A franchise license is a type of licensing agreement between two companies that allows one business access to the brand, logo, and resources from the other business. This relationship is characterized by the franchisee, the business looking to open a franchise, and the franchisor, the parent business the other company wants to work under.
What is the difference between franchising vs licensing?
Another difference between franchising vs. licensing is the amount of control that can be exerted by the seller over the buyer. In a franchise agreement, the franchisor can lay out specific guidelines for how the franchisee markets the business, uses brand trademarks, where the business is located and how the business is operated.
What is an example of a franchise business?
McDonald's is one of the most famous examples of a substantial franchise business. From extremely modest beginnings, McDonald’s now has more than 36,000 restaurants in more than 100 countries. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee.
Is licensing or franchising the best way to start a business?
Some business opportunities offer the best of licensing and franchising. They offer tools or training to help you start your own business, but usually at a lower cost and with fewer restrictions than a franchise. Many vending companies, for example, offer support and training but have no royalty or franchise fees.
What is a a franchise contract?
A franchise contract is temporary, akin to a lease or rental of a business. It does not signify business ownership by the franchisee.
What is a franchise Licence?
A franchise is a type of license that grants a franchisee access to a franchisor's proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell a product or service under the franchisor's business name.
What is franchising an example of?
Franchising is a business marketing strategy to cover maximum market share. Franchising is a business relationship between two entities wherein one party allows another to sell its products and intellectual property. For example, several fast food chains like Dominos and McDonalds operate in India through franchising.
What is an example of licensing?
Licensing agreements generate revenues, called royalties, earned by a company for allowing its copyrighted or patented material to be used by another company. Some examples of things that may be licensed include songs, sports team logos, intellectual property, software, and technology.
What's the difference between a license and a franchise?
Ownership: In a franchise partnership, the business belongs to the franchisee. The franchisee essentially runs the business for the franchisor, but at a fee. In a licensing partnership, the licensee only pays the licensor for a specific product, for which the licensor may have taken out patent rights.
What type of business is a franchise?
A franchise is a type of business that is operated by an individual(s) known as a franchisee using the trademark, branding and business model of a franchisor. In this business model, there is a legal and commercial relationship between the owner of the company (the franchisor) and the individual (the franchisee).
What are the 3 types of franchising?
There are three main types of franchise opportunities available, these are: Business format franchises. Product franchises, or Single operator franchises. Manufacturing franchises.
What are the types of license?
There are three types of driver's license in the country: student permit, non-professional permit and professional permit.
What are types of licensing?
Brand and trademark The brand and trademark licensing can also be of two types. In the first type, the fee of the license is independent of the sales and profits made by the licensee. In the second type, the fee of the license is dependent on the sales and profit generated by the licensee.
What is a license quizlet?
What is a license? A licence is permission to do something the licensee would otherwise have no right to do.
Is a franchise a license to operate a business?
A franchise is a licensing agreement whereby a franchisee pays a fee to a franchisor for the rights to set up a business using the franchisor's brand name and business marketing systems.
Which is a difference between franchising and licensing quizlet?
Licensing is purchasing the rights to produce a company's product in the licensee's country for a negotiated fee. Franchising tends to involve longer-term commitments than licensing.
What do you mean by licensing?
Licensing involves obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined market area. The company that obtains these rights (the licensee) usually agrees to pay a royalty fee to the original owner.
What are the 4 types of franchising?
The four types of franchise business you can invest inJob or operator franchise. These owner operator franchises are usually home based, which keeps overheads down to a minimum. ... Management franchise. ... Retail and fast food franchises. ... Investment franchise.
How is franchising a source of finance?
When you franchise your business, you are essentially selling your business concept to others. This in turn, raises capital for your core business and serves as a constant revenue stream due to the nature of franchise agreements.
What is a franchising your business?
What Does It Mean to Franchise a Business? Franchising is a type of agreement that entails reproducing a successful business model across multiple locations. As the business owner and franchisor, you would create a franchise agreement to begin the process and move toward opening a new franchise.
What is a franchise in simple terms?
