating a business as a partnership it is strongly suggested that you meet with your entertainment attorney and accountant to discuss whether or not you should form a corporation or LLC.  If not, then, at a minimum, if you are going to remain a partnership consider having a written partnership agreement.  There are many provisions of the partnership laws that can be changed or modified by a written partnership agreement.  And there are other matters that should be included in the agreement.  For example:  What is each partner’s percentage ownership of the business?  If the partnership ends, who owns or can use the name in the future?  How does one remove a partner from the business?  Are their any restrictions on a partner selling his or her partnership interest to someone else?  These are serious matters which should be resolved in advance.

In the entertainment business we hear a lot about “joint ventures”.  A Joint Venture is a cooperative business agreement or partnership between two or more parties that is usually limited to a single enterprise and that involves the sharing of resources, control, profits, and losses.  InTennessee, a joint-venture is treated as a partnership and, thus, the laws of partnership apply.  The reason is that it looks like a duck, walks . . . er . . . you know the rest.

[As in most matters legal, some states may have modified by statute the general laws of partnership so you should consult an attorney before acting on any information given in this blog.]

Four Basic Forms of Business for Artists and Others--Sole Proprietorships

This begins a series of blogs about business entities.  If you are doing business then your business is operating as a legal business entity of some sort—whether you intend it or not.  Two of the basic forms of business entities do not require that you do anything other than start doing business for their existence to spring into being.  The other two basic forms of business require that you do something in order for them to be created.  The reasons for operating as one form of business or another have to do primarily with factors such as tax considerations and personal liability issues.  However, often individuals are doing business as a Sole Proprietorship or a Partnership by default—that is because what they are doing falls within the legal definition of one of those entities, whether or not they have made a conscious decision to operate as that form of business.  The basic forms of business are:  Sole Proprietorship, Partnership, Corporation and Limited Liability Company.

Sole Proprietorship.  A Sole Proprietorship is a business owned and controlled by one person who is solely liable for its obligations.  I sometimes hear non-attorneys refer to this form of business as “a DBA”.  What they mean is a Sole Proprietorship.  As an example, solo recording artists who have not incorporated or formed an LLC are a Sole Proprietors (unless they have a partner in their career).  Many incorporate portions of their business (touring activities, for example) and continue to act as Sole Proprietors in other areas of their business (such as recording).  I have many business clients (personal managers, publishers and even independent record labels, etc.) who are operating as Sole Proprietors.  They just start doing business with no formalities.  They own the business and call all of the shots.  They are responsible for all of the obligations of the business and reap all of the profits as well.  In this form of business the law and the taxing authorities (IRS, etc.) do not distinguish the business from the individual who owns it.  All net income is taxed to the individual at his or her personal tax rate.  Should someone file a law suit because the business owes them money or because they were caused harm by the business, the owner (the Sole Proprietor) is personally liable for any recovery that the plaintiff might be awarded by the court.  In plain English that means that if you are a sole proprietor whose business owes a debt of $10,000, you personally are responsible for that debt from your personal assets (savings account, home equity, etc.).  Your creditor is not limited to the assets of your business for repayment—he or she can attach your personal property as well.

By the way—there is no such business entity as a “DBA”.  “DBA” is merely a shortcut abbreviation for “doing business as”—such as “PKA” (professionally known as) and “AKA” (also known as).  Any form of business (not just a sole proprietorship) can have one legal name but do business under a different name.  I have many corporate clients who are known to the public by a name different than their true corporate name. This might come about for a variety of reasons.  Often the sole proprietor, partnership, corporation or LLC has several different business ventures under one umbrella, each operating under a different name. Several years ago I owned an artist management company which was legally formed as an LLC under one name and later began doing business under another name.  My reasons were that the business originally used the last names of the partners.  When the identity of the partners changed we decided to begin using a name that did not identify the given names of the owners.  Rather than change the name of the business (which can be done) we decided to simply file the appropriate papers with the Tennessee Secretary of State and start doing business under our new name— in Tennessee the "dba" name is known legally as an "alias".    

Are you a solo practitioner?  Next in the series will be a few words about Partnerships.

For Aspiring Songwriters

My motivation for writing this blog is two-fold.  First, it is to be of service. Second, it is self preservation! Almost daily I receive emails from amateur songwriters either asking me to pitch their songs for them -- or asking me how to open doors and get their songs to successful recording artists.  The idea is that I can now refer them to this blog.  Following are my suggestions and answers for the as yet unpublished country songwriters:

1. I am not a song plugger and I do not know any attorneys who are.

2. Find a good song plugger in Nashville.  These people make a full-time career of opening the doors you want to enter.  If your songs are competitive then they will get them to the right people.

