Royalties are necessary but the present regulatory regime rely heavily on independent directors who aren’t sufficiently empowered to protect outside shareholders
Royalty payments are a category of what are known in law as related party transactions. (Representative image)
Royalty payments to the holding or group company for use of the latter’s intellectual property rights are again in the limelight. While multinational companies are seen typically paying such royalty to their foreign group entity, domestic companies too make such payments.
When royalty rates are changed – particularly if upwards – there is a level of unease amongst shareholders and even at a political level as to whether MNCs are enriching themselves at the cost of the shareholders/nation. Shareholders resist for obvious reasons – higher payment of royalty decreases net profits and hence eventually their dividends and wealth.
The question which then arises is what are the legal safeguards to ensure that there is due process and oversight, for transparency and particularly against self-benefit.
Why Legal Safeguards?
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