Franchises and licenses are both business agreements in which certain brand aspects are shared in exchange for a fee. However, a franchising agreement pertains to a business’s entire brand and operations, while a licensing agreement only applies to registered trademarks.
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 the difference between franchising and licensing?
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 franchising means?
A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand's trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system.
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.
Why is franchising better than licensing?
Different Levels of Control - License agreements are limited to granting another business the right to use a trademark or technology but does not include control over how the business operates. Franchise agreements are broader and control how a business operates.
What are some examples 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 is franchising and its benefits?
Franchise systems can offer purchasing efficiencies through economies of scale. Some or all of the needed products will be offered by either the franchisor or trusted suppliers. Franchisees can often take advantage of bulk discounts as well. Advertising and marketing assistance.
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 is franchise 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 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 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 an example of a franchise business?
Examples of well-known franchise business models include McDonald's (NYSE: MCD), Subway, United Parcel Service (NYSE: UPS), and H&R Block (NYSE: HRB).
Is McDonald's franchised?
McDonald's is an equal opportunity franchisor by choice. We seek individuals who are capable of operating multiple locations. Candidates who have successfully operated multiple businesses may be suited to operating several McDonald's franchises.
How do franchise work?
In franchising, a franchise owner partners with a corporate brand to open a business under the brand's umbrella. The franchisee owns and operates that location using the franchisor's brand name, logo, products, services and other assets.
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 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 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 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 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 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 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.
What is Franchising?
Do you remember the show Undercover Boss? In the show, owners of businesses went into their stores pretending to be a new employee to learn what goes on daily. Throughout the show, get valuable insight into what their employees and business need to succeed. In a handful of episodes, these owners were actually Franchisors.
What is Licensing?
If you go into a store like Dick’s Sporting Goods, you’ll see brand-name apparel splashed throughout the store. Nike, Under Armour, Adidas, and the like are promoted in different spaces. Stores like Hallmark and Target partner with Disney to create a unique product to showcase. This is licensing.
Let MVision Guide You
In summary, if you have a business that you’re looking to grow, you can create more buzz by licensing with highly marketable brands. On the other hand, if you’re looking to grow as a business owner and run a business, it’s worth looking into a franchise opportunity.
What is a license agreement?
The concept of licensing is purely based on the terms and conditions of the contractual agreement between the Licensor and the Licensee, which is more commonly known as a Licence Agreement. A Licence Agreement will essentially set out, amongst other, the rights and obligations of the Licensor and the Licensee, the terms of the grant of the Licence, ...
How does a licensee benefit from a license?
A Licensor can benefit from the granting of its Licence to the Licensee, as the licence fee sets up an opportunity for the Licensor to establish an alternate stream of income. For example, where a Licensor grants a Non-Exclusive Licence to four different Licensees, the Licensor will receive a licensee fee from each Licensee.
What is exclusive license?
An Exclusive Licence allows only the named Licensee to use or operate under the relevant intellectual property rights owned by the Licensor. This means that any and all other parties, including the Licensor, are not allowed to use or operate under the relevant intellectual property rights.
What is a sole license?
A Sole Licence allows only the Licensor and the named Licensee to use and operate under the relevant intellectual property rights. The Licensor does not have the right to grant the same Licence to other interested Licensees, and the named Licensee does not have the right to grant the same Licence to other interested sub-Licensees.
What are the advantages of a licensee?
An advantage that Licensees can take into consideration is the amount of capital required to operate a business under a Licensor’s intellectual property rights, which is typically lesser as compared to the amount of capital required to start a brand new business. In addition, the Licensee may be able to reap more benefits if the trademark or brand name is already well-known.
What are the requirements for a franchise?
Under the Franchise Act 1998, the four requirements to be satisfied for a business to constitute a franchise are as follows: Granting the right to operate a business according to the franchise system as determined by the franchisor during a term to be determined by the franchisor;
What is a franchisee's right to use a trademark?
Granting the right to use a mark, trade secret, confidential information or intellectual property owned by the franchisor to a franchisee, which includes a situation where the franchisor is licensed by another party to use any intellectual property and grants such right or license to the franchisee to use the intellectual property;
How many parts are there in franchising vs licensing?
The question of licensing vs. franchising can be divided into three parts to be better understood. It is important to note that these parts work together; they are only separated for the sake of understanding. They include:
What is the difference between a licensor and a franchisor?
In fact, the licensee also gets to determine how they distribute the licensed product. A franchisor, on the other hand, has more operational control. They prescribe how their product is used. They also dictate the operations of the franchisee.
How does franchising work?
Franchising is a way to expand a business. It involves getting a franchisee to run branches of the same business. It is possible to franchise any business type but under the agreement, the franchisor controls the licenses and the brand. They only give the franchisee permission to use the business model and brand. The franchisor also provides training, expertise and other resources necessary to run the business successfully. In exchange, the franchisee invests into the business, helps to build the brand, and pays a fee.
What is licensing in business?
Licensing relies on the owner retaining the control over their intellectual property but granting other people the right to use it. However, the terms of each licensing agreement will vary. In fact, some licensing can look like franchising where the owner of the property also offers know-how and a patent. For example, a business that has honed a model that is drawing results might give out the process to a similar business in exchange for royalties. Another example is with computer software where the user only buys the right to use the software.
Does a licensor have to provide training?
A licensor does not have to offer training or support. They can choose to do it, but it is not mandatory. Their responsibility ends at releasing the necessary product knowledge. Meanwhile, the franchisor gives extensive training on how the business is operated. They also provide ongoing support. This support can take the form of monthly visits from a representative of the franchisor, for example.
