Using the subject of a license agreement. In practice, ROYALTIES are set as fixed rates as a percentage of the value of net sales of licensed products, their cost, gross profit, or are determined per unit of output.
Glossary of financial terms.
Royalty
Royalty is a license fee in the form of periodic interest payments, which are set in the form of fixed rates based on the calculation of the actual economic result of using the license and are paid by the licensee at certain agreed intervals.
In English: Royalty
Synonyms: Royalty
See also: License agreements
Finam Financial Dictionary.
Synonyms:
See what "ROYALTY" is in other dictionaries:
royalty- For each premium product released for sale, the OCOG pays a royalty. The procedure for paying royalties is detailed in each agreement with a marketing partner. The Partner is obliged to fully report on this issue to the OCOG. [Department… … Technical Translator's Handbook
Royalty- Royalty (royalty) - 1. Compensation regularly paid for the use of a patent, copyright, property of another person in the form of a certain percentage of deductions from the volume of income, sales of products, its cost, ... ... Economic and Mathematical Dictionary
- (eng. royalty) periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights were used ... ... Wikipedia
- [English] royal power; deductions to the author] econ. 1) periodic deductions for an invention or KNOW-HOW purchased under a license, paid to the licensor (LICENSOR) within a certain period specified in the license ... ... Dictionary of foreign words of the Russian language
License fee, license fee; payment, remuneration, deduction, payment Dictionary of Russian synonyms. royalties noun, number of synonyms: 6 remuneration (26) … Synonym dictionary
- (English royalty) compensation for the use of patents, copyrights, natural resources and other types of property, paid as a percentage of the cost of goods and services sold, in the production of which patents were used, ... ... Law Dictionary
See Royalty Glossary of business terms. Akademik.ru. 2001 ... Glossary of business terms
- (English royalty, from medieval French roialte, from Latin regalis royal, royal, state), a type of license fee; periodic interest payments (current charges) to the license seller, ... ... Modern Encyclopedia
See ROYALTY. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B. Modern economic dictionary. 2nd ed., rev. M .: INFRA M. 479 s .. 1999 ... Economic dictionary
Royalty- (English royalty) 1) a periodic license payment for the use of inventions, patents, know-how, book publishing, movie rentals, etc.; 2) rent for the right to develop natural resources, paid by the entrepreneur to the owner of the land ... ... Encyclopedia of Law
Books
- Normative-legal bases of selection and seed production. Textbook, Berezkin Anatoly Nikolaevich, Minina Elena Leonidovna, Malko Alexander Mikhailovich. The main purpose of the proposed training manual is to consider the legal foundations of breeding and seed production, systems for collecting breeding fees (royalties) for the use of protected ...
With a burning desire to open their own business under the name of a famous brand, young entrepreneurs begin to comprehend the basics of franchising. And here they are faced with such concepts as royalty and lump sum.
If the lump sum is still more or less clear, then the variety of ways to collect royalties often leads to confusion. So what are royalties? How is this payment different from a lump-sum payment? How do franchisors calculate royalties? Why choose one or another calculation scheme?
What is a royalty?
The Russian language borrowed the word royalty from English-speaking countries. In turn, the word royalty came to modern English from the Middle Ages. From medieval French, roialte can be translated as "royal, royal, state." Then this word was used as a legal term. Today, the term "royalties" is used in franchising, copyright and a number of other industries.
In the most general sense, royalties are compensation for the right to use the subject of a license agreement.
But what are royalties in a franchise? These are regular payments that the franchise buyer deducts to the right holder for the use of the trademark, logo and other brand attributes that distinguish it from competitors. For example, he pays royalties to the company every month for using the corporate red color, the slogan "I'm lovin' it" and other brand attributes.
Many are puzzled by the question of how a royalty differs from a lump-sum contribution. It would seem that both royalties and a lump-sum contribution - trademark payments and franchise technologies. In fact, franchisees pay a lump sum fee once for the right to join a network with a well-known name.
