Part 2 - Some Alternatives To Equity Funding

View Part 1 here: Part 1 of this post

In the previous post, we discussed some problems of equity funding that are faced by investors in India. In this post, we will look at some alternatives to equity funding that are used by companies globally and in India. None of these replace the fundamental principle of investing in equity. However when used in tandem with equity funding, they can optimise outcomes for both the investor and investee.

1. Brand or trademark licensing

Subsidiaries often use their parent company's brand or trademark without paying any royalty. If the subsidiary has surplus cash flows, it is advisable – and correct – to charge a royalty for use of assets. Royalty is an operating cost and is tax deductible. In case of an overseas parent and Indian subsidiary, however, such an arrangement is subject to transfer pricing norms. Failure to meet these norms can trigger substantial tax liabilities.