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Band LLC and Money Transparency Questions

mikopita

mikopita

Feb 22, 2007
474
136
Central Florida
#1
Hey all,

One of the bands I'm in has an established local base and we've been rather successful putting together theatrical productions that are anchored by the band. Several years ago we setup a LLC where all members of the band were included and were treated as equal members. Just recently it came out that two of the original members, lead guitarist and lead singer (I am one of four original members, plus we've added multiple hired hands) renewed our LLC but only for the two of them. The renewal was done under urgency (we had a series of shows and our LLC had recently expired), so it's possible that they did this as an oversight but I'm wanting to broach the subject carefully with my bandmates.

The guitarist happens to be a financial analyst for a living and has been hiding all of the financials from the rest of the band. When prompted for transparency, he says that we'll have to pay him for his time (which does not sit well with the rest of the band).

Add to this the fact that right around the same time as the renewal, we bought $5k in P.A. and IEM systems. A couple of us even fronted money that the band account was lacking in order to get a complete system. Now a couple of us are concerned that we have no legal claim to any of the equipment, and haven't seen a cent in payment from shows (most of which we've sold out btw) because all of the money went towards the sound system.

I should add that this band shares the same 4 original members with another group (where we also use the new equipment), and we're all really good friends. The drummer has a tendency to be a hot-head and has been pinging me asking what we should do and how we should approach. I'd like to carefully navigate this situation without too much friction. Any thoughts or suggestions?

Regards,
Mikopita
 
#2
keep-calm-and-lawyer-up.jpg

Well I'm no lawyer or anything but...oh, yeah, wait--I actually am a business lawyer and this situation is messed up on so many levels. The possibilities range from relatively innocent accountability errors to straight up embezzlement, breach of fiduciary duty and other civil wrongs. I don't mean to sound super-cynical but I've seen this happen 10,000 times in my practice.

Save all your correspondence, demand a meeting with full disclosure (and copies) of the financial records and receipts, and don't discuss the matter with third parties or post anything on social media (not that you would). Be civil and ask straight questions. Aim to work out a plan for ongoing transparency and amendment of the business filing to recognize your LLC member status. If for some reason the other members refuse to meet or agree to an accounting, the matter should be addressed by an attorney. Sorry.

First move is politely request that guitarist or singer file an amended LLC statement to include all 4 original members. This is not an expensive or time-consuming task, and can happen prior to meeting or undertaking an accounting. If this simple request is refused, you know you're dealing with shady folks. Lord knows I've been wrong sizing up situations before and I hope I am now, but this post is covered in red flags.
 
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#4
4SG said:
View attachment 3456598
Well I'm no lawyer or anything but...oh, yeah, wait--I actually am a business lawyer and this situation is messed up on so many levels. The possibilities range from relatively innocent accountability errors to straight up embezzlement, breach of fiduciary duty and other civil wrongs. I don't mean to sound super-cynical but I've only seen this happen 10,000 times in my practice.

Save all your correspondence, demand a meeting with full disclosure (and copies) of the financial records and receipts, and don't discuss the matter with third parties or post anything on social media (not that you would). Be civil and ask straight questions. Aim to work out a plan for ongoing transparency and amendment of the business filing to recognize your LLC member status. If for some reason the other members refuse to meet or agree to an accounting, the matter should be addressed by an attorney. Sorry.
Click to expand...
Sound advise.
I feel the pain. I was hired on by an existing band a few years ago. I was told up front nobody was getting paid until the sound system was paid for. I should have walked there, but I wanted to play in that band. Four gigs later I was gone. The previous bass player's transfer fell through and he wanted his gig back. I never got a dime. When I asked to be paid for the gigs, I was told I agreed to the deal so I wouldn't get paid. Neve again.
 
#5
4SG said:
Aim to work out a plan for ongoing transparency and amendment of the business filing to recognize your LLC member status.
Click to expand...

Thanks, this is key to me. As you said, I want to keep calm and I needed to better understand the ramifications of having my name removed from the LLC member list. I see now that it's even more important than I had originally thought.
 
#7
Normally, these kinds of problems can be averted with an operating agreement. It describes everyone's roles, how money will be distributed, etcetera. Often there are exit clauses about how money is distributed when someone leaves.

See if you can google one and see what it entails. Without one, you end up making up the rules as you go along, and the people with the strongest personalities end up dictating to the band. That is what happened when they renewed the LLC without the rest of you.

BTW, I have renewed organizations before, and it's easier, at least in my state, to simply keep all the existing officers on the slate rather than remove some. So, it was a conscious decision on their part to remove you, I believe. The fact that they just did it without talking to anyone shows the kind of independent behavior that concerns me. You are basically being pushed around and aside. If you want full rights under the LLC (which are dubious without some kind of an agreement), then I would be asking for them to file an amendment including you at the band's expense since they took you off without your permission!!

