What is the difference between a license and a franchise?
Franchise: the franchisee uses a company’s business model and brand to run their own store/restaurant/etc. as essentially it’s own entity. Examples would include Domino’s Pizza, Midas, and Merry Maids. Licensee: a company sells the license (brand, copyright) of an item or items to other companies. A primary example is a professional sports team selling the license of their logo (or, brand) to a sporting goods store.
Is franchising and licensing the same?
Many think that franchising and licensing are same, but the fact is that they are different, only the advantages of franchising are similar to those of licensing.
What is licensing and franchising?
Understanding the licensing and franchising meaning is important if you want to grow your business. 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.
What is a franchise license?
Whether you have an established business, or another business arrangement, a franchise can often be the best option to expand their company into a new type of business. 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.
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 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.
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 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 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).
How to decide what type of business is right for you?
Whether licensed or franchised, the most important part of deciding on what type of business is right for you is by looking at the big-picture stuff. Are you excited about it? Will it suit your lifestyle? Will you make a good return on your investment? These are things you can find in both structures, so you owe it to yourself to do your due diligence.
Do franchising licenses have restrictions?
Licenses do not typically come with restrictions in terms of a territory or market for the exclusive use of the licensee. They are governed by standard contract law, so there are fewer administrative burdens for both parties than with a franchising arrangement.
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 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 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 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.
What is Franchising?
Franchising is a business agreement between a franchisor and a franchisee. A franchisor is a business owner. The franchisor sells the rights to their brand, including products and services, intellectual property, and more. A franchisee who will open a separate branch under this trademark is, in fact, a clone of the original business.
What is Licensing?
License refers to a commercial agreement entered into between two parties in which one company authorizes the other to use its intellectual property for a specified period and under specified conditions, which is possible through licensing. This will include the company’s manufacturing process, copyrights, trademarks, patents, technology, etc.
Franchising vs Licensing – 8 Major Differences
The licensing process is governed by a licensing agreement, which includes a one-time transfer of ownership or rights for a fee. In most cases, licensors do not provide technical support or assistance.
The Bottom Line
When deciding what’s right for your business and comparing franchising to licensing, you must consider the needs and goals of your business.
What is licensing vs franchising?
Licensing Versus Franchising. Licensing is a broad term that businesses use for contracting purposes. Licensing gives the licensee a right to operate in cooperation with a brand, gaining access to the brand’s intellectual property , brand, design, and business programs. In exchange, the licensee pays royalty fees to the licensor.
What is a franchise business?
A franchise, on the other hand, is a legal and commercial relationship between the owner of a company (the franchisor) and an individual (the franchisee) who is starting a branch of that business using the business’ trademark logos and business model. Essentially, a franchise is an independent branch of the franchise company.
What states require franchises to register?
Some states are considered franchise registration states, meaning that the franchisor must register their Franchise Disclosure Document prior to selling a franchise within that state. These states often have extra supplemental laws that are required of the franchisor. While all franchisees benefit from the federal protection laws, those in franchise registration states gain an extra layer of protection. The franchise registration states include: 1 California 2 Hawaii 3 Illinois 4 Indiana 5 Maryland 6 Michigan 7 Minnesota 8 New York 9 North Dakota 10 Rhode Island 11 Virginia 12 Washington 13 Wisconsin
How are franchise fees paid?
Franchise fees, also called royalty fees, are paid upfront. Management fees are ongoing and typically paid monthly, along with monthly marketing fees. The licensor usually has little input as to how the licensee uses, markets and distributes the product or service that they are licensing.
What is a franchise company?
Essentially, a franchise is an independent branch of the franchise company. The franchisee sells the product or service that the franchisor supplies. As of 2018, the franchise industry employs 21 million people and generates $2.3 trillion of economic activity, according to a U.S. government report.
What percentage of Starbucks stores are corporate owned?
For instance, Starbucks licenses 41 percent of their stores (the remainder are corporate owned).
How long does a franchise agreement last?
Duration of Contract. Agreements may last for 16-20 years, especially if they concern copyright or trademarks.
What is the difference between a franchise and a license?
On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. A franchised system will provide you with support in site selection, training, marketing and much more, whereas a licensing agreement provides you with little to none of that.
What does it mean to franchise a business?
When you franchise, you get the benefit of brand recognition, but also a lot of support in the running of the business within a set system. If you have your own business already and decide to join a franchise, this will mean giving up control of how you currently run your business.
Why do you run your business the way you are instructed to run it?
In franchising, you run your business the way you’re instructed to run it because the franchisor doesn’t just retain control over the intellectual property (the brand), it also retains control over how the franchise business is operated.
When do businesses start franchising?
Businesses usually start franchising once their business models have been perfected and proven to make money and their brands have at least some regional recognition. So, not only do you get to leverage the brand’s name, but you also get access to all its support systems in exchange for a fee.
Is it cheaper to get a license or a franchising agreement?
A licensing agreement will be cheaper than entering into a franchising agreement. However, since you get little to no support when running a business with a licensing agreement, you will be responsible for all other costs associated with the business, which would normally be included in a franchising fee.
