What is the difference between royalty and share of profits?

Padmapriya, Chennai

Royalty is paid with reference to production or sales — Rs 5 per unit or 1 per cent of sale etc. It is generally paid for the user of intellectual property rights belonging to someone else, such as trademark, patent etc. Share of profits, on the other hand, is conditional and based upon profits. The one agreeing to take a share of profits is more intimately involved in the running of an enterprise and is a risk taker at that, but the supplier of technology, who has no financial stakes in an enterprise, usually settles for less alluring, but steady and sure royalties.

Mutual fund taxes

Why is it that dividend to corporates handed out by mutual funds attract a 30 per cent distribution tax, whereas in the case of individuals and HUFs it attracts only 12.5 per cent tax?

Ramya Gopalakrishnan, Coimbatore

With the years, the government has been viewing with growing dismay the steady hijacking of mutual fund investments by corporates and high net worth individuals, whereas it was essentially meant for the common man, the one with very little financial literacy, who ought not be exposed to the vagaries and volatilities of the stock market. The government found that the benign tax regime for mutual funds was the major reason for corporates warming up to mutual fund investments. A 30 per cent tax corresponds to the corporate rate of tax, and should dissuade corporates from seeking the mutual fund route. At the other end of the spectrum, a soft tax of 12.5 per cent on dividend paid to individuals and HUFs by mutual funds, besides liquid and money market funds, would serve to promote equity cult amongst the middle class.

Golden shares

What is a golden share?

Jim Rodrigues, Panaji

It was an instrument pioneered by the Margaret Thatcher government in the UK, on the eve of disinvestment. A golden share in the hands of the government vested it with the right to veto any proposal of significance, so that the new private promoter does not run amok and ride roughshod over public interests by assets stripping etc.

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(This article was published on August 28, 2011)
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