Does Band LLC Need to Register in Surrounding States?

Dear Rich: I was considering choosing an LLC as my band's business form. I live in Missouri and would file articles of organization in my own state. My state borders on eight other states. Do we also have to file articles of organization for a foreign LLC in other states in order to play gigs there? No, you would only have to qualify if some portion of your band business was conducted solely in the other state – for example, you operated a practice space or maintained a warehouse of your merchandise or if you were booked for several months straight in a club in another state. Only LLCs and corporations that conduct this type of intrastate business have to qualify in another state. You – and most bands – conduct interstate commerce. You may conduct business across state lines but, for example, you don’t plant yourselves, your employees, or your inventory solidly within another state’s borders for extended periods of time.
What does it mean to qualify in another state? If a business must qualify as a “foreign” corporation, that means the company must file some paperwork, pay some fees, and then pay taxes each year to the other state. Here's an article summarizing all this and you can learn about each state’s rules for qualification at the state’s website for its Secretary of State.

Wants to Invest in a Band

Dear Rich: Myself and a partner are considering investing in a band. The band is pretty far along, playing 2000 seat venues, recording their first cd, and seemingly taking success very seriously. They need funds to go to the next level and we are comfortable getting involved. However, the zillions of music industry contracts/guides out there do not touch on contracts protecting an investor buying a percentage of the band's entire business. Can you steer me toward something like this? I am looking for specific contract templates, along with what-to-watch-out-for insight. Investing in a band is the same as investing in any other business (which is why you're probably not finding paperwork specifically geared to bands). So lets take a look at the three things required to invest in a business: (1) a formal business entity -- that is the band must be a partnership, LLC, or corporation (preferably one of the latter two), and (2) an agreement between the owners of the entity formalizing your investment (for example, a stock agreement), and (3) some knowledge of the industry in which you are investing.
LLC or corporation. We recommend that the band form an LLC or corporation because investors in those entities have limited liability. That way investors will be shielded if the band throws a TV out of their hotel window and it lands on someone's Ferrari. These entities are also better suited for making investments than a partnership. There are plenty of self help books and forms, and online programs that explain how to form and invest in LLCs and corporations, though our hearts are with the Nolo products (insert FTC disclaimer, here).
Why it matters that you learn about the industry. Every industry has its quirks and the music industry has more than most. You should take a basic primer in music copyrights and trademarks because the assets of the band are concentrated in those intangibles. You'll probably want the songwriters in the band to contribute their songwriting copyrights to the band entity. However, that's not something they're obligated to do. So, before you drop your money into the band's piggy bank, you should probably be sure that the assets placed into the entity, reflect the money-making features of the band. And of course, it's probably in everyone's best interests for you and your partner to have your own attorney and the band to have different representation. That will go a long way to prevent a post-breakup challenge to the agreement.

Accused of Selling Knockoffs: What If I Do Nothing?

Dear Rich: I buy handbags from an importer and resell them online. I advertise them as knockoffs at various sites, including eBay. I never claim they're originals ... I always tell people they're copies. Recently, I got a letter from a lawyer saying I had to stop selling them or I would get sued.  Would I be better off running my business as a corporation so that I won't be personally liable? What will happen if I don't respond to the letter? Sorry, but the Dear Rich Staff has lost its ability to predict the future. (We think it happened when Google implemented Panda One and switched its search algorithm.) In any case, any of the following scenarios are possible after receiving a cease and desist letter:

• you keep selling the knockoffs, the lawyer files a lawsuit, gets a default judgment and enforces it against you personally (assuming you're not an LLC or incorporated) or against your business
• you stop selling the knockoffs, the lawyer drops the whole thing
• you stop selling, the lawyer sends a second letter, gets no response and files a lawsuit and gets a default judgment. 
• you blow off the letter, keep selling the knockoffs, and the lawyer is impressed with your moxie, and decides to hire you as an investigator of trademark counterfeiting. You do really well in that position, give up your handbag business and eventually write a book about the knockoff industry. 

Actually, the last choice --the Catch Me If You Can approach -- isn't very probable at all. If you continue to sell without either fighting the letter or otherwise responding, the lawyers will most likely pursue you because, as the young people say, that's how they roll.

Does forming an LCC or corporation shield you from these lawsuits? Converting your business to an LLC or corporation can establish limited liability and will shield you from personal liability in some instances -- the lawyers can only go after your business assets. But your liability is likely to be tied to your status at the time of the infringement. So if you're a sole proprietor when you got the letter, then you're probably going to be treated that way (personally liable) in court, as well, even if you later convert to an LLC or corporation. In addition, keep in mind that the LLC/corporate shield also won't protect you from the following:

• You personally guarantee a loan or lease.
• You owe federal or state taxes. 
• You act negligently (people are injured by your handbags).
• You fail to abide by corporate rules. 

That Said Dept. That said, perhaps you should reconsider your business model (as well as your business entity). First, you need to determine whether the lawyers are right -- that is, are your bags infringing? If yes, you should abandon the infringing items. If you're not infringing, you should consider whether you want to fight or move on. If you fight, you may be able to have some luck fighting takedown notices (we'll talk about them more this week) but keep in mind that if you're dragged into court, you'll be hit hard in your bankroll and the only guaranteed winners will be the lawyers.