Royalty Based Financing Agreement for Nigeria

Royalty Based Financing Agreement Template for Nigeria

This document is a comprehensive financing agreement governed by Nigerian law that structures a royalty-based investment arrangement between a financier and a company. It establishes the terms under which the financier provides capital in exchange for regular royalty payments calculated as a percentage of the company's revenue or other specified financial metrics. The agreement incorporates relevant provisions from Nigerian corporate law, investment regulations, and tax requirements, while addressing specific considerations for royalty calculations, payment mechanisms, reporting obligations, and investor protections.

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What is a Royalty Based Financing Agreement?

The Royalty Based Financing Agreement serves as an alternative financing instrument in the Nigerian market, offering businesses access to capital without traditional debt obligations or equity dilution. This document is typically used when companies seek growth financing while maintaining operational control and flexibility in payment structures. It is particularly suitable for businesses with strong revenue potential but limited assets for traditional collateral. The agreement details the financing amount, royalty calculation methods, payment terms, reporting requirements, and investor protections, all within the framework of Nigerian law and regulations. It includes specific provisions for compliance with Nigerian corporate law, tax requirements, and where applicable, foreign exchange regulations. The document is designed to protect both the financier's investment and the company's operational autonomy while ensuring transparent and enforceable terms for the royalty payments.

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

1. Parties: Identifies and defines the parties to the agreement - typically the Financier and the Company

2. Background: Sets out the context of the agreement, including the Company's business and the purpose of the financing

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

4. Financing Amount and Purpose: Specifies the amount of financing provided and its intended use

5. Royalty Payments: Details the calculation method, rate, and basis for royalty payments

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

7. Reporting Requirements: Outlines the Company's obligations to provide financial reports and relevant business information

8. Representations and Warranties: States the facts and assurances provided by each party

9. Covenants: Details ongoing obligations of the Company, including financial and operational commitments

10. Events of Default: Lists circumstances that constitute default and their consequences

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

12. Confidentiality: Protects confidential information exchanged during the agreement

13. Governing Law and Jurisdiction: Specifies Nigerian law as governing law and establishes jurisdiction for disputes

14. General Provisions: Standard boilerplate clauses including notices, amendments, and assignment

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

1. Security: Include when the financing is secured by specific assets or guarantees

2. Intellectual Property Rights: Required when royalties are based on IP-related revenue or when IP transfer is involved

3. Foreign Exchange Provisions: Include when parties are from different jurisdictions or payments involve foreign currency

4. Change of Control: Add when restrictions on ownership changes are needed

5. Minimum Guaranteed Royalty: Include when establishing a floor for royalty payments

6. Maximum Royalty Cap: Add when setting an upper limit on royalty payments

7. Buy-out Options: Include when allowing early termination through a predetermined payment

8. Step-in Rights: Add when Financier requires right to take control in specific circumstances

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

1. Schedule 1 - Calculation of Royalty: Detailed methodology for calculating royalty payments, including specific formulas and examples

2. Schedule 2 - Form of Financial Reports: Templates and requirements for periodic financial reporting

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

4. Schedule 4 - Payment Procedures: Detailed procedures for making and reconciling royalty payments

5. Schedule 5 - Key Performance Indicators: Metrics used to measure business performance and impact on royalties

6. Appendix A - Agreed Form Documents: Standard forms for notices, certificates, and other routine communications

7. Appendix B - Security Documents: If applicable, documents relating to any security or guarantees provided

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

Jurisdiction

Nigeria

Publisher

Genie AI

Document Type

Financing Agreement

Cost

Free to use

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