But if the franchisee pays a lump-sum fee for a trademark, then why pay royalties again and again for the same thing? The answer is simple: in the vast majority of cases, the money received from royalties is spent by the franchisor on brand development, its marketing promotion, and sometimes the development of new products. Depending on the magnitude of these costs, as well as other factors, fees and royalty schemes vary greatly.
Types of royalty
Each franchisor sets the amount of royalty payments independently, as well as the payment scheme. At the same time, franchise authors have favorite tricks that are used in most cases, regardless of the type of business. The following types are most commonly used royalty payments:
- payment in the form of a certain percentage of sales
- payment as a percentage of turnover or revenue
- fixed payment amount
In practice, these templates are modified by franchisors to make the franchise both effective and attractive to franchisees. The schemes depend on the industry in which the franchise operates.
Commodity franchises are most often waive royalties altogether.. The fact is that it is more profitable for commodity franchises for the franchisee to purchase more branded goods from them and sell them through their outlet. Therefore, most work without royalty , or technology. Often, royalty payments are included in the amount of the purchase of goods in the form of an extra charge.
Sometimes franchises that provide services also work royalty-free. In this case, royalties are replaced by purchases of consumables, as, for example, in the HOTFIX Russia network, which provides thermal insulation services for premises. The head of the wholesale department of the company Olga Isachenko explains:
“We have decided to waive royalties. Instead, the franchisee is provided with a minimum amount of purchases of material that they can use directly in their work. The purchase amount per month is about 180,000 rubles. Every six months, we check the purchase schedule with our franchisees. If the conditions under it are not met, we, as a rule, do not renew the contract.”
Regardless of the scope of the franchise, one of the most popular types of royalties remains the collection of interest on the volume received revenue. 5% of revenue - this is the royalty rate at Techprint. Its head Alexei Frolov says:
At the same time, Techprint, like many other franchisors, give their franchisees time to to "stand up". Starting your own business and paying a lump sum requires a fairly large cash injection. At first, any enterprise operates at a loss, it needs a certain time to reach at least “zero”. That is why many franchises provide for a delay in royalty payments for several months. The period for which payments are deferred is at the discretion of the franchisor.
In addition to deferring payments to reduce the initial financial burden on franchisees, some companies carry over part of the lump-sum fee to royalties. This is how Best Credit Finance's credit brokerage franchise does it.
During the life cycle of the franchisee, the amount of royalties that he pays also change. Having paid a reduced lump-sum fee, at first, the franchise buyer gives 50% of his revenue in the form of royalties. When the part of the lump-sum fee included in these payments is paid, the conditions for royalties change: the payment is already 10% of the commission received by the broker.
Even when using a percentage-based payment scheme, some franchisors provide a minimum fixed amount of royalties.
This rule applies to the same Best Credit Finance. If 10% of the franchisee's commission turned out to be less than 500 USD, he will still have to pay this amount. The minimum amount is set depending on the size of the lump-sum contribution. For those who gave 600,000 rubles instead of 1,300,000 rubles for joining the franchise, the minimum royalty payment is 1,000 USD.
Many franchises on payouts fixed amounts build their entire royalty system. Thus, the payment system becomes transparent for both the franchisee and the franchisor. Fixed royalties are used by the Umnichka Children's Eco-Club franchise. Sofya Timofeeva, General Director of the company, explains:
“The established amount of royalties allows the franchisee to live calmly and planned, to honestly show us their income. By analyzing earnings reports, we give franchisees advice on how to improve their operations.”
At the same time, even by setting a fixed amount of royalties, the franchisor can reduce the initial financial burden on the business of its franchisees. For this, the company gradually increases in size fixed payments. At first, a newly minted leader needs to understand the business itself, rebuild business processes, so companies do not set large amounts of royalties immediately. Over time, the franchisee establishes the work of his business, the income from it grows, and with them the amount of royalties grows.
