Publishing Your Music

Legal Disclaimer

While entertainment law is not rocket science – it can quickly get complex.  Hopefully this article will help you stay out of trouble by providing enough information to allow you to ask the right questions.  To cover all these topics in this article I’ve played fast and loose with some complex legal issues so do not rely on this article for legal advice.  Check out the books I’ve listed and talk to more experienced musicians.  And if you’ve got questions regarding these issues, contact an attorney familiar with entertainment law, your state law, and your particular situation.

    OPERATING AGREEMENT

of

The (Band Name) Limited Liability Company

SECTION 1

   Name, Place of Business, Term, Initial Members

            1.1  Name.  The name of the Limited Liability Company (LLC) is ______________________.

             1.2  Principal Place of Business.  The principal place of business of the LLC is _________.

             1.3  Term.  The LLC begins on the date of filing its Articles of Organization with the Secretary of State, and continues until dissolved by an act specified in Section 9 of this Agreement or a date or act specified by the LLC's Articles of Organization.

             1.4  Initial Members.  The initial Members of the LLC are____________________________.  The Initial LLC Percentages of the initial Members are ________% each.  (Note: Or as otherwise agreed.  E.g., maybe the main writer/singer gets more.  Or maybe the soundman who put in $4K of his own money receives more until his extraordinary expenses are recovered. This section could also cover how much each member receives from any particular gig.  However, I have also included a section at the end regarding income and expenses.  Other issues such as booking fees or expense reimbursement may be handled in this document as agreed to by the members.)

SECTION 2

   Purposes of the Business

             The LLC may engage in the business of entertainment and in any other lawful business upon which Members may agree.

SECTION 3

   Management

             3.1   Management.  Each Member has a vote in the management and conduct of the LLC business.  (Again – Or as agreed see the Note in section 1.4)

             3.2   Vote Required.  If this Agreement does not specify the amount of the vote of the LLC Percentages that is needed to make a decision, the decision may be made by an affirmative vote of all the Members.

SECTION 4

   Deadlock

             4.1 General.  If the Members are divided on any aspect of the management of the property, business and affairs, and the deadlock is preventing action or non-action by the LLC, then the LLC may submit the deadlock to mediation in accordance with section 4.2

             4.2  Mediation.  If the Members are unable to resolve the deadlock itself, upon written request of Members owning 50% of the LLC Percentages, the Members agree to submit the dispute to mediation and the following guidelines shall apply:

            (a)  The Members agree to have the dispute mediated by a mutually acceptable mediator.

            (b)  The Members agree to follow the mediation procedure selected by the mediator.

            (c)  Mediation shall terminate upon the written request of the mediator or Members owning 50% of the LLC Percentages.

SECTION 5

   Dissociation

             5.1            Events of Dissociation.  A Member ceases to be a Member of the LLC upon the happening of one of these events of dissociation:

            (a)  receipt by the LLC of notice of the Member's express will to withdraw as a Member

(b)  the Member's death;

            (c)  the entry of an order by a court of competent jurisdiction adjudicating the Member incompetent to manage the Member's person or estate;

            (d)  the Member's expulsion by a vote of the remaining Members owning 50% of the LLC Percentages if:

(i)  it is unlawful to carry on the LLC business with that Member;

            (ii)  the Member is convicted of a felony committed against the LLC or involving the LLC business;

            (iii)  subject to the contrary written consent of all Members at the time, a Member voluntarily or involuntarily transfers that Member's Membership Interest in the LLC in violation of this Agreement or the Montana LLC Act.

             5.2     Purchase Price.  Members not dissociating (Remaining Members) may elect that the business of the LLC be continued by the Remaining Members.  This election must be made within 90 days of the date of dissolution by a unanimous vote of all of the Remaining Members.  If an election to continue is made, the Member or the estate or legal representative of the Member causing the dissociation (Dissociated Member) shall be paid the following amount to be determined, unless otherwise stated, as of the date of dissociation.

            (a)  the Dissociated Member’s share of the value, at the time of dissociation, of any equipment purchased by the LLC; and

            (b)  the Dissociated Member’s un-recouped contribution to any recording project undetaken by the LLC.

            5.3  Terms of Payment.  The purchase price specified in Section 5.2, if positive, will be paid within 120 days of dissociation.  The Remaining Members shall determine if the payment will be made by cash or by a promissory note drawn on the LLC.  The promissory note will provide for equal monthly payment of principal and interest at the rate of 12% per annum.  Such payments will be paid over a period of 12 months, starting with one month after the date of the promissory note.  The promissory note will provide for no prepayment penalty and will be immediately due and payable if there is a failure to make a timely payment of principal or interest and such payment is not made within 20 days of the date written demand to make payment is received.