I would try to first talk to them about it. Have an open band meeting -- the more guys on your side the better. Express your concerns, and have solutions. If the financial analyst wants to be paid for his time, then I would suggest asking to see the bank statements and the receipts. You can piece together the situation from there. Make sure you're ready for the "don't you trust me" conversation. I hate those, and you need prepared phrases to blow that "stupid" argument out of the water.

In my view, these guys are clearly out of line. To just kick you off the LLC shows a lack of respect for the other members, and the fact you were full members of the LLC when it was created. Time for some hard discussion as I see abuses coming if they haven't already occurred.

I am also uncomfortable with the guy who is cutting you out of your rights in the LLC doing the financials. If you have to pay someone, suggest a book keeper. There is principle called "separation of duties" that keeps people "honest". The guy with all the receipts and bank statements will have to turn it over to someone who has no conflict of interest, creating a separation of duties. And that will prompt questions. If he knows this, as he spends money, then he will be more honest about it. Better yet, make it clear about who has the authority to authorize what spending.

But frankly, I don't think anyone should be spending a dime without an operating agreement in place given the way things have gone.

I would want an agreement that indicates

1. Obligations of each member/role in the band
2. how the financials are managed/book-kept
3. Financial reporting to the group
4. How proceeds will be distributed, and when, and by what process.
5. Circumstances and process under which someone is admitted or removed from the LLC.
6. Access to financial information
7. Process by which members can vote to eject another member (believe me, I've used that clause a lot in non-profits).

I don't know what kind of money you guys are bringing in, in my county, I can get a 1/2 hour legal consultation through our county bar association for $50. Might be worth the coin to see what your rights are and understand LLC's better.

Right now, all this sounds like bad news, and a recipe for a band implosion.

[note, I just read @4 Strings Good 's post and realized he said most of what I said, sorry, at least I was partly on track].
 
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#8
I'm neither a lawyer nor an accountant. I don't think a business entity can simply erase someone's ownership stake. There may be assets that you are rightfully the partial owner of. If they can't buy you out, a potential remedy is for the business to sell all of its assets and divide the cash.

However... don't discount the possibility that the business has no assets and that you will get nothing. I have an anecdote, which is that I sometimes get a treat from the vending machine, and sometimes the treat gets stuck and I lose my money. I used to get kinda bent out of shape when that happened. Then I decided that I would prepare by telling myself: "It's a gamble, and I will not get mad if my treat gets stuck." Next time it happened, I just walked away and didn't let it get me mad.

A similar mental preparation might help you with your confrontation with the band.
 
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#9
If this post is legit then the OP is in a world of hurt. Take the advice of 4 Strings Good, get a lawyer. And realize that you’re probably done with the band (thieves hate getting caught) but the two currently on the LLC have already decided they’re done with you by the sound of it.

Good luck and sorry.
 
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#13
#15
Slevage said:
I’m questioning the
“ we have to pay him for his time”
part of this.
Click to expand...
Me too. That smells funny.
@4 Strings Good is the voice to listen to here.
And I'll add that if you have to pay someone to review the books, "the band should pay for" an independent bookkeeper.
 
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#16
None of this would sit well with me at all, especially as an original member. The fact that something is being hidden from you would be cause enough for me to say goodbye. Whatever amount you contributed to for the new P.A. gear might just have to be a loss for you. I just couldn't gig with a band knowing that a couple of members are intentionally keeping financials secret from other members that have a right to know. If they were friends of mine, I'd be hurt.
IMO, I'd walk away. Making music and gigging is a lot less enjoyable if you bring lawyers into the mix and the new BLs refuse to disclose anything. Bad vibes all around.
 
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#17
mikopita said:
Hey all,
The guitarist happens to be a financial analyst for a living and has been hiding all of the financials from the rest of the band. When prompted for transparency, he says that we'll have to pay him for his time (which does not sit well with the rest of the band).
Click to expand...

This is....not a band I would be a part of. I'd calmly pack up my gear, leave, and never go back.
 
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#19
The way LLC's have to be run varies from state to state, so be sure to seek information specific to the state in which the LLC was set up. But generally, the LLC has to identify in the operating agreement they initially filed who is an owner and what percentage each owns. If you were officially an owner, then they can't take away your share just by filing a form. Consult an attorney and take legal action (asuming there is enough money at stake to make it worthwhile). Just by doing this you will force them to hire their own lawyer and even if they win, they lose.
 

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