Naemanson - I'm not a lawyer, so don't consider this legal advice, but I've been the "corporation" route and found that we spent more money keeping the corporation legal than it was worth. In Illinois, you have to file every year. The papers have to be drawn up by a lawyer, which involves legal fees. It really wasn't worth it for the level of income we were generating.

Formal partnership agreements are also a problem. You can end up paying for your "partners" indiscretions should there be lawsuits.

I have found that having each member declare income as an independent contractor handles tax liability on gig money. One guy collects it as income and distributes a share to each member as an idependent contractor. At tax time, the one who collected the money declares the full amount, less the payouts. I would probably talk to a lawyer about signing an agreement on the CD income/expenses.

Make sure you and the other band members are absolutely clear on your working arrangement before talking to a Lawyer. A friendly entertainment lawyer is a good idea, but any lawyer who deals with independent contractor issues can help you out. He or she will tell you how much of your verbal agreements you should put into writing.

Good luck.