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 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.
Is franchising or licensing right for your business?
When deciding what’s right for your business and evaluating franchising vs. licensing, you have to consider the needs and goals of your business.
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.
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 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 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 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.
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.
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
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 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.
What is the first thing that strikes your mind when it comes to business expansion?
When it comes to business expansion, the first thing that strikes our mind is ‘international business ’ a term we hear frequently, but many facts are yet to be disclosed.
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.
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.
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.
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.
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 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 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 is a licensing business?
By the term licensing, we mean a business model in which the licensor grants the right to use intellectual property, brand or to produce a company’s product to strict specification; and, in return the licensee pays ongoing royalties. The licensee company usually either already has the capital assets in place or makes the necessary capital investment to commence its operations. In a licensing business model, the licensor does not exert control over the licensee’s day-to-day business operations.
Is franchising the same as licensing?
Many businesspeople and professionals think that franchising and licensing are the same, but the fact is that they are different . Given the prevalence of franchising and the interstate, national, and even international scope of so many franchise networks today, attorneys need to know about potentially applicable federal, state, and foreign franchise laws. Franchise sales in the United States are subject to dual regulation at the federal and state level, depending on where the parties reside or do business. The federal franchise sales law, originally adopted in 1978 and overhauled in 2007 regulates franchise sales in all 50 states, including wholly intrastate transactions, per the 2007 version of 16 C.F.R. § 436 (hereinafter “Amended FTC Rule”).