You might be asking “What is a franchise in simple terms?” Put simply, a franchise is a business that establishes a brand and business model, then licenses the business and material out to franchisees, people who buy into the franchise. Franchisees own and operate the business under the franchisor’s business plan.
What is a franchise business?
In a franchise business, franchisors grant franchisees with a license to operate a business with the franchisor’s established brand and complete business model.
What are the top 10 franchises with Franchise.com?
At Franchise.com, we specialize in high quality, successful franchises and business opportunities. In no particular order, here are Franchise.com’s top 10 franchises:
What is a service franchise?
A service franchise, otherwise known as a job franchise, is a skills-based franchise that doesn't need a brick and mortar location and has five employees or less. These types of franchises are best for entrepreneurs who want a low-cost, work from home franchise environment. A common service franchise example is Bloomin’ Blinds .
How much does it cost to buy an Ace Hardware franchise?
To buy a franchise with Ace Hardware, a franchisee needs to have at least $250,000 in liquid capital and a minimum net worth of $400,000. Franchisees can expect to make a total investment of $650,000 - $1,100,000.
How many types of franchises are there?
There are five types of franchises: job/service franchises, product franchises, business format franchises, investment franchises, and conversion franchises. Any franchise you’ll find will fit into one of these categories. Click here to read more about these types of franchises and how they’re categorized.
How many Choice Hotels are there?
T he benefits of a strong brand: There are more than 7,000 Choice Hotels® franchises around the world. The robust network of locations ensures that wherever guests’ travels take them, our hotels are there to meet their needs.
What is a franchise?
A typical franchise includes rights to Trade Mark, trade names, logos, patents, trade-secrets and know-how of a business. It includes a license to use the business system, an obligation to share developments and improvements, and the right for the franchisor to determine how the business operates. These can be divided into the “common name leg,” which gives trademark permission, the “fee leg,” stating how much must be paid to begin operations, and the “operations and marketing leg.” All internal systems must be standardized inside the franchise. They take longer and cost more to set up than licenses.
What are some examples of licenses?
Examples of licenses include a company using the design of a popular character, e.g. Mickey Mouse, on their products. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company.
What is franchising business model?
In a franchising model, the franchisee uses another firm's successful business model and brand name to operate what is effectively an independent branch of the company. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps with things like branding and marketing support that aid the franchise. The franchiser also typically ensures that branches do not cannibalize each other's revenues.
Why is franchising covered by securities law?
Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Therefore the franchiser controls whether or not the franchisee makes money. So the government requires franchises to be registered and for franchisers to disclose all risks to potential franchisees.
What is a licensing model?
Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property (IP), brand, design or business programs. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. In this arrangement, the licensing company may exercise control over how its IP is used but does not control the business operations of the licensee.
How many legs does franchising have?
The FTC (Federal Trade Commission) definition of franchising consists of three "legs":
What is a license for a business?
A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks.
What is franchise ownership?
With a franchise, you are investing in an established business, and you are given specific instructions on how to operate it and receive ongoing support and training to ensure success. With franchise ownership, you are committed to following the franchisor’s system, branding and operating procedures. You are also restricted to do business within a specific territory. Franchising offers investors a detailed road map for success.
What are the elements of a franchise?
In legal terms, three elements distinguish a business as a franchise: trademark license, degree of control and payment of an initial fee. With these three factors present, a franchise is required to comply with franchise laws. Every franchise must issue a franchise disclosure document (or FDD).
What is IFPG certification?
IFPG trains individuals to become Certified Franchise Consultants and earn money selling franchises. Franchising and licensing both offer business opportunities with some of the work already done for you, but that doesn't mean they're exactly the same. Franchising is more like a full-service package. Think of it like ordering from ...
Why do franchisees lose control?
There is a loss of control because franchisees must follow the franchisor’s system. But in my experience, many people invest in franchises for that very reason. Most of us can name several examples of franchised businesses without much thought. After all, franchised businesses are all around us.
What are some business opportunities?
