Royalty Based Financing Agreement for the United Kingdom

Royalty Based Financing Agreement Template for England and Wales

A Royalty Based Financing Agreement is a legal document governed by English and Welsh law that establishes the terms under which an investor provides funding to a business in exchange for a percentage of future revenue or profits. This alternative financing method differs from traditional debt or equity financing by linking repayment to the company's performance. The agreement details calculation methods, payment schedules, reporting requirements, and various protections for both parties under UK financial regulations.

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What is a Royalty Based Financing Agreement?

The Royalty Based Financing Agreement serves as an alternative financing instrument for businesses seeking growth capital without diluting equity or taking on traditional debt. This document, governed by English and Welsh law, is particularly suited for companies with predictable revenue streams looking to access growth capital. The agreement sets out the framework for calculating and paying royalties based on agreed metrics, typically revenue or profits, and includes essential provisions for financial reporting, investor protections, and compliance with UK financial regulations. It's increasingly popular among scale-ups and established businesses seeking flexible financing options.

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

1. Parties: Identification and details of the contracting parties

2. Background: Context and purpose of the agreement

3. Definitions: Key terms used throughout the agreement

4. Royalty Calculation: Formula and methodology for calculating royalty payments

5. Payment Terms: Timing, method, and currency of royalty payments

6. Reporting Requirements: Financial reporting obligations and deadlines

7. Audit Rights: Rights to audit the financial records and calculations

8. Representations and Warranties: Standard representations and specific business warranties

9. Covenants: Ongoing obligations of the parties including financial covenants

10. Term and Termination: Duration and circumstances for ending the agreement

11. Confidentiality: Protection of confidential information and trade secrets

12. Boilerplate Clauses: Standard contract provisions including governing law, notices, and assignment

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

1. Security Arrangements: Additional security provisions when collateral or guarantees are required

2. Minimum Guaranteed Payments: Provisions for minimum payment obligations to protect the financier

3. Exit Provisions: Terms for early repayment, buyout options, or transfer rights

4. Change of Control: Provisions dealing with changes in ownership or control of the business

5. Intellectual Property Rights: Specific provisions relating to IP if relevant to the royalty calculations

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

1. Calculation Schedule: Detailed methodology and examples of royalty calculations

2. Form of Reports: Templates and requirements for financial reporting

3. Security Documents: Details of any security arrangements and related documentation

4. Business Plan: Recipient's business plan, financial projections, and key milestones

5. Excluded Revenue: List of revenue streams excluded from royalty calculations if applicable

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

England and Wales

Publisher

Genie AI

Document Type

Finance Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Industries

Financial Services and Markets Act 2000: Primary legislation governing financial services and markets in the UK. Determines regulated activities, authorization requirements, and permissions needed for financial arrangements.

Consumer Credit Act 1974: Provides consumer protection provisions, particularly relevant if the recipient is an individual or small partnership.

Companies Act 2006: Governs corporate authority, capacity, registration requirements, and directors' duties in UK company law.

Law of Property (Miscellaneous Provisions) Act 1989: Sets out requirements for creation and enforcement of contracts, particularly relevant for contract formation and execution.

FCA Regulations: Regulatory framework covering financial promotion rules, conduct of business requirements, and investment regulations.

Money Laundering Regulations 2017: Establishes due diligence requirements and reporting obligations for financial transactions.

Income Tax Act 2007: Governs the taxation of income, including treatment of royalty payments for individuals.

Corporation Tax Act 2010: Determines the tax treatment of royalty payments and corporate income for businesses.

Insolvency Act 1986: Regulates insolvency proceedings and establishes priority of creditors in case of default or bankruptcy.

Enterprise Act 2002: Covers security arrangements, registration of charges, and corporate insolvency provisions.

UK GDPR: Regulates the processing and protection of personal data in the UK post-Brexit.

Data Protection Act 2018: Implements and supplements UK GDPR, setting out specific requirements for data protection and privacy notices.

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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