Most often, a fixed amount of royalties is calculated in rubles, but franchisors can choose your own currency in which the franchisee will pay them. International franchise networks can choose US dollars as the currency for settlements. For example, the $300 royalty was set by the JumpingClay franchise, which has its roots in Korea. Maria Veselova, General Director of the company in Russia, says:
“The amount and currency of royalties is determined by the international rules by which we work”
The main copyright holder of the JumpingClay brand is a Korean company that develops new training programs and new positions in the assortment. That's what 75% of royalties go to. The rest of the proceeds from royalties are used to develop the brand in Russia.
As you can see, royalty schemes can vary greatly from franchise to franchise. The franchisor company has the right to establish the payment calculation scheme, the amount of payments and even the currency on its own. However, royalty calculations are always built in such a way that the franchisee's business does not wither in the very first months of operation, but begins to bring a stable income, including to the franchisor.
To start a franchise business, in most cases you will need to rent a room. Fortunately, you can find an office, shop space or production area without leaving BIBOSS. Check out our section « » and check it out.
Want to learn more about what franchising is? Articles will help you find the answer « » and « » . Like the idea of starting a franchise business, but want to see all the options? You can find more current offers in the franchise catalog .
18JanWhat is Royalty
Royalties are an official payment to the owner of tangible or intellectual property for the use of it, a patent, work or other property.
What is ROYALTY - meaning, definition in simple words.
In simple terms, royalty is a certain amount of money that must be paid to the rightful owner of the rights to any property. In other words, you can say that if you want to use someone's patented idea or technology, franchise, musical or artistic work for the purpose of making money, then you need to pay royalties to its rightful owner. For example, if you need to use any copyrighted material (), then from the point of view of the law, this becomes possible only after agreeing all legal and financial aspects with the copyright holder. Otherwise, the use of such material will be illegal, which may lead to legal action.
Another excellent example for understanding the meaning of the word "Royalties" can be the organization of the work of the world famous chain of fast food restaurants "McDonald's". The fact is that formally most restaurants are not owned by McDonald's Corporation, but they all pay royalties for using their franchise. In simple terms, the parent company sells a “license” to use its brand, subject to compliance with corporate requirements and standards.
Rates and types of royalty.
The most common occurrence when compiling royalty amounts is a percentage of gross sales. This usually ranges from five to nine percent. Thus, this is a beneficial aspect for both the owner of the rights and the one who uses them. There are also franchisors who determine the amount of royalties in the form of a specific fixed figure.
Royalty is a fee for using someone else's trademark or brand. In the article, we will understand what royalties are, in what cases this type of license fee is used.
Royalty is a type of monetary reward for the use of copyrights, patents, trademarks and brands, franchises, natural resources and other types of property ( ). In simple words, pianos are a regular payment for the provision of services or a trademark. The term "is used in many industries, most notably in franchising, for example:
- when paying rent;
- when collecting a fee;
- when using someone else's brand or trademark;
- when paying for the use of someone else's property (usually payment in the form of a share of profits).
Also, royalty in land law is used as a term meaning a rent for the right to develop natural resources, which is paid to the owner of the land or subsoil by the entrepreneur.
The franchisor (the owner of the trademark) and the franchisee (the one who pays for the use of a well-known brand) enter into a franchise agreement, according to which the franchisor undertakes to give the right to use its own trademark, conduct advertising campaigns and help train staff, as well as design retail premises. The franchisee, in turn, pays a fee for joining the trading network (one-time lump-sum fee) or a certain amount of investment in business development. This gives the entrepreneur the right to run his own business without much advertising costs and at the same time having constant suppliers. In the process of work, the franchisee pays royalties - payments from sales, as a rule, monthly or quarterly. The amount of royalties is established by the agreement.
Royalty payments: what they pay for
Percentage of profit or turnover. Such a royalty payment, when a percentage is paid on profits, is not so common. The thing is that the amount of profit largely depends on the level of expenses of the franchisee. When a business is just starting up or the franchisee overstates costs, profit margins are minimal or non-existent. In this case, the franchisor does not receive a decent payment in the form of royalties.
