Band Break-ups: Who gets what and why?
In order to properly understand what happens when an incorporated band splits, one must first understand a little bit about how bands become incorporated in the first place.
Oftentimes, as bands become “bigger” (i.e. more popular or recognized), they make the decision to incorporate, creating a legal entity separate from the band members themselves. This might be done for a number of reasons and has a number of advantages and disadvantages that come with it. An advantage might include, for example, that corporations are subjet to more tax benefits than a physical person, whereas a disadvantage might include increased overhead costs, especially in filing the band’s incorporation with the federal government.
To form a corporation, the band members must file Articles of Incorporation with the government. As per section 6 (1)(c) of the Canada Business Corporations ACanada Business Corporations A (the “CBCA”), the Articles of Incorporation must stipulate the classes and maximum number of shares the corporation is authorized to issue. In all likelihood, shares (generally called common shares) will be issued amongst the number of band members equally, making each of them equal shareholders. That being said, the corporation can issue the shares in different amounts to each band member.
Once the Articles of Incorporation are filed, the shareholders will generally draft up what is termed a Unanimous Shareholders Agreement (a “USA”). According to section 146 (1) of the CBCA (Part XII: Shareholders), a USA is a “lawful written agreement among all the shareholders of a corporation…that restricts, in whole or in part, the powers of the directors to manage, or supervise the management of, the business and affairs of the corporation.” This essentially allows the shareholders, or band members, to determine how the corporation is structured and run once incorporated.
It is in the USA where band members or shareholders would most likely stipulate what happens upon the dissolution of the corporation or in other words, the band break-up—including perhaps rights to the songs owned by the band and the allotment of profit earned by the band. It might also include what happens when the band doesn’t split so much as one band member decides to leave, as well as whether or not other band members can vote to “kick out” a band member they are unhappy with and the terms attached to this provision.
More formal requirements for incorporated band break-ups include the need to file Articles of Dissolution with the government—corporations begin and end with paperwork in this light.
If all is stipulated and still, the USA is not upheld upon dissolution, as per section 247 of the CBCA, the band members or band members who are wronged, otherwise known as the complainants, can apply to a court to have the USA properly complied with. The USA is therefore a legally binding contract and a method of ensuring that each band member receives exactly what they bargained or signed for.
Importantly, unincorporated bands are not very different from incorporated bands—the main difference is governmental paperwork. Assuming of course, that despite the unincorporated nature of the band, the band’s members still put everything down in writing. If agreements regarding song ownership and other items are drafted correctly and precisely, they serve to better shield band members from confusion and potential dishonesty upon dissolution of the band.
Problems ensue when band members and bands that are serious about their music and careers don’t take the time to consider the possibility that plans may go awry, leading to a potential split in the group. As many bands are formed between initial friends, it is often decided that formal agreements are unnecessary. Importantly, however, band members should not forget that a band is a business. Agreeing on the terms of said business, whether incorporated or not, is the best way to ensure there are no surprises down the road.