Some business opportunities offer the best of licensing and franchising. They offer tools or training to help you start your own business, but usually at a lower cost and with fewer restrictions than a franchise. Many vending companies, for example, offer support and training but have no royalty or franchise fees.
What is a license agreement?
Licensing agreements run the gamut from obtaining the right to use software and apps to using the name or brand of another company to sell products. To give an example, Disney licenses the use of its beloved characters to companies that sell products such as t-shirts, lunchboxes and kids' pajamas.
What is licensing in business?
With licensing, you are obtaining the rights to a certain asset. It’s more like ordering something à la carte. That asset can be part of a bigger business. You can control the business as you wish and use the licensed asset as agreed on in a contract with the licensor.
What is the difference between a franchise and a license?
However, a franchising agreement pertains to a business’s entire brand and operations, while a licensing agreement only applies to registered trademarks. Franchises typically work best for service-based businesses, while licenses are more conducive to product-based businesses. A licensee has more control over how they run their business compared to a franchisee, whose business will be dictated by the franchise owner (franchisor). However, a franchisee will also receive significant guidance and training from the franchisor.
What are some examples of franchises?
Franchising examples. One of the most famous examples of a franchise is McDonald’s. From a modest start, the McDonald’s franchise now has more than 36,000 restaurants around the world. Other famous franchise businesses include: Burger King. Pizza Hut.
What is franchising?
A franchise is a business agreement between a franchisor and a franchisee. The franchisor is the owner of a business. The franchisor sells the rights to their brand — including products and services, intellectual property and more — to a franchisee, who will open up a separate branch under that brand’s name, which is essentially a duplicate of the original business.
Why is franchising important?
Franchising also has the benefit of a shared relationship. The franchisor gets to scale their business rapidly while minimizing some of the work , which is instead done by franchisees. Additionally, the franchisee works with the franchisor to manage the business and learn business skills that they may not know already.
What are the pros and cons of becoming a franchisee?
One of the pros of becoming a franchisee is all the benefits of being a self-employed business owner without the risks of starting a new business. Franchises come with the bonus that they’re already a proven business model with a pre-established customer base.
What is franchising a franchise?
Franchising is a deeper, more complicated business relationship and agreement than licensing. A franchisor retains control over how their brand is used and how each franchise under their name is operated.
What is a licensee?
Licensing, on the other hand, is a limited, legal business relationship where a specific party is granted rights to use certain registered trademarks of a brand. The business relationship is between the licensor (the one who owns the trademarks) and licensee (the one who is granted rights to use them).
What is franchise business?
A franchise is an extension of an already existing brand or business that wants to expand. It is an asset of your brand governed by the federal securities law.
Why is franchising important?
For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. Other advantages of franchising include the fact that you know what the business looks like when it's successful, and you can often take advantages of economies of scale in your relationships with vendors and suppliers.
What are the downsides of franchising?
The downside of franchising lies mainly in the loss of control you have as a business owner since the franchisor makes a lot of the decisions for you. Of course, some business owners consider this narrowing of control a relief and therefore an advantage. Also, the profits tend to be slightly lower than if you had your own business, because as a franchisee, you typically have to pay franchise fees to the franchisor.
What is the most reputable business in the licensing world?
One of the most reputable businesses in the licensing world is Disney . The Disney Consumer Products Branch has licensed movie images and characters, including the famous Disney Princesses, to companies selling everything from home furnishings to personal care products, with plenty of apparel thrown into the mix, ranging from T-shirts and kids' pajamas to wedding dresses.
Why are licenses beneficial?
They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks.
What happens when you license a business?
When you license a business, you sell the rights to use your company's products and trademarks in exchange for some version of royalties , which are usually an agreed-on percentage of the licensee's sales. The licensor retains ownership of the goods or intellectual property involved.
Is a licensing agreement easier to finalize than a franchise agreement?
Are you looking for an easier entry into business, with fewer requirements? If so, a licensing agreement is typically much easier to finalize than a franchise agreement.
What is franchising and licensing?
Basically, franchising means that you're allowing another person to duplicate your business in another location, and licensing is when you allow someone else to sell your products. With both licensing and franchising, you will receive a fee from the person duplicating your business or selling your product.