3. Meet the publishers, the producers, the a&r people, the artists--that means networking in Nashville and becoming a part of the natural flow of the industry.  I do not mean the online publishers that prey on songwriters.  I mean the real publishers in Nashville, LA, NY and in other smaller music industry pockets in the U.S.

4. Improve your craft and make connections by joining the Nashville Songwriters Association International -- and taking advantage of what they have to offer. I am not familiar with NSAI Chapters in other cities but I know they offer many priceless opportunities in Nashville.

5. Perform at writer's nights in Nashville.

6. Network in Nashville -- your goal is to get to know the publishers and other writers--writers who are more accomplished than you are at this particular time.  Perhaps you will be able to co-write with one of them and learn.

7. If you haven't already picked up on it, I strongly believe that if you are going to write for the country market then you need to spend a lot of time in Nashville.  My belief is not mere opinion -- it is the result of years of experience and observation.  Yes, you can find exceptions.  Maybe you are one. But this blog is for the rest of you.  It is about how to improve your odds.  If you cannot move to Nashville you can still make regular visits here.  Again, the idea is to increase your odds.  Go where the work is.  Go where the industry is.

I am sure there are many other good suggestions.  If you have any, then I invite you to share them by commenting on this blog.

Getting a Record Deal - Talent

Does it go without saying that Talent is a prerequisite for getting a record deal?  Or for success as an independent recording artist for that matter.  If you expect a record company to spend millions to help launch your recording career then you best have some talent or you won't get signed.  Talent is one of the required elements needed for a successful recording career -- and it cannot be bought.  Granted, you can improve on what you have with practice, experience, vocal coaches, etc.  But the raw talent needed to be a star is a gift.  

It is sad that there are so many hopefuls who do not have talent and do not recognize that they do not. The sad part is that it is often these good people who support the "fringe recording industry" in Nashville and elsewhere.  People who are willing to mortgage their homes (literally) to pay some "producer" to make recordings for them and help them become "stars".  There is no point in telling these folks that they do not have the talent to compete.  My experience is they do not believe me when I am honest with them.  And so far I have never been wrong.  They spend their money trying to buy stardom -- and without fail they lose their money.  I might not be able to pick who will be a great star -- really nobody can for sure.  But I am pretty good at recognizing those who do not have a chance.

There are hundreds of thousands of hopeful artists with good voices, tens of thousands with really good voices, thousands with great voices, hundreds with incredible talent and unique voices who will get signed, and of those, only a very few that that will be successful enough to keep their record deal for very long.  If you don't believe what I just said, come to Nashville for a couple of days and spend some time at the bars and clubs downtown and elsewhere.  These are the people who cannot get deals or haven't yet -- or who have had deals and didn't make it.  And if the implication is not clear, most are exceptionally good vocalists.  As a friend of mine says, "In Nashville, talent is the common denominator."  So -- if you have the common denominator then keep reading my blog for a few other requirements for success.

Pondering Purpose

I suppose it is better to ramble than to have no post at all for long periods of time.  So please forgive the unscholarly nature of this post--which includes a bit of rambling as I ponder my career purpose.

What I have been thinking about over the 4-day Thanksgiving weekend is the ways I can be of service to my clients and how I can fulfill my own needs at the same time.  Music is art.  Music conveys a message.  That message for me might be in the lyrics or just the mood, emotion, remembrance or other feeling it evokes.  Supporting artists who try to bring positive messages to their listeners is one way I can personally contribute, both as the attorney for these artists and their teams and as way of fulfilling my need to make a contribution.

I have been much more active this year in representing clients in faith-based music.  Specifically, the Christian genre.  Late last year I began silently sending out prayers of emotion and strong desire that I be allowed to support the songwriters, artists and business people of the Christian music industry.  My purpose was to help bring to music listeners a positive message -- messages of hope, faith, gratitude, freedom, celebration -- all of the positive words and thoughts I can come up with and then some.

The prayers were answered almost immediately with a phone call from a young artist who had offers from more than one recognized Christian label.  Since then my service to the Christian music industry has increased and continues to increase, with new clients coming on board regularly.  For me, service and giving have to be first.  Financial rewards follow.

Legal Fees

I've been thinking a lot about legal fees lately. Not how to get more of them -- but how to set fair fees that make sense to the client in terms of the value of the transaction that I am hired to participate in. I suppose this is on my mind in part because I have had two prospective clients take a step backward from employing me after I quoted fees.

The traditional method of attorney billing is hourly. The attorney keeps track of her time and bills the client based on total time spent. This is usually broken down to the tenth of an hour. I spend a lot of time clock watching when I bill this way -- mostly wondering if I am going over what is a reasonable fee for the project. Since I am a perfectionist and probably spend more time than the client would expect, I normally end up discounting my fees when I am billing by the hour. Usually the client doesn't know that I have done this.

