[Dixielandjazz] Fw: Musician Injuries - Large LiabilityRisks.

[Russ Guarino]

Ed,

What's an LLC?

Russ Guarino

Ed Bideau wrote:

> I read the email on injuries with a lot of interest and wanted to point out
> some legal issues that most band members and leaders probably do not
> consider and may not even think of.  These are the issuew of liability
> exposure and worker's compensation exposure for band activities.  Please
> bear in mind that I am a defense lawyer that ordinarily defends small
> business owners, and am not a plaintiff's injury lawyer who chases
> ambulances.  Most small band leaders dont know it but they may be exposed
> to liability for worker's compensation to band members if they sustain an
> injury during a gig or even practice. Most states have payroll limits under
> which you are not required to carry work comp but in some states that can
> be pretty low. Kansas is 20,000 per year, but a few states go on number of
> employees instead of payroll.  If your state requires work comp for more
> than 5 employees then if you have that many total then you might be subject
> to the law. Beyond that, even if you are not subject to Work Comp laws you
> can be held liable for negligence if an employee gets injured.  You have
> the potential defense of assumption of risk if an employee is injured but
> someone tripping over a mike chord and breaking their neck can be a problem
> that might take years of litigation to resolve and is an expensive pain
> even if you win.  You might think it will never happen to you and that good
> old Fred and good old Joe would never sue you for a band related injury.
> Bottom line is they may not want to but they might not have any choice or
> their family might over-rule them and sue you anyway.  In 30 years of law
> practice I have seen people do a lot of things when backed to the financial
> wall that they might not do otherwise.
>
> A band also brings exposure for third party liability to others. In most
> states if a third party gets hurt, for instance a band member bumps into a
> little old lady and she falls and breaks her hip or runs over her on the
> way to a gig or on band business, the band leader can be held responsible.
> If the band is organized like a club and is an unincorporated association
> then in the majority of the states every single individual member can be
> held liable even though another member caused the injury, with joint and
> several liability imposed on all members.  What this means is that an
> injured plaintiff can come after the savings and assets of every single
> member of an unincorporated association.
>
> Bottom line is the only way to protect yourself is to make a decision as to
> whether you are going to be a business or not. If you are going to be a
> business and charge then you better act like a business and get
> incorporated or at least form an LLC and carry liability insurance for the
> band activities on top of that.  In many states a single band leader can
> form a one person LLC that the IRS will not require to file a separate tax
> return for the business.  Just having a corp or an LLC is not enough
> although it provides some protection and is a lot better than nothing, you
> should have insurance on top of that.
>
> All of these wrinkles is one reason why our little band is stricly amateur
> and does not directly charge the customer.  If it is not a business pursuit
> then our personal insurance, liability under our homeowners and auto
> policies, covers us. If its a business it has to be insured separately and
> is often excluded from our personal insurance.
>
> I am sure a lot of you think all this may be a bunch of hooey and its a
> pain in the ass to consider, but let me tell you a true story about a
> little women's club that split off from the Beta Sigma Phi group and
> started their own little local sorority here in Kansas.  There were twenty
> ladies in the group including a doctor, banker's wife and some fairly
> wealthy people.  They had never bothered to incorporate the club as a
> non-profit corporation. In January of 1999 a new member prospect who came
> to a club meeting slipped on the ice on the front porch, hit her head and
> it ended up killing her.  The owner of the home where the club meeting was
> held had only $50,000 in premises liability on her home. The decedent's
> executor sued all twenty ladies as an unincorporated association and
> recovered a judgment in excess of one million dollars against all of them
> jointly and severally.  Imagine the attitude of the spouses when they
> realized their entire savings, including home and business assets they had
> their wives names on, were subject to a judgment lien.  Bottom line is it
> is serious stuff and has to be considered.
>
> My recommendation?  If you have a band either go completely amateur and
> form it as a non-profit corp and make sure you all have personal insurance,
>  or run it as a business, file it as a for profit corp or an LLC and also
> buy the insurance.  Either that or be judgment proof and dont have anything
> to collect a judgment on.  By the way, under the bankruptcy laws your
> musical instruments are not exempt from judgment execution, they are
> considered toys or luxuries and can be the first to go.
>
> If you run it like a business you are also subject to paying witholding
> income tax, social security tax and unemployment tax.  Most band members
> will not stand up to audit scrutiny as an "independent contractor" or
> "contract labor" and dont meet the test for that type of treatment, so if
> you dont do withholding and get audited, be prepared to go into major
> pucker factor.  They can go back six years and assess all the taxes against
> you with penalties and interest. When that IRS agent flashes that badge at
> you it has a way ruining your appetite for a few days.
>
> What this all boils down to is unless you are willing to run it as a true
> business, you might want to do what we did and forget charging for services
> because the risk, particularly to band members or leaders with substantial
> assets, is just flat not worth it. I hate to be the bearer of bad news, but
> its better to hear it than have to wake up to it after something bad
> happens and you have to go home and tell the wife you put the family
> fortune at risk. On the other hand if you want to charge and are going to
> produce revenue, you should get either an LLC or a corporation formed and
> be prepared to comply with all the tax laws and buy the insurance.  Yet
> another option would be to try to put the burden on the person hiring you
> and have them retain or hire all the band members individually instead of
> the group. I doubt this is workable for most situations but would be a
> possibility. I would imagine that band leaders would hear their players
> raise hell if they started to do withholding but perhaps a remedy is to
> elect them band leader and let them take the risk.  Finally, there might be
> some type of association that could get insurance coverage for bands on a
> group basis at a cheaper rate.  For instance gun clubs can get liability
> insurance from the NRA if a certain percentage of the members are NRA
> members. I dont know if there is any association for music groups that has
> this service, but if so it would certainly be a benefit.
>
> Once again, I am sorry to bring what might be bad news but its better if
> everyone considered this up front.  If you are doing some serious gigs and
> have a serious band then I would recommend that you sit down with your tax
> guy and legal guy and get some straight dope for your state.
>
> A banjo playing, crabby ass lawyer.
> Ed Bideau
>
> Edwin H. Bideau III
> Bideau Law Offices, LLC
> 18 North Forest
> P. O. Box 945
> Chanute, Kansas 66720
> Voice - 620-431-2720
> Fax -    620-431-2742
>
> Email:   ehb at bideaulaw.com
>
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