So you wanna be in a rock band?: The business of being in a band
As I stated before, when money gets involved, everything changes. Thus, creating a band contract is not only a good way to protect everyone's rights and contributions, but as well, can serve as a means to avoid conflicts about profit-sharing in the future if they do rise (and they will). Although costly, I highly recommend involving a lawyer to ensure that your contract is legally sound.
Your band contract should outline the following: Everyone's responsibilities and/or roles within the band: not only is it pertinent that each member's musical role is expressed, but as well, any management functions taken on by members need to be mentioned.
Second, it's important to establish both songwriting shares as well as song ownership. Often these categories overlap as the greatest percentage in both respects is usually accorded to the member who contributed the most. Songwriting shares refer to the division of royalties for song publishing (i.e. when a track is selected to be used on a movie soundtrack, royalties are allotted to the composer each time the track is played).
Thirdly, continuing on the subject of compensation, a system of profit-sharing needs to be devised to establish the division of funds produced from the sale of merchandise, and cds, as well as the division of gig earnings. Within this section, it is important to note that no profit-sharing should take place until all debts incurred are paid off. Furthermore, a contingency plan should be put in place in the event that the band remains unprofitable. If investors are involved (a subject which I will address later), it is essential to mention that a ) they will be paid off first and foremost and b) if the band remains unprofitable, no member(s) will be held accountable for the investor's financial losses. All remaining assets, if any, are to be divided accordingly to each member's contribution.
Last, but not least, ensure that you include a clause which outlines the appropriate measures to be taken if for any reason a band member is terminated from the group, and/or if a band member chooses to resign from their position. Behaviours that would result in expulsion from the group must be explained.
Regarding the latter, your agreement should also outline a member's entitlement if they willingly chose to leave the group.
These and all of the aforementioned parameters are up to your discretion, but above all, ensure that all members understand, and agree to comply with the contract. Provide each member with a final copy that is signed by everyone, a witness, and your lawyer.
Along with establishing a band contract, it is necessary to create a band fund to which all members contribute equally and regularly. A band fund is used to cover travelling expenses, merchandise/cd manufacturing, recording and production expenses, promotional fees, and any unexpected costs that come up along the way.
Initially, a system should be in place that requires each member to contribute a nominal amount on a weekly basis: $15 is usually a good starting figure as it is quite manageable, and as well, it will add up quickly. Weekly contributions should continue until the band is able to self-generate funds either through merchandise sales, and/or gig compensation. It may however, be in your best interest to continue weekly contributions as often unanticipated costs come up, promoters fail to follow through with their promises, and there will be many times your band plays show in which your expenses outweigh the profits. Thus, being prepared for the worst case scenario is always a great piece of advice.
As all members of your band have a stake in its future, it is only fair that everyone contributes in each aspect. I've witnessed many bands fall apart due to a member being disgruntled because they have taken the onus upon themselves to pay for all the merchandise, and gas expenses, yet their fellow members expect gig money to be divided evenly. This is a system that will undoubtedly merit problems in the future, and if I can offer you only one piece of advice that you chose to heed, let it be this: do not under any circumstance divvy up money after shows.
Let's say you have a four piece act, and you get paid $50 for a show. If you chose to divide this money, that would mean each member would earn $12.50 for their time. Most likely, if the division of money takes place directly after your performance, these funds will go towards buying a few drinks. The problem with this scenario is that the big picture is not being realized. Twelve dollars may not be a large sum of money individually, but $50 collectively could determine whether or not you are able to accept your next out-of-town gig offer. So long as all members maintain jobs outside of the band that assist them with covering their own personal expenses, this system should work quite effectively.
To most musicians, I'm aware that the notion of creating both a band contract and a band fund sound as though I'm speaking in a foreign language, but trust me on this one, it is necessary, and you will thank me for the suggestion.
In my first group, neither of these ideas were implemented. Consequently, it not only lead to frequent problems, but as well, it resulted in one of the messiest breakups that I've ever encountered (note of course that I'm including all of the idiots that I've dated in that analogy).