Here’s when ……
the prior year audit was released
our quarterly earnings declined by 15%
one of our primary patents expired
the order we expected was cancelled
a competitive product was announced
we were first named in a suit …
we announced that …
the takeover bid was dropped
we reduced our short-term projections
the new regulation was announced
the merger we hoped for fell through
we changed accounting firms
a few of our key engineers quit
the CEO’s was discovered to …
there was a change in the tax law
we announced a product price reduction
our principal supplier went bust
our biggest customer went bust
… happened or was reported
Being public and subject to the market’s reaction to the announcement of problems, which may be resolved, can be highly stressful for all of those involved.
Privately owned companies may have similar problems, but may have a better opportunity to deal with the issues, as they can focus on the problems and not investor reactions thereto, which may be excessive. Certainly, for some companies, the founders may benefit from becoming publicly traded in terms of capital raising, liquidity for existing shareholders and brand creation.
However, soliciting equity from investors also results in the controlling owners of the business becoming responsible to the investors, by having to make all company decisions based upon the requirement to benefit all of the investors in the company. This responsibility and possible liability impacts: executive compensation, executive retirement and health plans, specific customer product pricing, company loan and expense reimbursement policies, etc. All of the foregoing is discretionary for the controlling shareholders and possibly benefit those in control, though reducing the tax reported profitability of the company.
Issuing royalties to obtain growth capital, rather than selling stock in the company, enables company owners to avoid or delay the timing of a public stock offering.
The royalty investor is only entitled to share in revenues, not profits, and therefore is not concerned with arrangements and policies which stockholders could claim reduce profits or unfairly benefit specific recipients of the company’s actions.
The benefits of royalties are fully discussed in “Revenue Royalties” and “Off The Top”, both available in eBook or print format at amazon.com and described in articles at arthurlipper.com. There are also six free website calculators for assisting in the structuring and negotiation of royalties. The first one is REX-Basic.com
Arthur Lipper, Chairman
British Far East Holdings Ltd.
+1 858 793 7100
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