If you are setting up a legal entity (a corporation for your band / music-related business) with the objective of providing economic and upside incentives to everyone that is or will be involved in your business (your bandmates, your management team, your potential investors, and possibly even your sponsors/promoters), here’s a free set of legal documents that you can use as a basis for creating what the music industry calls a 360 deal (as in 360 degrees).
What is a 360 deal?
A 360 deal (in my mind) is a catchall term that describes a structure whereby everyone involved pledges all related (related to the core of the business) rights, services and assets into a corporation that is owned by all of the participants. A 360 deal may or may not include investment capital.
Why create a 360 deal / structure?
The music industry seems to transform almost weekly. As the ground shifts, and as the revenue mix changes, a 360 deal is designed to protect everyone involved in the organization. Most importantly, a 360 deal creates what is called ‘mutual alignment of interests’ between all participants.
What is ‘mutual alignment of interests’?
When interests are aligned, everyone involved is pulling for the good of the entire organization. I would not advise anyone to create an organizational structure whereby any of the related income streams are outside of the organization, especially in the rapidly changing music industry. What’s good for one person has to be good for everyone.
What about traditional record deal documents?
There are legal docs floating around everywhere that cover traditional record deals. Burn these documents. In my humble opinion, traditional record deal docs are useless to everyone involved. If someone tries to shop you legal docs that don’t cover all your potential income sources then 1) the person / label you are negotiating with is stuck in 1986, and 2) you will be creating a structure whereby competing interests will be pulling in opposite directions. If you want to create a high-functioning, successful organization where everyone has mutual incentive, create something that resembles a 360 deal.
The history behind the attached documents…
I worked with an entertainment attorney to create these documents three years ago when a few friends and myself backed a band from Massachusetts called Jediah. The goals of the legal structure were:
- Create a structure that could be easily passed on (sold) to another party.
- Create a structure that could easily accommodate additional investors.
- Create a structure that justly recognized the value of the cash investment, the labor and the assets that everyone was contributing.
- Create a structure that captured all the income streams.
- Create a structure whereby everyone’s incentives were aligned.
What you will find in the package. DOWNLOAD THE ZIP FILE
- The Term Sheet - this document spelled out the original terms of the deal.
- The Contribution Agreement - this document assigned assets to the corporation.
- The Rights and Services Agreement - this document required everyone to pledge their rights and services to a corporation that all of the participants jointly own.
- The Operating Agreement - this is the document that governs the operation of the corporation.
- The Promissory Note and the Security Agreement cover the loan that was made to the corporation.
What’s with the monthly salary cap?
We specified a monthly salary cap in the event that the band became extremely popular. We had to demonstrate to investors that all the revenue would not be taken out as salaries. Profit generated over and above salaries and expenses was to be paid out to stockholders (which obviously included the band) per the terms of the Operating Agreement.
How come there is no (management fee) percentage specified for management?
Management fees in this structure are paid as salaries that are on par with the salaries that were to be paid to band members. Moreover, the managers are also stockholders. Once again, think mutual alignment of incentives.
How come this is so freaking complicated?
There’s no such thing as being a little pregnant. When you plant the seed, you have to assume that the band (the organization) will go to the moon. Covering all the bases up front minimizes problems in the future.
Why would an artist participate in a deal like this?
For the reasons I stated above. It’s hard to be a one-man band. If you are going to take on investors, if you are going to compensate employees with equity (stock in your entity), if you are going to compensate management with equity, if you want to treat everyone fairly, and if you want to align everyone’s incentives…I believe this (the concept) is the way to go.
Important disclaimer…
Everyone has a different way of doing things. I have learned a lot over the last three years. I can’t say for sure if I would do this exactly the same way again (the publishing structure/splits would change - seek additional advice on this). I am not an attorney. Please obtain qualified legal advice. These documents (at least the concepts) should be somewhat useful as a starting point in any country where common law is practiced (United Kingdom, United States, Canada, New Zealand, Australia and others). Print this post and every comment below before attempting to pay someone to customize these docs to your needs.
Why am I making these documents available?
I am hopeful that these documents will make it easier for any artist to motivate investors, employees, managers, promoters and/or anyone an artist needs to compensate with equity (the stock in your company). In addition, the comments that people leave on this post will help me (and you) to improve / upgrade these documents.