Do you as a band decide to make a good career out of music or does your hobby quickly get out of hand and invoices need to be sent? This goes faster then you think, because fee statements and invoices are mainly there to settle the costs of musicians without too much fuss. As soon as you start generating income as a DJ, band or solo artist, it is better to start your own business with the right and fitting legal structure.
"With a legal form, you have to deal with clients, fellow musicians and the tax authorities.”
The legal form determines, among other things, the financial liability for debts of your company and the tax obligations. It is not only useful to have some knowledge of legal forms if you want to start your own company, but also if you are going to work for or with other companies. With a legal form, you will also have to deal with your (future) clients, your fellow musicians, the tax authorities and any lenders. You then know very well who is the right person to take decisions and who is responsible if something goes wrong. An (occasional)band can also operate in this construction. Think of changing jazz formations. The lead musician then sends a 'main invoice' to the client and the other musicians send an invoice to the lead musician for their work. A duo can also work with two invoices to the customer. We have listed the three most important legal forms for you:
Sole Trader
Are you an independent musician? In that case you register yourself as a sole trader. This means you are running a business completely on your own. It is really easy to start a business as a sole trader, but there is also one big risk. As a sole trader you are as an individual 100 percent liable for the business when it comes to things like debts and agreements, so be careful with your investments and decision making.
Business Partnership
Are you starting a business with several people? For example, as a DJ duo, jazz formation or band. Then it is smart to go for a Business Partnership. When setting up a Business Partnership, no minimum capital is required and all entrepreneurs contribute something in the form of money, goods or labour. With this form, you are fully responsible and liable for any debts. If, for example, a partner incurs a significant debt, the other partners will also be held personally liable. Unless otherwise agreed in the aforementioned agreements.
So before you start the Business Partnership, make good arrangements with your partners and draw up a (written) contract. This way you know what happens if, for example, someone wants to leave the band or if debts arise within the band. Are you going for a Business Partnership? Don't forget to sign-up at the Companies House!
Limited Company (Ltd.)
Is your musical career going very well? Then consider setting up a Limited Company (Ltd.). An Ltd can be established alone or with several people. When starting an Ltd there is a bit more work that goes into filling in required documents and setting up a company plan. The benefit of an Ltd is that you as an individual are not responsible for the companies debts, since the company is its separate legal entity. When the company goes bankrupt your private belongings won’t be in danger. Besides this an Ltd also has benefits considering taxes and expenses, which will especially matter when the profits and costs of your company grow.
"The Business Partnership is an easy form to set up and usually best suited for smaller bands or duos”
Choice for a legal form
So which business form should you choose considering the pros and cons? A Business Partnership and an Ltd are both forms that you can choose when your band is becoming more serious and makes revenue with music. The Business Partnership is an easy structure to set up and usually best suited for smaller bands because everyone has the same rights, liability and contributions. Problems can also occur here, when bands don't make proper agreements with each other and leave the band earlier than agreed. It is always advised to draw up a contract to avoid any misunderstandings. If you are a solo artist, becoming a sole trader is the only logical business option. After all you are only working for yourself and it would be too ambitious to start an Ltd straight off the bat.
Want to know more? The Companies House has all the information you need on their website.
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