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Paying Royalties?

Our American company has partnered with a European company for the past 2.5 years to bring a European "yoga-type" tool to the USA and enter the market. We currently handle the manufacturing, marketing, advertising and sales. They have provided the initial European artwork and visual materials (different language) that we have converted/translated to use in the USA. We currently pay the European company a royalty of 6.25% of sales (or 10% of profit). At this point, the European company wants to create a new jointly owned company where they will also own shares - probably 33% of total voting shares. I have 2 questions: 1) What is a typical royalty amount (or range) for this type of product? Is 6.25% appropriate? They hold the European and American patent for the product. The European company has also provided knowledge & training regarding how to use the product. 2) The European company is mismanaged and we are very cautious about forming a company with them. Does anyone have any ideas about an arrangement to keep them at arms-length? Their primary reason for wanting to be in the company is in the scenario where the company is later sold at a profit. We don't take issue with that. We simply don't want them to have a large degree of voting control or influence on management.


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

To answer your questions,

1 - is 6.25% too much? I've seen more and less, minimums, co-op fees,etc. The question is what is the bottom line GPM after royalty. Is it in the zone for like kind items?

2 - You can give them preferred stock that has no voting rights but first rights on sale or however else you want to structure it. No vote, no interference. To be nice, give them a non-voting seat on the Board.


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