Royalty Based Financing Agreement for Australia

Royalty Based Financing Agreement Template for Australia

This Australian law-governed Royalty Based Financing Agreement establishes a financing arrangement where the return to the investor is structured as ongoing royalty payments based on the borrower's revenue or profits, rather than traditional interest payments. The agreement details the financing amount, royalty calculation methodology, payment terms, reporting requirements, and protections for both parties. It incorporates specific provisions compliant with Australian financial services regulations, corporate law, and consumer protection requirements, while establishing clear mechanisms for monitoring, reporting, and ensuring compliance with payment obligations.

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What is a Royalty Based Financing Agreement?

The Royalty Based Financing Agreement serves as an alternative financing instrument for companies seeking growth capital without diluting equity or taking on traditional debt. This document is particularly suitable for Australian businesses with steady revenue streams or valuable intellectual property assets, offering a flexible financing solution where repayment is tied to business performance. The agreement typically includes detailed provisions for calculating and paying royalties, reporting requirements, audit rights, and both parties' obligations under Australian law. It's commonly used when traditional debt financing may not be suitable or when companies prefer to align payment obligations with their revenue performance. The document must comply with Australian financial services regulations, including the Corporations Act 2001 and ASIC requirements, while providing adequate protection for both the financier and the recipient company.

What sections should be included in a Royalty Based Financing Agreement?

1. Parties: Identifies and defines the parties to the agreement, including their legal status and contact details

2. Background: Sets out the context and purpose of the agreement, including the business relationship and financing objectives

3. Definitions and Interpretation: Defines key terms used throughout the agreement and establishes interpretation rules

4. Financing Terms: Details the amount of financing provided, disbursement conditions, and any tranching arrangements

5. Calculation of Royalties: Specifies the basis for calculating royalties (e.g., percentage of revenue/profits), including the definition of qualifying revenue

6. Payment Terms: Sets out payment frequency, method, currency, and payment procedures

7. Reporting Requirements: Specifies financial reporting obligations, including frequency, format, and required content

8. Audit Rights: Details the financier's rights to audit the company's books and records

9. Representations and Warranties: Lists the fundamental promises and assertions made by each party

10. Covenants: Outlines ongoing obligations and restrictions on the company's activities

11. Events of Default: Defines circumstances constituting default and consequences

12. Term and Termination: Specifies the duration of the agreement and circumstances for early termination

13. Confidentiality: Establishes obligations regarding confidential information

14. General Provisions: Standard boilerplate clauses including notices, amendments, governing law, etc.

What sections are optional to include in a Royalty Based Financing Agreement?

1. Security: Include when the financing is secured against specific assets or intellectual property

2. Intellectual Property Rights: Include when the royalty calculations are based on IP exploitation or when IP rights need protection

3. International Payments: Include when parties are in different jurisdictions or multiple currencies are involved

4. Change of Control: Include when restrictions on ownership changes are required

5. Minimum Guarantee: Include when there's a minimum royalty payment requirement

6. Step-In Rights: Include when the financier needs rights to take control in specific circumstances

7. Insurance Requirements: Include when specific insurance coverage is required to protect the investment

8. Board Observer Rights: Include when the financier requires board representation or observation rights

What schedules should be included in a Royalty Based Financing Agreement?

1. Schedule 1 - Calculation Methodology: Detailed formula and examples for calculating royalty payments

2. Schedule 2 - Reporting Template: Standard format for regular financial reports and royalty calculations

3. Schedule 3 - Initial Business Plan: Company's business plan and financial projections

4. Schedule 4 - Permitted Encumbrances: List of existing or permitted liens, charges, or encumbrances

5. Schedule 5 - Key Performance Indicators: Specific metrics for monitoring business performance

6. Appendix A - Form of Compliance Certificate: Template for periodic compliance certification

7. Appendix B - Form of Payment Notice: Standard format for royalty payment notifications

8. Appendix C - Security Documents: Forms of any required security documentation

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Australia

Publisher

Genie AI

Document Type

Finance Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Technology

Media and Entertainment

Software Development

Mining and Resources

Renewable Energy

Manufacturing

Healthcare and Biotechnology

E-commerce

Food and Beverage

Consumer Products

Professional Services

Relevant Teams

Legal

Finance

Treasury

Compliance

Risk Management

Corporate Development

Accounting

Executive Leadership

Operations

Relevant Roles

Chief Financial Officer

Finance Director

Legal Counsel

Corporate Lawyer

Investment Manager

Business Development Director

Financial Controller

Treasury Manager

Commercial Director

Risk Manager

Compliance Officer

Chief Executive Officer

Company Secretary

Industries
Corporations Act 2001 (Cth): Primary legislation governing business entities in Australia, including financial products and services. Relevant for structuring the financing arrangement and ensuring compliance with corporate regulations.
Australian Securities and Investments Commission Act 2001: Regulates financial products and services, including consumer protection provisions and fair trading obligations in financial services.
Income Tax Assessment Act 1997: Governs the taxation of income, including treatment of royalty payments and financial arrangements. Critical for structuring the royalty payments and understanding tax implications.
Competition and Consumer Act 2010 (including Australian Consumer Law): Contains consumer protection provisions and regulations regarding unfair contract terms, particularly relevant if dealing with small businesses.
Personal Property Securities Act 2009: Relevant if the financing agreement includes any security interests over personal property or intellectual property rights.
Contract Law (Common Law and State-specific Legislation): Fundamental principles of contract formation, enforcement, and remedies that govern the agreement's validity and interpretation.
National Credit Code (Schedule 1 to the National Consumer Credit Protection Act 2009): May be relevant if the financing arrangement could be characterized as a credit facility under Australian law.
Anti-Money Laundering and Counter-Terrorism Financing Act 2006: Compliance requirements for financial transactions and reporting obligations that may apply to the financing arrangement.
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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