This type of royalty is beneficial to the franchisee and absolutely not beneficial to the franchisor, because. it cannot affect the size of the profit (). Therefore, the case when the amount of royalties is equal to a percentage of turnover is more common. It is more difficult to hide the real turnover of production from the brand owner. Today it is the most common type of royalty.
Margin Percentage. In this case, the franchisee pays a percentage of the trade margin. This option is more beneficial for the franchisor, as he can regulate wholesale and retail prices, and, accordingly, determine the size of the trade margin.
Royalties in the form of a fixed amount. In this case, the amount of royalties is fixed in the franchise agreement, and the agreement also determines the exact terms of its payment. It does not depend on product prices or turnover. The option can be beneficial both to the franchisor (receives a clearly fixed amount, regardless of the turnover or profit of the franchisee), and the franchisee (in case of high production turnover). The larger the volume of production, the lower the share of royalties in the unit cost of production.
This encourages franchisees to expand production, to conduct business more efficiently. Payments can be paid monthly, quarterly or once a year - this is established by the contract. The option is beneficial for companies that find it difficult to determine the exact amount of income.
Promotional payments to the franchisor– deductions of money for the promotion and advertising of the brand under which the franchise buyer works. These deductions can be included in the percentage of royalties, or they can be made in the contract as a separate clause as a separate payment.
Free royalty: intellectual property license
There is a special type of property that applies to such objects as literary and musical works, software for equipment (computers, telephones, other office equipment). For their developments and works, the owners receive free royalties - a one-time payment for the use of intellectual property legally.
There is no general formula for calculating free royalties. This option of acquiring intellectual property can be very beneficial if the object is used repeatedly. For example, this may concern anti-virus programs or photos or music. However, it should be remembered that royalty free does not mean that the intellectual property object can be used for free, it must first be bought from the copyright holder. Also, free royalties can be used for charitable purposes to expand the circle of people who could get access to intellectual property. .
What are the risks of royalties under license agreements
Tax officials find signs of interdependence in transactions under license agreements and charge additional income tax. If they prove that it is economically unprofitable to pay royalties - for example, payments are unchanged, and the profitability of the business is falling, the transaction will be recognized as unrealistic and additional income tax will be charged.
Taxation of royalty payments
From the point of view of the tax legislation of the Russian Federation, funds in the form of royalties are recognized as income of the licensor organization and are subject to corporate income tax in accordance with the provisions of Article 250 of the Tax Code of the Russian Federation.
In accordance with the procedure provided for by subparagraph 3 of paragraph 4 of Article 271 of the Tax Code of the Russian Federation, such income is recognized on the date of settlements in accordance with the terms of concluded agreements or presentation to the taxpayer of documents serving as the basis for making settlements, or the last day of the reporting (tax) period.
Also, the payment of royalties in the Russian Federation is recognized as an expense for a licensee organization in order to form a base for corporate income tax in accordance with the provisions of paragraph 37 of Article 264 of the Tax Code of the Russian Federation.
Royalty as a way to redistribute income tax
Friendly organizations can optimize the payment of income tax without compiling any reports and acts on the services rendered through payments under a franchise agreement to the owner of exclusive rights (royalties).
At the same time, the right holder receiving income should be an organization on a simplified system or an organization on a general regime, but with unprofitable activities. In the first case, savings will be achieved due to the fact that the tax rates on the simplified tax system are lower than the income tax rate (Article 346.20 of the Tax Code of the Russian Federation). In the second case, the proceeds from the transfer of rights will simply reduce the overall loss.
Official position: The Ministry of Finance of Russia confirms that for the recognition of expenses for the acquisition of license rights, the existence of an act of acceptance and transfer is not required. However, royalties can reduce taxable profits only if the acquired rights are used in business activities in strict accordance with legal requirements.