What Is Franchising?
With franchising, you, the franchisor, allow another person, the franchisee, to open and operate a branch of your business in exchange for a fee. After paying this fee, the franchisee has your permission to duplicate your entire business operations.
Why is it important to license a product?
For example, when you license your product, you can increase its exposure, and your licensee will be able to sell a product without worrying about designing and manufacturing. Licensing and franchising can help you break into new markets that you may not have been able to access otherwise.
What is a license agreement?
Licensing is an agreement between two parties, a licensor and a licensee. The licensor, who owns a piece of intellectual property, allows the licensee to use this property in exchange for a licensing fee.
What are the benefits of licensing and franchising?
Benefits of Franchising and Licensing. Franchising and licensing both provide enticing benefits to businesses. For instance, with these tools, you can access multiple revenue streams with almost no underlying costs, making it much easier for you to increase your business income.
Why is franchising important?
Expanding your market is the biggest benefit of franchising and licensing, and with these arrangements, you may be able to generate more revenue. Both business owners and people that want to break into a profitable market can benefit from franchising and licensing.
How can a business benefit from licensing?
Businesses can benefit from licensing in a variety of ways: Improving their market share. Shaping customer preferences and developing loyalty to the business's brand. Optimizing exposure. Generating revenue. A business that licenses another business's intellectual property is known as a licensee.
What is the difference between licensing and franchising?
Difference Between Licensing and Franchising. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use products and goods where the ownership remains with the licensor whereas Franchising refers to an arrangement between franchiser and franchisee where the latter will enjoy the ownership ...
What is franchising agreement?
Franchising: It is an agreement between two parties where the , one party (henceforth referred as the franchisor), permits another party (henceforth referred as the franchisee) to use its brand name or business model for a fee in order to conduct the business as an independent branch of the franchisor. Licensing: It is an agreement between two ...
What is Licensing?
To understand Licensing, let us take the example of Walt Disney. It is the registered owner of cartoon characters like Mickey Mouse, Donald Duck, etc., these characters are nothing but the outcome of an artist’s imagination which is now popular around the world. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc.; now Walt Disney is not the sole manufacturer of this merchandise. Hence anyone apart from Walt Disney manufacturing these products enters into an agreement with the former to gain a right to use these characters on its merchandise for some consideration & sell the same. This kind of arrangement is referred to as licensing.
What is a license agreement?
Licensing: It is an agreement between two parties where the, one party (henceforth referred to as the Licensor), sells another party (henceforth referred to as the Licensee) the rights to use its intellectual property or manufacture the licensor’s products in exchange of royalty.
Who is governed by the licensor's terms of use?
The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. Licensor, however, has no autonomy over the business of the licensor
Is franchising a subset of licensing?
Though both share similar advantages, licensing can be called a subset of franchising; i.e. a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. Franchising is a much broader concept since it involves a greater degree of control by the franchisor.
Definition
Arrangements
- A typical franchise includes rights to Trade Mark, trade names, logos, patents, trade-secrets and know-how of a business. It includes a license to use the business system, an obligation to share developments and improvements, and the right for the franchisor to determine how the business operates. These can be divided into the “common name leg,” which gives trademark permission, …
Advantages
- Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. It brings a ready-made customer base and often comes with client listings. There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. For franchisors, franchising allows them to expand their busines…
Things to Consider
- When buying a franchise, a businessman should look at balance sheets and bottom lines and compareit to similar franchises in similar areas. They should perform a name-brand availability search and investigate Intellectual Property issues such as patent ownership. Anyone selling a franchise should be sure to protect their Intellectual Property and create comprehensive work m…
Examples
- Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. Examples of licenses include a company using the design of a popular character, e.g. Mickey Mouse, on their products. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company. It can also apply ...
References
- Licensing and franchising - EU Centre for the Promotion of Imports from developing countries
- Franchising & Licensing - What are they? and how can you benefit from them? - World Intellectual Property Organization
- Franchising - Wikipedia
- Licensing - Wikipedia