In the earliest economies, tribal groups exchanged assets or traded through barter, the exchanging of one asset for another. Over time, this eventually evolved into sharing revenue royalties.

In the case of barter, the trading partners exchanged either ownership or use of assets they deemed to be of equal value. Food was exchanged for tools, decorations, or other items of value. It would have been pretty simple as each party had something the other wanted, and therefore was happy to make an exchange.

As societies developed and certain individuals rose to power, the controlling parties wielded the ability to grant the use of communal or party-owned assets to those wishing to use the assets. This came to be called a royalty as the grantor of the right was frequently the royalty in the country or area. The right of one party to use an asset owned by another party in return for part of what is produced on or by the asset was used in a wide range of activities including farming, hunting, fishing, mining, shipping, and land development.

Over time, the assets which could be licensed grew to include intellectual properties such as patents and brand names. Today, franchisees pay a percentage of their revenues to the franchisors in order to use a brand name or method of doing business. Publishers, theatrical producers, and companies using the intellectual properties of others all pay royalties.

Royalties are essentially an asset-use fee allowing the owner of the asset to receive an agreed percentage of revenues in exchange for the use of the asset.

Barter was logical at the time of first use and until there were verifiable metrics for measuring asset-use benefit. The concept of profit-sharing, which is the essence of corporate or enterprise investment through the sale and ownership of securities, requires mechanics and assessment far greater and more difficult than basing relationships on revenue generation. Most importantly, investing in other than revenues requires a trust by the investor in the operator using the investor’s asset.

Royalties are the better way of both investing in and financing privately-owned companies.

Arthur Lipper, Chairman ©Copyright 2018 British Far East Holdings Ltd.

British Far East Holdings Ltd. All rights reserved. August 20, 2018

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