The financial department proceeds from the fact that both the agreement on the alienation of exclusive rights and the license agreement should provide for the procedure for the transfer of rights from the right holder to their acquirer. Thus, paragraph 4 of Article 1234 of the Civil Code of the Russian Federation establishes that the exclusive right to the result of intellectual activity or to a means of individualization is transferred from the right holder to the acquirer at the time of the conclusion of the contract on the alienation of the exclusive right, unless otherwise provided by agreement of the parties. At the same time, Article 1235 of the Civil Code of the Russian Federation stipulates that the licensee may use the result of intellectual activity or means of individualization only within the limits of those rights and in the ways provided for by the license agreement.
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Royalty - this is periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights, etc. were used. May be paid as a percentage of the cost of goods and services sold, percent from profit or income. And it can also be in the form of a fixed payment, in this form it has some similarities with rent.
As opposed to commission or fee Royalty is not a one-time bonus.
Royalty has become widespread in franchising, in which monetary compensation is charged for a trademark (trademark), logo, slogans, corporate music and other signs by which the end can distinguish the organization from competitors.
Royalty- this is periodic payments to the seller for the right to use the subject of the license agreement. In the agreements, the R. rate was set in agreements as percentages from cost net sales of licensed products or is determined per unit of output; payment for the right to develop and extract natural resources.
Royalty- this is periodic deductions seller(licensor) for the right to use the subject matter of the license agreement. Set at fixed rates percent from cost pure sales licensed products, their cost, gross arrived or is determined per unit of output.
Royalty or license feee is royalties paid from time to time for movie rentals, books, music discs, and the right to use a patent, invention, or license for a product or technology. Deductions are made by the licensee in favor of the owner licenses, through agreed time periods. The amount of payments is fixed in the form of an interest rate, the calculation is based on the economic gain from the listed activities (for example, the value of net sales or gross profit). Most often, the fee is fixed from the total cost of sales of products.
Royalties are also called royalties. The copyright holder receives a Royalty each time his intellectual property is used for commercial purposes (for each reproduction of a song or music, publication, and so on).
In some cases, the term royalty is used in relation to payments for the right to mine. natural resources and field development. In countries where it is considered the property of the state or monarchy (for example, in the UK), Royalty is a tax paid by enterprises that specialize in mining. In the United States, where the right to private property is in force, royalty is not included in the number of tax deductions, but is a rent for the use of resources.
Due to the fact that not all payments for the transfer of the right to use objects of intellectual property rights are Royalties in the terms of the TCU, many tax payers may have difficulty reflecting transactions with Royalties in the Corporate Income Tax Return.
In order to avoid errors when filling out the Tax Declaration for income tax enterprises Let's dwell on this issue in more detail.
Royalties in the benefits of the taxpayer.
Royalties are included in income:
from operating activities (line code 02 of the Tax Declaration for income tax enterprises);
other income(line code 03 of the corporate income tax return).
1) Income from operating activities includes royalties accrued under contracts in accordance with which works are performed and services are provided.
Conditional example. Under a license agreement, the developer of a computer program (the licensor) transferred the distribution treaty(licensee) the right to sub-license. Under a sublicensing agreement, the licensee transfers the rights to use a computer program treaty private user (sublicensee). With every sold licenses for the use of a computer program, the licensee accrues to the licensor a Royalty in the amount of 70 percent of the cost of the license granted to the end user. Royalties accrued by the licensee for the transfer of the right to use a computer program to an end user are included by the licensee in operating income.
2) Royalties are included in other income as passive profit (clause 14.1.268, article 14 of the TCU). In order to be convinced of this, it is enough to look at Appendix “ID” to line 03 of the Tax Declaration for Corporate Income Tax (line code 03.2).
Conditional example. Under a license agreement, the owner of a patent for an invention, the exclusive property rights to the agreement recognized as his intangible asset, granted an industrial enterprise a license for a method for manufacturing industrial products. For the use of the invention, the industrial company monthly transfers to the owner patent Royalty. This Royalty is a passive benefit to the owner patent.
