You must have heard of the term “royalty” before, especially if you follow the music industry. There are several stories of artists living off royalties as well as those not been paid enough.
But do you know what royalties mean? Well, hang on. This article will help you understand the term and how royalties are earned.
What are Royalties?
The concept of royalties dates back to the medieval age when kings and royals had lands and various assets. Some of the lands contained minerals like gold, diamonds, and other materials, and anyone who wanted to take them out of the land had to pay for the right.
By definition, royalties are payments of various kinds made to the owners of intangible works and intellectual properties that are trademarked or patented to use them for a specified period.
There are two parties in a royalty agreement: the person that owns the property and the individual or business that want to use it.
Let’s say, for instance, you produce a song, and someone wants to use the song for jingles. They have to pay you royalty to use it. The same goes for any work or intellectual property.
Income earned from royalties is tax-deductible. It is to be reported to the tax authority as business expenses.
Why Are There Royalties?
Royalties are necessary to protect the owners of intellectual properties and other types of works. It requires time and resources to build a brand, create a beautiful portrait, or even take a picture.
The royalties paid to serve as a reward for their work and in a way, encourage other people to produce original works.
Types of Royalties
Here are a few ways to earn royalties;
· Performance Royalty: these are payments made to use copyrighted music. Most musicians are paid royalties when their work is used for adverts, political jingles, videos, and more.
· Book Royalty: Authors and publishers are paid royalties for the usage or sale of their written work.
• Stock Photography: The owners of copyrighted images are paid for their usage. Stock photography websites that sell photos pay the owners of the photos royalties for each sale.
• Celebrities are paid royalties to the use of their names for any promotion. Sportspersons like Cristiano Ronaldo earn a lot from royalties.
• In a franchise agreement, the owner of the business pays royalties to the original company with the franchised name and asset.
• Patented Royalty: Owners of patented products are paid royalties by people who want to use, recreate, or sell their work for any reason.
• Royalties are paid to owners of lands where mineral resources like gold, petroleum, and others are found and explored.
Royalty Contracts
There is no laid down procedure for royalty contracts. It varies based on the terms agreed by the owner of the property and the person that needs it. However, certain things should be in the contract, including:• Length of the agreement• The amount of the royalty payment• The property which the royalty is meant for.• The scope and limitations of usage.
Royalty agreements are usually of two types; fixed per price agreements and percentage payment from the revenue or profit. The contracts are, most times, legally binding.