Specimen Group Member or Partnership Agreement
Published: 08 October 2020 | 11:38 AM
Updated: 20 January 2021 | 12:48 PM
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Although many will not realise the fact, and indeed most will not have bothered to consider the point, most groups are, as a matter of law, partnerships. The legal definition of a partnership is two or more individuals carrying on business in common with a view to profit and provided that the members of any group are sharing income and/or debts then the broad view is that they are in partnership. The reason that this is of significance is that where there is no written agreement (and sometimes even where there is) partnerships are governed by the Partnership Act of 1890 which is, unsurprisingly, not a statute that was framed with the running of groups at the forefront of the late Victorian parliamentary draftsman’s mind. Although partnership law has in recent years been the subject of review by the Law Commission the recommendations as to its reform were not taken forward and so and it is unlikely that any changes to the Partnership Act 1890 will be made for some time.
In the absence of any agreement the following will apply to a Group under the Act:
1. Each member of the group is individually liable for all group debts and not just for his share.
2. Each member of the group is liable for debts arising while he is a member of the group but not for any debts becoming due after he leaves.
3. All partnership equipment will belong to the partnership and not to any member. You may therefore find your own equipment becomes a group asset when you join, and not yours to take away if you leave.
4. Any member of the group has the authority to bind the rest of his partners and to incur debts in the name of the partnership. Accordingly it is in every group member’s interest to know what the other members are doing in the group name and to agree what they are allowed to do without telling the others.
5. Any member can leave the group or be sacked at any time without notice. This may prove problematic if a major tour has just been set up. The leaving of a member will automatically dissolve the partnership and that leaving member is entitled to wind up the partnership’s affairs to force a distribution of the assets.
6. The group name will be treated as one of the assets of the partnership and is owned by all of the members of the partnership equally. This can, and has frequently, led to situations where all of the former members of a group try to use the name for their own groups which causes confusion and dispute and can irritate fans.
7. Any income earned by members of the group from musical activities outside the group is likely to be treated as group income and be liable to be shared accordingly.
It might be that group members are content that one or more of the above should apply but, for the sake of certainty it is always sensible to have some form of written agreement in place. It is also possible for the nucleus of the group to be in partnership and to arrange matters so the partnership employs or contracts other players as necessary e.g. to play live. The contractual arrangements need to be clear and unequivocal if the other players are not to claim they are also your partners.
The following is a brief explanation of the key clauses of the specimen Partnership Agreement. It is not however a comprehensive treatise on such agreements and does not replace the need to get independent legal advice on any agreement you thinking of signing as there are almost inevitably going to be particular circumstances which need to be addressed. It is also sensible to ask your accountant to check out the tax implications of any partnership agreement.
Clause 2: Group Activities
This clause deals with some of the major decisions that Groups are likely to have to make and provides that they should be made by unanimous decision. It may be that this is not right for every Group but can easily be varied so as to provide for majority decision making or even leaving all the decisions to one member. Most Groups tend to break this down into two categories. First, the most important decisions such as appointing new members for which unanimous agreement is required, and the second being “day-to-day” decisions which are often made by a simple majority of members.
Clause 3: Non Group Activities
This clause deals with how members are to regulate work that they may get outside of the Group but, importantly, provides that such work shall not be undertaken if it would interfere with the member’s commitments to the Group, compete with the Group or be in breach of any third party agreements, such as commitments under a record contract.
In many agreements for Groups where songs are only written by some of the members this clause will provide that songwriting should not be considered a partnership activity and thus the income will go to the individuals concerned rather than into the partnership pot.
Clause 4: Equipment
This clause provides that individuals’ own equipment remains their property but that equipment bought with partnership funds belongs to the partnership. It also provides that when a member leaves the Group they will be entitled to take their own equipment with them and shall also be credited with an amount equal to a share of the group equipment in which they had invested whilst in the Group.
Clause 5: Financial Affairs
This clause is important as it provides for the Group’s income and liabilities to be shared equally between the members. Obviously different profit and liability sharing ratios can be included but in the absence of any explicit provision it will be assumed that shares are to be equal.
This clause also provides that each member should be responsible for his own tax and national insurance contributions.
The clause also provides that Group income will be paid into a partnership bank account (in a similar way to that provided in management agreements) and the number of partners who need to sign each cheque.
Clause 8: Voluntary Leaving / Expulsion
This clause is important as it provides that a notice period must be given by a leaving member and that members may only be expelled by a unanimous decision of the remaining members.
Clause 9: Change of Membership
This clause deals with what happens when there is a change of membership of the partnership and tries to provide for the process to be as orderly and painless as possible. It also provides for continuing financial and accounting obligations and what happens to assets of the Group. From a leaving member’s perspective it will always be better to have his royalty entitlement accounted to him directly by the record company/publisher/etc concerned. Direct accounting also saves the remaining members from the headache of working out one or more former members’ entitlements but it is always dependent on the relevant company being willing to create a separate account for each former member and to undertake more complicated accounting calculations and obligations, unless there is provision for this in the relevant recording /publishing /etc agreement. This clause also provides a six month period in which the remaining members of a Group can raise the money to pay out a leaving member’s share of the assets without necessarily having to sell such assets.
Clause 10: Disbandment / Group Name
What happens to a Group name on the dissolution of a Group partnership or on the leaving of member is important. This clause provides that the remaining members shall be solely entitled to the name. It is not unusual for an agreement to provide that a Group name will go with a certain member of the Group.
This clause also provides that in the event that the Group breaks up completely no member may use the name without the permission of all the other living members.
Clause 12: Group Recording and Song writing
This is one of the most important clauses in the agreement and often the cause of much debate among members of a Group. The clause provides that copyright in the sound recording made by the group belongs to the group and income derived from the sound recordings is apportioned equally between the members. This reflects the usual scenario that all the Group members performed on the recordings and are therefore entitled to an equal share. It is not uncommon however to decide on ownership of sound recordings on a track by track basis.
In respect of songwriting the agreement provides that ownership of the copyright in the songs (usually taken to mean the words and music) shall be decided on a song by song basis. This is the best way of ensuring that each member of the Group is clear as to how the songs are owned. The agreement also provides that income derived from the songs will also be apportioned on a song by song basis. It is important to note that the way in which a song is owned doesn’t necessarily have to reflect the way in which the income is apportioned. For example, one group member may write and own all the songs, but may agree with the other members to divide income equally between them all while they are in the group.