Partnerships for Bands and Groups

What does a 'partnership' mean and how it relate to music bands and ensembles

The Partnership Act 1890 defines a partnership as two or more individuals ‘carrying on a business in common with a view of profit’.

Provided that the members of the band or an ensemble are sharing income and debts, then the broad view is that they are in partnership. A song writing team, string quartet, acoustic duo, ensemble, brass band and so on may equally be a partnership. This is of significance as, where there is no written agreement (and sometimes even where there is), the Partnership Act, which is not a statute framed with bands in mind, provides that:

• Each member of the band is individually liable for all group debts incurred while a partner, and not just for his or her share of the group debts.
• All equipment will belong to the partnership and not to any member. You may therefore find your own equipment becomes a band asset when you join, and not yours to take away if you leave!
• Any member of the band has the authority to bind the rest of his or her partners and to incur debts in the name of the partnership. Accordingly, it is in every band member’s interest to know what the other members are doing in the band name and to agree in advance what they are allowed to do without telling the others.
• Any member can leave the band or be sacked at any time without notice, although sacking a partner is unlawful, unless the partnership agreement permits it. The leaving of a member will automatically dissolve the partnership and the leaving member is entitled to apply to the court to wind up the partnership’s affairs to force a distribution of the assets. This may prove problematic if you’re about to play a tour.
• On dissolution, the partners’ authority, rights and obligations continue, so far as may be necessary, to wind up the partnership and complete outstanding partnership contracts. This could mean the leaving member having to (or having the right to) play any booked gigs.
• The band name will be treated as one of the assets of the partnership and (unless there is an agreement to the contrary) it is owned by all of the members of the partnership equally. Consequently, where one member (perhaps the founding member) thought of the name, but is sacked, he or she could lose that name to the continuing partners. Where the band breaks up and all the former members try to use the name for their own new bands, this causes confusion and dispute. Legally, no single former partner has the right to use it without the majority’s express permission, so if the band splits equally no-one can use the name.
• Any income earned by members of the band from musical activities outside the band may be treated as band income and be liable to be shared accordingly.

Since the advent of the Self Assessment system, partnerships are no longer taxed separately. Your share of partnership profit should be declared in your Self Assessment tax return, so partnership accounts may still have to be prepared.

What if I sometimes hire in other musicians?

The nucleus of the band may be in partnership and employ or contract other players as and when necessary — for instance, to play live. Similarly, an individual (a ‘sole trader’) may hire players for his or her band when necessary.

These contractual arrangements need to be clear, if the other players are not to claim that they are also your partners. If you do hire other musicians, as their ‘employer’ you may also become vicariously liable for their negligent actions and may require Employers’ Liability Insurance in addition to the Public Liability Insurance offered by the MU as a benefit of membership.

Bands as limited companies

Many professional bands form a limited company through which to trade and provide their musical services — this is why this type of arrangement is often called a service company. The band members will then often be the shareholders, directors and employees of their own company.

The limited personal liability a company provides is often considered to outweigh the extra formalities of forming and administering a company, and the fact that a company’s income is effectively taxed twice — once as company income and again as income of the band member (as a shareholder or employee). In contrast, a partner’s personal liability for partnership debts is unlimited, which could mean bankruptcy if the band suffers a large claim for which it is uninsured.

Limited Partnerships Act 1907

Partners may register under this Act as a limited partnership, provided one partner retains unlimited liability and the other (limited) partners do not take part in management of the partnership and have no authority to bind (to make contracts on behalf of) the partnership. This may be appropriate where the nucleus partners or sole trader hire in musicians, but defeats the object for tax purposes. Also be aware that the 1890 Act still applies to other important aspects of a limited partnership, such as dissolution.

Limited Liability Partnership Act 2000

Since April 2001, registration of a Limited Liability Partnership (LLP) under this Act can limit all the partners’ personal liability. Although generally treated like partnerships for tax purposes, LLPs are not generally subject to the Partnership Act 1890. The formalities required under the LLP Act are similar to those for registering companies, and perhaps one of the main considerations is the fact the highest earning LLP partner is also required to file details annually of his/her income which are then available to the public.