The Internal Group Contract between the members of a band is fundamentally important but many musical groups ignore this crucial early step. When two or more people associate for the purpose doing business, they create a partnership in the eyes of the law. General partnership law applies to the association unless a written agreement states otherwise. General partnership law provides, among other things, that all partners equally own partnership property and share in profits and losses, that any partner can bind the partnership and that each partner is fully liable for the debts of the partnership. In the case of most musical groups, a written agreement setting forth the arrangement between the group members as partners is preferable to general partnership law.
A Group Contract can address issues such as who owns the group name (and whether and in what capacity a leaving member can use the group name), who owns what property (including not only sound equipment but intangible property such as recording agreements and intellectual property such as the songs and the recordings created by the group), and how profits and losses are divided. Since it almost goes without saying that members of a band inevitably leave and groups inevitably disband, it is important to structure an interband agreement in the early stages of a career. It will function like a prenuptial agreement when matters start to disintegrate and make the break-up process less painful.
Some bands may deal with this agreement among themselves and some bands may have their lawyer prepare a basic interband agreement. If it is a fairly equal partnership where all members are writing and performing and sharing equally, it is a fairly simple process. However, where some members are songwriters and others are not and where one member claims ownership in the name or another makes significantly larger financial contributions than the others, it can become a complicated process. If the band cannot work it out among themselves, they can either sign a conflict waiver permitting the group's attorney to act solely as scribe (and not as advisor) or each member of the group may need to get his or her own lawyer to protect each respective member's interests. Like it or not, as artistic and creative as forming a band can be, this is a business and it is wise to recognize that and deal with it. These interband issues are better dealt with at the beginning when everyone is optimistic and excited rather than later when tempers flare and bitterness pervades as egos clash.
A typical Internal Group Contract will address certain fundamental group issues. One important issue is who owns the group name if one member leaves or if a group dissolves which group of members are entitled to use the name. Under partnership law the partners would be the owners of the name and any member would probably be permitted to use the name (or maybe no members would be allowed to use the name once the partnership is deemed dissolved). Trademark rights are determined based on the "use" of a mark (not on who thought of it) so each of the members of the group would be an equal co-owner of the group name under trademark law. The end result under either partnership law or trademark law might be impractical.
In most cases, the Internal Group Contract will state that if a particular founding member thought up the group name then only a group comprised of that member and at least one other member can use the name. This will apply whether one other member leaves or if the group disbands and only the founding member and one other reform the group. There are as many different ways this provision can be drafted as there are different group names. When a group member leaves, the remaining members are going to want to keep the group name and are not going to want the leaving member to dilute its value or confuse the public by using it in any way. The Internal Group Contract provision may say that a leaving member cannot use the name at all or that the leaving member can only mention that he was "formerly" a member of the group (provided that such credit is printed smaller than the member's name or his new group's name, etc.).
Rights in the group name may also concern revenues in addition to the use rights, specifically as they concern merchandise (e.g., hats, t-shirts, calendars and other products and paraphernalia). The Internal Group Contract will have a "Buy-Out/Pay Out" provision which would deal with this financial aspect of the group name.
The Internal Group Contract will need to contain provisions regarding the sharing of profits and losses. One provision may pertain to revenues earned during the term while each member is in the group and another may pertain after the departure of a member or the demise of the group. In most cases, a new group will have a provision that all profits from the group are shared equally between all members with an exclusion for songwriting monies (which each of the respective songwriter members would keep). Where an established group adds new members the provision may provide that a new member gets a smaller percentage than the founding members.
However, in most cases, during the term there is not a problem determining appropriate revenue shares.
The more complicated problem of revenue division arises after a member departs. The agreement may provide that the leaving member is entitled to his full partnership share of profits earned during his tenure but a reduced percentage (or no percentage) of profits derived from activities after his departure - or the agreement may provide for a reduced percentage for a short period of time after departure (e.g., 90 days) and then nothing thereafter. This is an easier issue to remedy as it relates to live performances and sales of merchandise during those performances than it is as it relates to record royalties. The group needs to determine what happens, for example, when a group member performs on 3 albums but leaves before the fourth album is recorded. Although it might be acceptable to refuse to pay the leaving member any royalties on the fourth and future albums recorded by the group under the record contract the leaving member signed as part of the group, it might not be fair to refuse to pay that leaving member his share of royalties from the 3 albums that he did record with the band. Of course, this might vary depending on whether the leaving member quit or was fired.
