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.
Which way are better between franchising and retailers?
Multi-unit and multi-concept franchising is extremely popular nowadays, and retail businesses are perfect for the franchisee that likes the hustle and bustle of multiple locations. It’s better to be a good fit for franchising
What does franchising mean?
What is Franchising? Franchising is a form of marketing and distribution in which the owner of a business system (the franchisor) grants to an individual or group of individuals (the franchisee) the right to run a business selling a product or providing a service using the franchisor's business system.
What is a franchise definition?
A franchise is an established business that sells the rights to its company name, brand and trademark to a franchisee. Franchising happens when a franchisor provides a license to the franchisee. Franchising allows the franchisee to operate their business using the same business model and brand as the franchisor.
Is it better to franchise or license?
The advantage that licensing has over franchising is that license agreements are basic legal agreements that, typically, are not regulated and are less expensive to create.
What is the difference between franchise and franchising?
Technically, the contract binding the two parties is the “franchise,” but that term more commonly refers to the actual business that the franchisee operates. The practice of creating and distributing the brand and franchise system is most often referred to as franchising.
Is licensing a form of franchising?
A franchise is a type of license. Although franchising and licensing are two different business relationships, a franchise cannot model an original business unless a franchisor grants a license to the franchisee to use its intellectual property.
What is franchising give an example?
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 are the 2 types of franchises?
There are basically two types of franchises. There's Product Distribution Franchising (or what's really called traditional franchising), and there's Business Format Franchising, which most people recognize as 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 are the four 4 types of franchise?
There are 4 basic types of franchise agreements: Single-unit, multi-unit, area development and master franchising. A single-unit franchise is the most common and is simply where a franchisor grants a franchisee rights to open and operate one single franchise unit.
What licensing means?
Licensing is defined as the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, brand names, or technology, under defined conditions.
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.
What is meaning of franchising?
franchise noun (BUSINESS) [ C ] a right to sell a company's products in a particular area using the company's name: a fast-food franchise. a franchise holder. The Commission felt the company were overbidding and gave the franchise to their competitors instead.
Is McDonald's franchised?
McDonald's has been a franchising company since 1955 and has relied on its franchisees to play a major role in the system's success. Currently, about 95% of all U.S. restaurants are franchised to independent franchisees and about 5% are company-owned.
Is KFC a franchise?
KFC Franchise is owned by Yum! brands, global franchisor whose 3 restaurant brands, Pizza Hut, Taco Bell and KFC, are amongst the largest and most well-known franchises in the world. They are leaders in their respective industries - Pizza, Mexican and chicken. Yum!
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 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 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 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).
How much does it cost to franchise a business?
In comparison to a license, a franchise will seem much more expensive and complicated. Initial franchise fees can cost between $10,000 and $50,000 — then there are the ongoing fees to keep in mind. This might seem exorbitant, but it’s important to remember that you’re getting access to an entire business. In comparison, a licensing agreement only gives you access to use specific trademarks in certain ways. So, a license will be cheaper and less complicated, but it also gives you access to a lot less.
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.
Who has control over the use of intellectual property by the licensee?
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.
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.
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 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.
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.
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 are some examples of franchises?
Examples of franchises include companies like McDonalds, Kona Ice, Keller Williams and Pizza Factory.
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.
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 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.
Why do people own franchises?
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.
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.