Royalties are a much spoken about term, that are little understood when it comes to the granular detail of them. Understanding a royalties definition is critical if you are negotiating on a contract within which royalties are included. By understanding them, you can help get the best result in terms of royalties for you - whether you are paying them or receiving them.

What are royalties?

Royalties, in short, are a form of payment. They are made from one entity to another as remuneration for using a person's assets. Most commonly, those assets will be copyrighted music or manuscripts. For that reason, it is very common for musicians and authors to be paid in royalties - among other payment terms. However, it is also common to see fashion designers also receive royalties when other companies use their name or brand or logo. People can also receive royalty payments for patents they have licensed out. 

How do royalties work?

Once the royalties structure is agreed upon in a contract, they work on a simple, recurring transactional basis. Royalty payments can be calculated on a gross revenue, net revenue or fixed amount structure, depending on what is finally agreed between the two parties. Those fees and structures are detailed in a licensing agreement between the two parties. It will outline when payments should be made too as well as the amount and to where. 

The amount of royalties paid is often calculated on a percentage basis - ie an author receives x% of the income of his or her book each time it is sold. Music royalties can run on a similar basis, but mechanical royalties in the music industry are when a payment is made to a songwriter for each time a copy of one of their songs is made. Performance royalties are when a songwriter receives a payment in return for authorizing the right to play one of their songs in public. 

Advantages of royalties

Royalties have their advantages when it comes to payment as they can mean that a person can continually benefit financially from others using their asset. It means that once a songwriter has written a popular song, for instance, they receive payment each time that song is played or recorded. As a result, they get compensated each time someone else makes use of their assets. This is a very fair and equal way of ensuring that an individual gets recognition, financially speaking, each time something they have created is enjoyed or used by another entity.

Contractbook and royalties

Contractbook can be an incredible resource for those looking to include royalty payments in their contracts. Our library of templates makes creating a contract painless. You can quickly learn and understand how to license a patent for royalties in a fantastic time-efficient way to ensure that a legally sound contract is established between you and the other party. 

Additionally, given that royalty payment structures are often subject to a great deal of negotiation, our collaborative software allows for swift resolution to occur. Using our software means that you can be confident that creating a licensing agreement that includes royalty payments will benefit both the licensor and the licensee. 

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