            5.4  Continuation of LLC.  In the event the LLC purchases the interest of the Dissociating Member pursuant to the unanimous vote of the Members, then the Remaining Members agree to continue the LLC under the terms of this agreement, except that their LLC Percentages will be increased on a pro-rata basis as of the date of dissociation.  The Dissociated Member will have no rights, except those specified in this Section, as of the date of dissolution if the Remaining Members elect to continue the business.  In the event that the Remaining Members do not unanimously elect to continue the LLC, then the LLC will be wound up in accordance with Section 7.

SECTION 6

    Assignment

            6.1  General Rules Regarding Assignment.  The rules in this Section govern the assignment of a Member Interest.

            (a)  a Membership Interest is assignable in whole or in part;

            (b)  an assignment entitles the assignee to receive, to the extent assigned, only the distributions to which the assignor would be entitled;

            (c)  an assignment of a Membership Interest does not entitle the assignee to participate in the management and affairs of the LLC or to become or to exercise any rights of a Member;

            (d)  an assignee may not become a Member, except upon the unanimous consent of all Members;

            (e)  until the assignee of a LLC Interest becomes a Member, the assignor continues to be a Member and to have the power to exercise rights of a Member, subject to the Members' or LLC's right to remove the assignor pursuant to this Operating Agreement.

            6.2  Pledge of Membership Interest.  The pledge or granting of a security interest, lien, or other encumbrance in or against any of the Membership Interests of a Member is not an assignment and may not cause the Member to cease to be a Member or to cease to have the power to exercise any rights or powers of a Member.

SECTION 7

   Dissolution

            7.1 Events of Dissolution.  The LLC is dissolved upon the happening of one of the following events:

            (a)  at the time or upon the occasion of events specified in the LLC's Articles of Organization;

            (b)  a dissociation pursuant to Section 5.1 and no election has been made by the Remaining Members to continue the business pursuant to Section 5.2;

            (c)  all of the Members consent to a dissolution;

            (d)  the entry of a decree of judicial dissolution.

            7.4  Articles of Dissolution.  Upon the dissolution and the commencement of winding up of the LLC, the LLC shall file Articles of Dissolution with the Secretary of State.

            7.3  Procedure.  Upon dissolution, the affairs of the LLC will be wound up upon dissolution by liquidating the assets of the LLC.  The liabilities of the LLC will rank in order of payment as follows:

            (a)  Those owing to creditors including Members, other than liabilities to Members for distributions pursuant to Section 5.

            (b)  Those owing to the Member pursuant to Section 5.

Any remaining funds or assets, including those discussed in Section  7.4 if applicable, will be then distributed to the Members in accordance with their LLC Percentages.

            7.4  Rights to the Name “_______________”.  In the event of dissolution, the Members agree that the right to use the name “_________________” belongs to the Member who bids the highest price for its use.  Any money generated through this bidding process will be disbursed as provided in Section 7.3.  (Note: Or as otherwise agreed.  E.g., if one member is the undisputed leader that member may be awarded the rights to the band name.  Watch out for trademark implications.  If the name is registered, who has it?)

SECTION 8

   Members' Powers and Limitations

            10.1  Bank accounts--checks.  The LLC may maintain a bank account in such bank as it selects.

            10.2  Acts Beyond Powers of Member.  No Member may, without unanimous consent:

            (a)  dispose of the goodwill of the LLC or convey, encumber, or lease any other asset of the business outside the ordinary course of business;

            (b)  cause the LLC to be converted to another form of business entity;

            (c)  do any act which would make it impossible to carry on the ordinary business of the LLC;

            (d)  cause the LLC to be merged with another business; or

(e)    cause the admission of a new Member.

SECTION 9

   Indemnification

            9.1  Mandatory Indemnification.  Subject to Section 9.2, the LLC shall indemnify a Member for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which an individual is a party because the individual is or was a Member.

            9.2   Limitations on Indemnification.  The LLC may not indemnify a Member from liability for

            (a)  the amount of a financial benefit received by a Member to which the Member is not entitled;

            (b)  an intentional infliction of harm by the Member on the LLC or its Members;

            (c)  an intentional violation of criminal law by the Member; or

            (d)  an unlawful distribution by the Member.

