Introduction
… The music creates the brand. The legal structure protects it. For Nigeria’s growing entertainment industry, corporate structuring should therefore be regarded not as an administrative formality, but as part of the business itself…
The Nigerian entertainment industry has developed into a major commercial sector, with artists generating income from streaming, royalties, performances, endorsements, publishing, licensing and other digital platforms. Yet, the legal structure supporting these businesses often receives far less attention than the creative work itself.
The P-Square dispute have brought to light the importance of having a defined legal structure and operating procedures especially in the entertainment business of today. A quick overview of the said dispute spans from issues of ownership of the brand and the catalogue; financial misappropriation by the manager of the group, royalty collections and reporting to state a few.
Though some of the allegations are sub judice at the time of this write-up. The key purpose of this write up, is to highlight and educate the general public on the basic minimum requirements to be set in place before setting up an entertainment business or a record label.
IDEAL STRUCTURE OF AN ENTERTAINMENT BUSINESS
- Incorporation of a Corporate Entity.
Ownership should never be left to assumption.
The first step should ordinarily be the establishment of a properly incorporated company or Business Name with the Corporate Affairs Commission (CAC). The Companies and Allied Matters Act 2020 (‘CAMA’) provides the principal framework for the incorporation and regulation of companies and Businesses in Nigeria. The company or Business Name should be the vehicle through which the entertainment business operates. Depending on the nature of the venture, this may include the object of the business, shareholding structure, directorship, and internal regulatory document such as the memorandum and articles of association.
More importantly, the founders should determine the ownership of the company. For example: ARTISTE A – 50%, ARTISTE B – 50%. If a manager or investor is to own shares, that should also be expressly documented.
2. Execute a Shareholders’ or Founders’ Agreement.
Family trust should not be used as a substitute for commercial documentation.
Incorporation alone is not enough. Before significant revenue begins to flow through the business, the founders should enter into a comprehensive shareholders’ agreement or a founders’ agreement. It should establish the commercial rules governing the relationship between the founders.
The agreement should address: ownership and shareholding; management responsibilities; voting rights; ownership of the music catalogue; intellectual property rights; distribution of profits; management fees; financial reporting; approval of expenditure; appointment and removal of managers; transfer of shares; exit arrangements; termination; deadlock; dispute resolution; and what happens when one party leaves the business.
This is particularly important where the founders are family members.
3. Intellectual Property Assets.
A typical entertainment business will ordinarily have two principal categories of intellectual property assets: Copyrights and Trademarks. Copyright generally protects the creative works of the business, including literary, musical, and artistic works, as well as other copyrightable content created or acquired in the course of the business. Trademarks, on the other hand, protect the distinctive identifiers associated with the business and its offerings, including brand names, band names, artist or stage names, logos, slogans, taglines, catchphrases, and other distinctive marks.
These intellectual property assets should be properly identified, documented, registered where applicable, and appropriately protected. It is equally important for the parties involved in the business to clearly establish and document ownership of each intellectual property asset, including the respective rights and interests of the business partners, to avoid future disputes and ensure effective commercial exploitation of the assets.
4. Separation of Ownership from Management
The individual who manages an entertainment business does not necessarily have to own or control it. An artist may own 50% (fifty percent) of the company without managing its finances. Similarly, a manager may administer the business without owning the artist’s intellectual property. A professional business manager should therefore be appointed under a written management agreement. The agreement should define the manager’s authority, remuneration, commission, duration of appointment, reporting obligations, permitted expenditure, access to company accounts, duties concerning royalties, conflicts of interest, termination, and post-termination obligations. The manager should report periodically to the artists or shareholders rather than operate without effective oversight.
5. Legal Advice/Support.
Where two or more individuals jointly own an entertainment business, each principal founder should have access to independent legal advice, particularly when negotiating the original structure. This would allow each founder to understand his or her rights concerning: ownership; intellectual property; financial entitlement; management; contracts; exit; dispute resolution; and the consequences of a breakdown in the relationship.
The company’s lawyer may advise the company, but the personal interests of individual shareholders can sometimes diverge from those of the company or from each other. A lawyer should therefore be involved before the relationship becomes contentious, not only after it has broken down.
6. Financial Reporting/Accounting System:
This is perhaps the most important practical safeguard. An entertainment company may receive money from several sources: streaming platforms, digital aggregators, royalties, publishing, concerts, endorsements, sponsorships, licensing, merchandising, and international distributors. There should be a system showing where every significant amount came from and where it went. CAMA requires companies to maintain adequate accounting records showing and explaining their transactions and financial position. An entertainment company should go further by adopting regular internal financial reporting. For example, shareholders should periodically receive statements showing: revenue received, expenses incurred, deductions, net revenue, and the amount payable to each stakeholder. There should also be separate corporate bank accounts, proper supporting documents for expenditure and appropriate approval procedures.
7. Audit the Revenue Streams and Royalty Accounts
Entertainment revenue is particularly susceptible to opacity because payments may pass through several intermediaries. A song may generate revenue through YouTube, Apple Music, Spotify, distributors, publishers, collecting societies and licensing arrangements. Every agreement with an aggregator, distributor or publisher should therefore provide for: periodic statements; payment dates; permitted deductions; audit rights; access to relevant backend information; currency conversion; tax deductions; and consequences for failure to account. These statements ought to be properly analysed and disclosed to the relevant artist or group individually for visibility on the revenue flow. Also, set operating procedures ought to be in place in the financial management to ensure transparency and preventive measures by ensuring no one person is in charge of the accounts and can solely disburse money from a company account
8. Exit, Termination and Dispute Resolution Procedures
The founders should plan for the possibility that the relationship may eventually end. This is not pessimism. It is good corporate governance. The shareholders’ agreement should provide a clear exit clause establishing how a departing shareholders’ interest will be valued and transferred.
A termination clause should specify the circumstances in which relevant agreements may be terminated. A dispute resolution clause should establish a procedure for resolving disputes, preferably through a staged mechanism such as negotiation, mediation and, where appropriate, arbitration.
Conclusion
The most important lesson from the P-Square experience is not that family members should avoid doing business together. It is that relationships should not be the only foundation upon which an entertainment business is built. A properly structured entertainment business should have a registered company, clearly defined ownership, a shareholders’ agreement, professional management, independent legal advice, separate corporate accounts, transparent financial reporting, proper royalty accounting, intellectual property documentation, exit and termination provisions, and an effective dispute-resolution mechanism.
The music creates the brand. The legal structure protects it. For Nigeria’s growing entertainment industry, corporate structuring should therefore be regarded not as an administrative formality, but as part of the business itself.