A royalty is a use fee, charged by the owner of an asset, for the use of the asset.
Royalties, only older in historic terms by forms of barter, permit transactions involving the use, not necessarily the results of the use, of the royalty issuer’s asset. Royalties, land grants issued by members of royal families, to hunt, farm, mine and develop are a part of the history of many countries.
The owner of a racehorse may allow another qualified person to pay to Royalties enter the horse in a race and will receive a fee which may include a piece of the winnings, if any.
The owner or leaseholder of property may allow a miner or oil driller to explore the property for a fee, which may include participating in the extractions, if any.
The author of a book will allow a publisher to print and market the book for a fee, which may be solely a fixed amount or one which includes a fee based on the number of books sold.
The inventor of a device may license, exclusively or otherwise, the use of the invention for a fixed or variable fee.
Fees charged by professional athletes, attorneys, accountants, physicians, financial advisors, engineers, scientists, musicians, entertainment performers are all similar to royalties as they are compensation for the use of someone’s assets. It is also possible the asset may have been created and owned by a person now deceased, with payment owed by users to his or her estate.
Royalties can be used to acquire companies and a wide range of other assets as well in the recruitment of personnel and, of course, the use of patented royalty approaches.
Royalties or revenue royalties, as they are sometimes known as, are different. They are different as the asset made available for a fee, the royalty, is money. Yes, it is possible the owner of the cash may also be able to offer advice and other services to the royalty issuer, who agrees to pay a percentage of defined revenues for the money.
Royalties are for an agreed period and have specific terms and conditions, Royalties may also be transferable and therefore sold by the original owner to other qualified investors, with or without the permission of the royalty issuer.
Royalties can be endorsed by other parties regarding assurance of the contractual compliance of the royalty issuing company.
In order to attract business owners, royalty issuers may have a right of redemption, permitting the termination of outstanding royalties on agreed terms, if the right is exercised in agreed periods.
In order to attract investors, the issuer of a royalty can agree, at the royalty investor’s option, to repurchase the royalty at the end of a 60-month period, for the investor’s cost, less royalties received. This feature may provide some comfort to the investor but it is unlikely any investor would exercise the option, ending the right to share in revenues, if the company was revenue generating at the time of permitted exercise.
Royalties can be issued and paid in any currency and for any period and are based on defined revenues. The revenues can be those relating to specified geographic areas or specified products or services.
Royalty issuers may attempt to acquire outstanding royalties from investors whenever and offering whatever amount or form of consideration they wish. They may also make tenders to all royalty investors indicating the price and terms of purchase. It is also possible that companies may establish a Dutch-auction pool of specified amount and agree to purchase the greatest number of royalty units possible, setting up a competition amongst investors as to those willing to accept the least amount.
There is no other financial instrument which can be used in so many different ways to acquire the use of such a broad array of assets as is the case with royalties. Our role and mission are to profit from educating both those with money to invest as well as those having revenue generating objectives to accomplish, regarding how they may use royalties for their mutual benefit.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
858 793 7100
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