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Is there any advantage to owning equity in a company compared to a royalty agreement?
Each way you go is a little bit of a gamble.   Owning equity in the company is best in situations where you can trade and sell that equity, or where the dilution of your royalty product would affect your returns, or if you can maintain a certain equity stake without working at the company or if you can hold out on taking equity to reinvest profits for the purposes of growth.   The royalty is best in situations where you're getting a portion of the gross, since you get paid as a creditor, no matter how the company is performing, or if you intend to collect royalties after you leave the company. Now for your situation: if your royalties are fluctuating with profit instead of gross and your equity is tied to your continued partnership and not subject to potential growth... then they're pretty much both workarounds for the same thing, you've removed the particular advantages for each way of receiving payment. If the company ever does buy out or go public, how much of your additional X earning a month would you have to then re-invest to get an equity stake?  And for royalties, if another developer came aboard, or your company bought another company, how much would this dilute your IP contribution? So, aside from the gambling nature of the issue, I'm not sure your tax calculation is right.  You can take equity profit as dividend, as long as you're collecting a sufficient salary (this prevents a business from declaring all profits as a dividend).  This would put those profits into a different tax bracket, 15% capital gains. Or if all profits are equitably split, you could take part as salary, part as dividend.  As well, as someone who's making active income off of their IP, not passive income, you're supposed to file a Schedule C, not a Schedule E, so your royalties would include your self employment taxes.  The schedule E is for royalties where the author isn't actively in the field or actually self employed in that area, or if you own royalties on something you didn't create.  Should you keep the royalties then go to another job field or retire then your royalties could go on a Schedule E.  Now, a tax advantage may exist on a Schedule C if you can write off certain health and business expenses reducing your income that you can't on a Schedule E, though it'd probably be difficult to write off more than the adjusted self employment cost savings of a Schedule E.