Artists, Musicians, Bands: Protect Your Personal Wealth through a Virginia Limited Liability Company

Many artists, musicians, and bands work to build their name, brand, and network the same way any business would.  When analyzed from a legal prospective, many of these same artists, musicians, and bands are working under an assumed or fictitious name and often operate as either a sole proprietor or, in the case of bands with multiple musicians, a partnership or, at the very least, a de facto partnership. In Virginia, whether you operate as a sole proprietorship or partnership, no person or partnership shall conduct or transact business in Virginia under any assumed or fictitious name unless such person or partnership signs and acknowledges a certificate with the statutory requisite information. See Virginia code § 59.1-69. Failure to comply with this statutory requirement may result in a fine of up to $2,500 or up to a year in jail, or both.

A sole proprietorship is a type of business entity with a single individual owner, whereby there is no legal distinction between the owner of the organization and the entity itself, meaning that the owner is personally liable for all debts and obligations of the company. A partnership is a type of business entity that includes the association of two or more persons to carry on as co-owners of a business for profit. This can occur whether or not the persons intend to form a partnership. See Virginia Uniform Partnership Act § 50-73.79 et al. A de facto partnership is when two or more persons appear to operate as a partnership, but have not officially established themselves as a partnership. In either partnership scenario, absent some written agreement, generally all partners are liable jointly and severally for all obligations of the partnership, meaning each partner is personally liable for all debts and obligations of the company (and the other partners), with some exceptions.

As a result of the exposed liability, especially to personal wealth, it is much better practice and protection for an artist, musician, or band to create a formal business structure to assume liability for their decisions. A Virginia Limited Liability Company (“LLC”) can help satisfy this objective. An LLC is owned by its members and is operated by either its members or one or more hired managers. In Virginia, no member, manager, organizer or other agent of a limited liability company shall have any personal obligation for any liabilities of a limited liability company, whether such liabilities arise in contract, tort or otherwise, solely by reason of being a member, manager, organizer or agent of a limited liability company. See Virginia Limited Liability Company Act § 13.1-1000 et al.

On its face, setting up a Virginia LLC and obtaining its tax identification number (TIN) in the form of a federal employment identification number (EIN) is a relatively simple process. However, there are many legal considerations that organizers fail to take into account when filing the necessary paperwork. Such considerations include the name of the organization, which may have costly trademark law implications; selecting the appropriate type of physical office address, as PO boxes and UPS boxes are not acceptable due to statutory requirements; selecting a proper registered agent, as some agents do not forward extremely important legal and tax correspondences; and electing the appropriate tax structure, as an LLC can elect several different tax options including applying for IRS Subchapter S treatment. Consequently, it is important to consult with an attorney knowledgeable about LLC organizations, business tax implications, and intellectual property considerations.

Artists, Authors, Musicians: Be Wary of a Copyright Assignment or an Exclusive Copyright License

It’s an important day when an artist signs his first artist agreement, when an author executes her first publishing contract, or when a band strikes their first record deal. It’s even more important that the creative parties signing these agreements understand what rights they may be giving away. Too often creative parties realize after it’s too late that they have effectively transferred almost all rights in their work and even in future works.

Under Section 204 of the Copyright Act, a transfer of copyright ownership, other than by operation of law (including but not limited to corporate mergers, bankruptcy, foreclosure, court order, and intestate succession), is not valid unless an instrument of conveyance, or a note or memorandum of the transfer is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent. 17 U.S.C. § 204. Consequently, a publisher, studio, or producer, will often incorporate language into a contract that transfers all intellectual property rights and copyright rights in a work away from the creative party. Sometimes, the non-creative party will do this in the form of an exclusive license, which many times has the same effect of a copyright assignment.

Sometimes, agreements that provide for the transfer of or exclusive rights to such rights also include language that expressly states that all future works created by the creative party are considered a Work-Made-For-Hire and that if necessary, the creative party agrees to sign additional documents assigning or exclusively licensing their rights in the copyright of the work. A Work-Made-For-Hire means essentially as it sounds, in that the creative party is an employee of an organization and it is his or her job to create the specific type of work being commercialized or that the creative party has been specifically commissioned and hired to complete a specific piece of work, but not in an employer-employee relationship, but rather in an independent contractor role. In either case, the non-creative party is seeking and asserting ownership or exclusivity in all rights in the copyright for all future works before they are even created.

It is highly recommended that a creative party, whether author or singer, retain a skilled lawyer to review any contract that poses a threat to the ownership or rights in the copyright of a specific work or future works. It is not always a bad thing that these rights are transferred or exclusively licensed, but such rights should be understood by the creative party in the context of the overall agreement in order to provide the creative party with an exit strategy in case the relationship between the parties doesn’t work out. An artist, author, or singer, often spends his or her entire life trying to ‘catch a break’ or ‘make it big’ or ‘break out’, why not spend the time and minimal expense to protect what took in some cases a lifetime to achieve?