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Royalty is a compensation to the owner of intellectual property or natural resources for the right to use or profit from the property. Often, owners of intellectual property such as music or books contract with companies to sell and distribute their work to others, and they are compensated through royalties. Royalties pay the owner through a percentage of the sales or can be on a per sale basis. For example, an author may be paid either 20% of all sales or $5 per book sold. Royalties are used for a variety of purposes such as extracting natural resources from land. The term originated from the payments owed to the English crown for extracting resources from its property. Also, a royalty is a type of personal property that can be inherited or gifted.

[Last updated in July of 2021 by the Wex Definitions Team]