SECTION 10

   Miscellaneous

            10.1  Books and Records.  The LLC shall keep at its principal place of business:

            (a)  a current list in alphabetical order of the full name and last known business street address of each Member;

            (b)  a copy of the Articles of Organization and all certificates of amendment to them, together with executed copies of any powers of attorney pursuant to which any certificate of amendment has been executed;

            (c)  copies of the LLC's federal, state and local income tax returns and reports, if any, for the three most recent years;

            (d)  copies of any financial statements of the LLC, if any, for the three most recent years; and

            (e)  a copy of this Operating Agreement and any amendments thereto.

            10.2  Annual Meeting.  The Members shall meet annually at noon on the last Sunday of each year at the principal place of business of the LLC.  They may meet at such other times as the Members owning 20% of the Membership Percentages specify in a written notice mailed or personally delivered to each Member at least five days before the meeting.

            10.3  Amendment.  The Members may amend this Agreement upon execution of a written amendment signed by all of the Members.

            10.4  Fiscal Year.  The LLC's fiscal year shall be a calendar year.

            10.5  Governing Law.  This Agreement is governed by the laws of the State of Montana.

            This Operating Agreement is signed on __________________________.  

Note:  I usually get a Legal Service Agreement signed by all the members before I create the LLC.  Therefore, I am working for each member (and in some jurisdictions - also the LLC.)  This means that  I cannot represent any of the members against another member should a problem arise within the LLC.  I can however continue to represent the LLC should external problems arise.  Each member is counseled to get their own attorney (this has never happened).

The biggest challenge in drafting these documents is assisting in the negotiation process.  Most bands have not thought about many of these issues and do not understand the options or the potential consequences.  Some bands get very nervous when you start talking about who writes, who sings, should one player get more money, can you (and how do you) kick somebody out of the band, etc.  I see my job as explaining the potential problems, identifying options and their resulting consequences, and then let the members decide.  I have had some bands actually break up as a result the LLC formation process but it was probably headed there anyway.

Remember, Operating Agreements and Partnership Agreements must conform to specific state law requirements.  Please check the specific requirements in your jurisdiction.

Other Sections That May Be Needed.

Copyrights, Performing Royalties, and Publishing

            _.1  Copyrights.  Each member holds the copyrights as described on attachment A.  As new songs are written Attachment A will be updated, and signed and dated by the members.  The most current version on Attachment controls over all previous versions.

            _.2  Other rights.  Performing royalties and publishing rights are as described in the registration documents on file with the LLC’s performing rights organization.

Contributions to Capital and Assumption of Liabilities

             _.1        Capital Accounts.  (a) Each initial Member shall contribute the property listed in Exhibit A to the Limited Liability Company.

             (b)            Each Member has an individual Capital Account.  The amount of the Initial Capital Account of each Member is set forth in Exhibit A. 

             _.2        Assumption of Liabilities.  (a)  The Limited Liability assumes the liabilities of the initial Members described in Exhibit A.

             (b)            Neither the Limited Liability Company nor the Members assume any liabilities not described in Exhibit A.

             _.3        Warranty of Members.  Each Member represents and warrants to the Limited Liability Company and to each other that the Limited Liability Company has good and marketable title to the property contributed pursuant to Section 3.1(a) and described in Exhibit A and that the property is free and clear from all encumbrances at the time of contribution, except for those encumbrances relating to those liabilities specifically described in Exhibit A.

            _.4        Limitation on Withdrawal.  Except by unanimous vote of the Members, Members may not withdraw from the Capital Accounts or add to their Capital Accounts. 

             _.5 Additional Contributions. No Member shall be obligated to make any additional contributions to the Limited Liability Company Members.

Profits and Losses

             _.1        Income Account.  There is an Income Account for each Member.  The amount of the Initial Income Accounts of the initial Members are set forth in Exhibit A.

             _.2        Allocation of Net Profits and Losses.  In accordance with generally accepted accounting principles, the Limited Liability Company's accountant or bookkeeper shall determine Net Profits or Losses of the Limited Liability Company as of the close of each fiscal year.  The Limited Liability Company's accountant or bookkeeper shall allocate the Net Profits and Losses to each Member's Income Account in accordance with their Limited Liability Company Percentages as of the close of each fiscal year.

             _.3        Withdrawal from Income Accounts.  Withdrawals from the Income Accounts are limited to an amount determined by the Members owning a majority of the Limited Liability Company Percentages.  The Members owning a majority of the Limited Liability Company Percentages may determine an amount of Required Balance per Limited Liability Company Percentage.  Any amount in a Member's Income Account below the Required Balance may not be withdrawn except by unanimous vote of the Members.

             _.4        Interest.  As of the first day of each fiscal year, the Limited Liability Company's accountant or bookkeeper shall credit the balance in each Member's Income Account with interest at the prime rate stated in the Wall Street Journal on the last business day of the prior year.