What are royalty

Meaning of the term

Although historically the word “royalty” has meant payments to ruling special people for the use of their land and resources, over time the term has gained a more general meaning. Today, royalties are mainly defined as permanent periodic payments to the owner of a certain property. These payments are made by the entity using the property for commercial gain.

Most often, royalties are paid to franchise holders. As you know, franchising is the leasing of a certain business in exchange for periodic deductions, which are just called royalties. Strictly speaking, not even the business itself is rented, but only the trademark, logo, corporate style, identification marks and other characteristic features that allow buyers unambiguously identify the brand. The benefit of franchising is that a businessman gets a ready-made business model: he doesn’t need to be spent on advertising, developing business solutions and technological processes.

The first franchisor was the manufacturer of sewing machines Isaac Zinger, selling the right to repair and maintain sewing machines in the United States.

On the other hand, it turns out to be bound by certain requirements made by the franchise owner (these may be quality standards, minimum sales, $ the use of a particular equipment). In addition, a percentage of the profits or a fixed amount the buyer of the franchise must pay it to the owner. This payment is called royalties.

Who else pays royalties?

Also, the term royalty is actively applied in the commercial use of copyright objects: books, musical works, films, patents on inventions. Here, royalties are the deductions to the copyright owner of some portion of the profits from the realization of each copy or use it for the purpose of obtaining a benefit. Royalties are usually paid in addition to the author’s fee.

Royalties differ from ordinary rents in that its size depends directly on profits made using the rental item.

Finally, royalties are paid for the right to extract minerals and other resources. In some States where subsoil and natural resources are considered property of the country, the recipient of royalties becomes the state. In the same cases where the subsoil is private property, the owner charges a fee for their use.

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