Royalty (Royalty) is
Royalty (Royalty) is
Licensing fees - amounts paid to the creator or participant of an artistic work based on individual sales work. To receive royalties, a work must generally be copyrighted or . Also, often the amount of license fees received is negotiated.
For example, the author tends to conclude treaty with a publisher to publish a book. In most cases, the author gets some credit for giving the publisher the right to publish the book. The rest of the money made from the book will be royalties, a percentage of the profits from each book sold. Sometimes this percentage is high and other times relatively low. Sometimes the upfront is low, but the licensing fees are higher.
Further, should the book be made into a film, the film's profit rights can be negotiated as both a flat fee and royalties. That way, the person could sell their idea directly to the director, and get paid sincerely. Alternately, the writer might license his ideas to the director and receive a percentage of the film's profits as royalties.
Even after the film left the cinema, the author could still continue to make money in royalties through DVD sales, or through licensing to show the film on television. Frequently repeats of licensing mean lower license fees over time.
An actor participating in a film might also be entitled to royalties through DVD sales, or through licensing to show the film on television. Also, TV show personalities often make royalties when series are re-launched. Sometimes when shows go into syndication, royalties continue to be made long after the show has ended. Again, royalties tend to decrease as shows are shown more frequently.
In some cases, people may go to court to sue for royalties when a patent or copyright is infringed. Thus, illegally used songs, for example, might mean being prosecuted for a portion of one's profits. Some musicians advertise their work as a one-time payment, which allows them to receive more airplay. This was the case with the surprise 2006 hit band, Well Go.
Instead of concluding treaty for licensing fees, the group decided to publish their first and second videos on the site, YouTube. This gave everyone access to the band's videos, and free downloads. The result was the band's extreme popularity and boosted record sales. Sometimes, the decision to produce something royalty-free can actually lead to more financial rewards.
Sources
Wikipedia - The Free Encyclopedia, WikiPedia
btimes.ru - Russian Business News
mybank.ua - My bank
Encyclopedia of the investor. 2013 .
Synonyms:See what "Royalty" is in other dictionaries:
royalty- For each premium product released for sale, the OCOG pays a royalty. The procedure for paying royalties is detailed in each agreement with a marketing partner. The Partner is obliged to fully report on this issue to the OCOG. [Department… … Technical Translator's Handbook
ROYALTY- periodic (current) deductions to the seller (licensor) for the right to use the subject of the license agreement. In practice, ROYALTY is established as a fixed rate as a percentage of the value of net sales of licensed products, its ... ... Financial vocabulary
Royalty- Royalty (royalty) - 1. Compensation regularly paid for the use of a patent, copyright, property of another person in the form of a certain percentage of deductions from the volume of income, sales of products, its cost, ... ... Economic and Mathematical Dictionary
Royalty- (eng. royalty) periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property, in the production of which these patents, copyrights were used ... ... Wikipedia
ROYALTY- [English] royal power; deductions to the author] econ. 1) periodic deductions for an invention or KNOW-HOW purchased under a license, paid to the licensor (LICENSOR) within a certain period specified in the license ... ... Dictionary of foreign words of the Russian language
royalty- license fee, license fee; payment, remuneration, deduction, payment Dictionary of Russian synonyms. royalties noun, number of synonyms: 6 remuneration (26) … Synonym dictionary
ROYALTY- (English royalty) compensation for the use of patents, copyrights, natural resources and other types of property, paid as a percentage of the cost of goods and services sold, in the production of which patents were used, ... ... Law Dictionary
Royalty- See Royalty Glossary of business terms. Akademik.ru. 2001 ... Glossary of business terms
ROYALTY- (English royalty, from medieval French roialte, from Latin regalis royal, royal, state), a type of license fee; periodic interest payments (current charges) to the license seller, ... ... Modern Encyclopedia
ROYALTY- see ROYALTY. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B. Modern economic dictionary. 2nd ed., rev. M .: INFRA M. 479 s .. 1999 ... Economic dictionary
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