Can franchising agreements be drawn up?
While licensing agreements can be drawn up and put in place quickly and for little cost to a brand, franchising agreements take a lot more work. Which one works best for you will depend on how much control over the running of your business you want to retain and how much assistance you want.
Is franchising legal in Canada?
There are specific franchising laws in place in six provinces in Canada to protect franchisees. Licensing agreements are not covered by these laws, although sometimes a licensing agreement can actually end up being viewed legally as a franchising agreement. Here at FranNet, we firmly believe franchising is the way to go.
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.
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.
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.
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 the difference between franchising and licensing?
The difference between licensing and franchising can be drawn clearly on the following grounds: 1 Licensing is an arrangement in which a company (licensor) sells the right to use intellectual property, or produce a company’s product to the licensee, for a negotiated fee i.e. royalty. Franchising is an arrangement in which the franchisor permits the franchisee to use business model, brand name or process for a fee, to conduct business, as an independent branch of the parent company (franchisor). 2 Contract Law governs, licensing whereas franchising is regulated, franchising regulations in many countries, but in case the franchising regulations are not in place then the company law regulates. 3 Licensing does not require registration, whereas registration is a must in the case of franchising. 4 In franchising, complete training and support are provided by the franchisor to franchisee which is absent in licensing. 5 The licensor has control on the use of intellectual property by the licensee but has no control over the licensee’s business. However, the franchisor exerts considerable control over franchisee’s business and process. 6 In licensing, there is a one-time transfer of property or rights, but in franchising involves the ongoing assistance of franchiser. 7 A substantial measure of fee negotiation is there in licensing. Conversely, standard fee structure exists in franchising.
Why is franchising more stringent than licensing?
in general franchising is comparatively stringent than licensing because usually, franchisers set strict rules, regarding the operation of the business by the franchisee.
What is franchising strategy?
We define franchising as a strategy mainly used by service companies, that allows the franchisee to use a business model, processes or brand name for a fee, to conduct business, as an independent branch of the parent company (franchisor).
What are the advantages of licensing?
The greatest advantage of licensing model is that the licensee bears the developmental cost and the risk associated with launching foreign operations. In the sphere of high technology, many companies provide technical know-how through this arrangement like Ranbaxy Laboratories Ltd. is in search of partners, for out-licensing its diverse technologies such as respiratory, urology, etc. However, sharing technological know-how with foreign companies is a bit riskier for technology-based companies.
What does a licensor do?
The licensor has control on the use of intellectual property by the licensee, but has no control on the licensee's business. Franchisor exerts considerable control over franchisee's business and process. Involves one time transfer of property or rights. Needs ongoing assistance of franchiser.
What is licensing in business?
Meaning. Licensing is an arrangement in which a company (licensor) sells the right to use intellectual property or produce a company's product to the licensee, for royalty.
How to enter a foreign market?
The five major ways of entering a foreign market are exporting, licensing, franchising, forming joint ventures or establishing a wholly owned subsidiary.
What is the difference between a licensee and a franchisor?
Methods and systems: Franchisors dictate their own methods, while licensees can develop their own.
What are the characteristics of a franchise?
There are certain characteristics between a franchise and license: Marketing plans: Franchises have common marketing plans, while licensees determine their own marketing . Methods and systems: Franchisors dictate their own methods, while licensees can develop their own.
What Is a Franchise Agreement?
Similarly to a license agreement, a franchise agreement is a contract. The franchisor has more control over franchisees than a licensor does. However, franchise agreements have specific directions on how the franchise operates and have specifications on the type of marketing franchisees attempt.
What is a licensor in a licensing agreement?
When it comes to licensing agreements, the licensor gives the licensee the rights to sell goods, use patented technology, or use a brand name or trademark. In exchange, the licensor receives payments from the licensee. These licenses are typically non-exclusive so competing companies can serve the same market.
What are the benefits of a license relationship?
Benefits of License Relationship. Licensing agreements are usually more flexible and are more collaborative. Licensors can answer questions, suggest opportunities, and warn you of complications . They do this while giving you the freedom to operate in your own studio with your clients.
What is corporate franchising?
Corporate franchising involves an organization that seeks successful franchise planning and operation. It has franchise disclosure-registration laws, which define how the business operates, and business opportunity laws, which describe regulations on how the business runs.
How many parts are there in franchising?
According to the Federal Trade Commission, there are three parts to franchising:
Licensing Versus Franchising
Franchising and Licensing Legalities
- There are thousands of franchise opportunities available. Unfortunately, not all franchises are created equal. While franchising can be a tremendous opportunity for aspiring entrepreneurs, it is important to thoroughly research any brand you are considering to ensure the franchise is a sound investment. While there are many resources available to help you do this, including third party fr…
Is Franchising Right For You?
- Buying a franchise or licensing a product to sell is not a simple decision. It’s a choice you will want to spend time researching and considering. For many would-be entrepreneurs, franchising is an interesting opportunity given that it offers you the chance to be your own boss without taking on the significant risk that comes with starting a business from scratch. You’re able to benefit fro…