Some bands prefer to set up a company where all band members are Directors and Shareholders. 

The cost of ‘incorporating’, or setting up a company varies, but you should typically not pay more than £500 if the company is bought “off the shelf” from a company formation agent.  The formal arrangement of a limited company can put off many musicians, but in the long run it may be preferable to informally working as a partnership.

When should you form a limited company?

It would not be advisable to incorporate a company unless the band has had a certain level of success.  If the band is at such an early stage that it does not have any assets or liabilities and no goodwill has built up in the band name, the legal structure of the band is less of an issue.  But if you have a recording agreement and the name of the band is quickly becoming a household name, the legal status of your band should be resolved as a matter of urgency.

Advantages of limited companies - Limited liability

One benefit of incorporating a company is the protection of limited liability. With a limited liability company, so long as you have not continued to trade and take on debts that you know you have no way of paying back, the directors of the company ( ie the band members) should not incur any personal liability and  risk their own personal assets, if the company goes bust.

As a general rule, with a company if everything goes wrong, the most you should lose is whatever assets or income you had in the company.

On the other hand however, if the band is operating as a partnership, all partners are jointly liable for group liabilities and there is no limit to that liability, so for example it is possible that band members could lose their home, car or even musical instruments if the band falls into serious debt.

Resolve your key issues first

Whether a band decides to operate as a partnership or as a limited company, it is important that key issues are resolved between the band members at an early stage – for example what share of revenue each members expects. This can be formalized as an inter band agreement or a partnership agreement.

If you are considering setting up a limited company, you will need to seek further professional advice.