Another important financial issue is the question of the leaving member's share of partnership property such as band recording equipment or a sound system. Again, the agreement might specify a monetary payout to the leaving member if he is terminated but a forfeiture if the leaving member quits. If merchandise with the leaving members name and likeness still in inventory is sold after the member leaves a decision will have to be made about whether and how much the departed member might receive for the use of his name and likeness.
The issue of control is also very important to deal with in Internal Band Contracts. In most cases, each member will have an equal vote and a majority will rule. However, as in the sample agreement at the end of this article, a particular, important member may have two (2) votes and the manager may have a tie-breaking vote. The agreement may also provide that certain matters such as requiring financial contributions from group members or incurring debts on behalf of the band require a unanimous vote. Again, there are endless variations including situations where a particular member makes all of the decisions or where new members do not have a vote on band business. One interesting interband arrangement was that of The Beatles. In answer to that age-old question, "no", Ringo did not get less. In fact, my understanding of their arrangement was that it was what might be called a reverse democracy: each member had one vote but if any member voted against doing something then the band would not do it. In other words, their arrangement required unanimous consent to proceed with an activity.
Another issue of control that must be decided for the Internal Group Contract concerns the hiring and firing of band members: how votes are calculated (e.g., will each member get one vote or wil a particular member's vote count double) and how many votes are needed (e.g., a majority or a unanimous vote) to fire a group member and/or hire a new member. In most cases, a new member voted into the group will then be required to sign on to the Internal Group Contract. It must also be decided how to vote on any amendments to the Internal Group Contract since this may materially effect the relationship between the members after the group has started. In most cases, a majority vote will be deemed determinative but some members may prefer a unanimous vote on such things as amending the agreement (as well as hiring or firing). This will have to be decided between and among the members of the group.
Finally, the Internal Band Contract should contain a comprehensive Buy-out/Pay-out provision that deals with departing members. In most cases, whether the leaving member quits or is fired the agreement will provide that the leaving members waives all rights in the intangible assets of the partnership (e.g., the group name, the group contracts, etc.). If the member quits, he might waive any right to and benefit derived from the hard assets such as band sound equipment. If the leaving member is fired, the agreement might provide that he or she is entitled to the pro rata percentage of the current value of the hard assets. With respect to this payout, the Internal Band Contract may provide that if the valuation exceeds a certain amount (e.g., $25,000.00) or would put the partnership in financial distress, the payout would be in a certain number of equal monthly installments (e.g., over 12 months).
Again, this Buy-out/Pay-out provision can be as simple or as complicated as the band members deem necessary. There are as many variations in this as there are differences in personalities between the members of a group. Each member and each group must find its own balance.
Interband issues and disputes are many and varied. Recently, a member of the Eagles sued the remaining members saying he was forced out of the Eagles corporation by the other shareholders (and invoked provisions of the California corporate law pertaining to minority shareholders in close corporations). Years ago an ex-member of The Black Crowes sued his former band mates claiming that he was entitled to an equal share of all the money they made after they threw him out of the band. His contract claim was based on nothing more than a pie chart drawn on a napkin. Years before, while eating at a dinner after a band rehearsal, each member had signed his name on his slice of the "pie" drawn on the napkin allegedly agreeing that they would stay together and share all of the money equally come what may. Of course, when circumstances changed the fired member used that napkin to assert his rights.
It is difficult to form a good band and to achieve a successful career in the music business. Any group of two or more musicians working together would be well-advised to create and sign a good Internal Band Contract so that the band does not later
self-destruct over money and ego issues and forfeit its hard-earned career success. In a perfect world, each member could afford its own lawyer to quickly and inexpensively prepare and sign such an agreement. In the real world, that may not be the case. In any event, the attached basic form of Interanl Band Contract would be a good starting point.
Wallace E. J. Collins III, Esq.
250 East 39th St. (Suite 9K)
New York, New York 10016
Tel: 212 661-3656
Email: Wallace Collins