Another way of billing legal work is to set fixed or "flat" fee for a project. This is by far my favorite method, but is a lot more difficult to do than hourly billing. When setting a flat fee I have to consider a lot of factors. Some are: (1) The amount of time I think the work will take. (2) The client's expectations. (3) The value of the deal I am working on for the client. (4) The client's budget for the project. (5) The client's ability to pay. (6) How much is the form I am beginning with worth? I have developed my forms for over 25 years. Honestly, what normally happens when I use flat fees is that I under estimate the time it will take. This is particularly true when I am called upon to negotiate deal points and the actualy agreement. Regardless of the negatives, I am commited to moving away from hourly billing and giving the client some certainty when it comes to legal fees.

Perhaps the better way is to present my fees as "unbundled packages". I have done this often. I try to break out the various steps involved in a particular legal representation, from start to finish, and assign a flat fee to each "unbundled" segment of the process. For example, representing a songwriter in a first time negotiation with a major publisher, some of the components might be: 1) Negotiation of major deal points and meetings with client re same 2) Review of first draft of agreement and discussions/meeting with client re same 3) Preparation of mark-up of first draft, first round negotiation and discussions with client and 4) Subsequent negotiations. I will price each of the forgoing stages separately. I will also give the option of one "all-in" flat fee which, if paid in advance, will be less expensive than purchasing the services in four phases.

I think the important thing for me and my clients is that I stay committed to the process of billing fairly in a manner that gives the client certainty of costs prior to engaging my services. If this is of interest to you, check out Chris Marston's blog.

The Long Tail Debate

Have you been reading at all about "The Long Tail"? This is the title of Chris Anderson's new book which basically espouses the idea that while traditional marketing outlets are limited by shelf space and thus only offer the consumer a relatively small number of "hits," websites such as iTunes, Rhapsody and Amazon.com can carry a much greater number of slower-selling items. These non-hits, which make up the "tail" of the title, can add up to a big number -- maybe even bigger than sales of the hits. Check out this article by Anderson for an excellent explanation of his theory. Then for for a good start on understanding the debate surrounding Anderson's theory be sure to read Lee Gomes' criticism of ideas espoused in "The Long Tail" and Anderson's blog rebuttal. Certainly the idea of increased sales of tracks by lesser known recording artists, including independents, is an attractive one. Perhaps an idea whose time is rapidly approaching--even if not quite here yet.

Giving the Artist the Right to Release Old CDs

This week's Billboard (May 17, 2005) reports that there is growing support for a compulsory license that would allow recording artists the right to self-release their master recordings if the record label that owns them has no plans to do so. More specifically, if the record label that owns the masters does not press and sell physical copies of them through normal retail channels in the U.S. for a period of two years (whether or not the recording has been commercially released and distributed in the past), then the recording artist who created the recording(s) would be able to apply for (and presumably obtain) a compulsory license to release the recordings himself or herself. The artist, of course, would be responsible for paying any third-party royalty recipients (e.g., AFM, publishers, etc.). Further, the artist will pay a license fee to the record company. This sounds like an idea whose time has come, although I expect that labels will resist this primarily because it will increase the workload of already overworked legal and licensing departments.

It's Their Fault!

Ok--time for a bit of a rant and rave. I look at wannabe songwriter and artist message boards frequently and occasionally post. My rant today is that so many of the writers and artists who don't have deals--or have had deals and not achieved sales success--always want to blame some person, place or thing other than themselves. When in fact it is probably just that negative finger pointing attitude that is their main problem to begin with. Today I read a post at a songwriting forum by a poster who insisted that you have to be an established insider and a writer-artist to have a chance at getting a song cut in Nashville. Here's my reply to that post--plus a little bit more:

Unestablished writers get signed all the time. Some make it and some don't. Here's one example that quickly comes to mind. I represent Kelley Lovelace. I represented him when he signed his FIRST writer deal with a major about 5 years ago. To the best of my knowledge he had had no cuts--certainly no hits. Being a songwriter was not his primary source of income at that time. So he was one of those unproven writers--not "established". Some of the hits he has written since then are "Didn't Have To Be" (Brad Paisley), "Girls Lie Too" (Terri Clark); "The Impossible" (Joe Nichols), "Two People Fell In Love" (Brad Paisley). There are more. Kelley was an unknown when he signed his first deal. But he had spent time learning his craft and networking. There are many, many more who get in the door and don't get signed because they don't have the talent--and/or the honed skills. Creativity and talent is not enough. Learning and perfecting the craft is critical. And by the way--Kelley is not an artist--neither are most of the writers I represent. One of these days I will see a post where a writer says something like "I can't get a hit because I'm not good enough yet!" instead of blaming the industry, or the color of the sky, or whatever.

That's my rant and rave for today!