Difference Between Licensing And Franchising One Should Know

Licensing and franchising are two kinds of agreements in business that permit businesses to use trademarks, technologies and business systems for a cost. The Difference Between Licensing And Franchising is that license agreements are restricted to the use of trademarks or technologies and franchise agreements are more expansive and cover the complete branding and operation of a company. Licenses are used to make money from trademarks and technologies that can be utilised by independent companies operating with their own brands. Franchising can be used to duplicate the business model of franchised businesses operating under a single brand employing the identical trademarks, systems as well as supply chain operating processes.

While licensing and franchising share some commonalities, they are two different agreements that can mean different things to you and your business. In this article we’ll discuss the Difference Between Licensing And Franchising and also the advantages and disadvantages of both.

What Is Licensing?

Licensing on the other it’s a limited legal business arrangement in which an individual is granted the right to use trademarks registered of a particular brand. This business connection is formed between Licensor (the person with the rights to trademarks) and the licensee (the person who has been granted rights to use the trademarks).

In order to use trademarks registered of a different brand licensee must pay the licensor an agreed-upon royal fee.

What Is Franchising?

The term “franchise” refers to a commercial contract between a franchisor and the franchisee. The franchisor is the proprietor of a company. The franchisor offers the trademark rightswhich includes items and services as well as intellectual property, and other things to a franchisee who can open an additional branch with that brand’s name. It is in essence a duplicate of the company that originally owned it.

Franchises are subject to the federal Trade Commission’s franchise rules and must adhere to the laws of each state.

In the terms of the contract for franchising the franchisee must pay the franchisor a fee for opening a franchise, to utilise their brand and provide advice and business assistance. The franchisor lends their brand to franchisees for a nominal cost and will provide education, along with knowledge for the prospective franchisee.

It is much deeper than licensing, more complex contract and business arrangement than licensing. The franchisor is in control of the way their brand is used and the way each franchise under their name is managed. There is lots of interaction between the franchisee and franchisor when it comes to a franchise.

Pros Of Licensing

One of the benefits of licensing is the freedom of the person who is licensed. The typical licensing agreement is between two established companies. The licensee buys rights to utilize trademarks protected by law which are well-known and loved by a loyal fan base. It is a safe investment as well as a fantastic opportunity to grow your business.

As opposed to franchises, another benefit of an agreement with a licence is the simpleness in the contract. Because the license agreement allows the use of just one (or some) protected trademarks The agreement is quite simple and simple.

Cons Of Licensing 

The main drawback of franchising licensing is the restrictions. A license grants you access to certain protected trademarks, not more. This makes the agreement restricted, it could be all your company needs. It’s important when signing an agreement for licensing to make sure that you’ve followed these steps to safeguard you intellectual rights.

Another disadvantage of licensing is that a lot of people aren’t aware of their function. There’s many ambiguities about the right time to draft an agreement for licensing and when the license agreement is straying from the legal boundaries of the franchise. It is important to consult an experienced lawyer before signing either a franchising or licensing agreement.

Pros Of Franchising

One of the benefits of being a franchisee is advantages having the freedom of a freelance owner, without the risk of starting a brand new business. Franchises have the added benefit that they’re a tried and tested business model that has a well-established client base. The purchase of a franchise is typically more secure than starting your own business from scratch and even though there could be substantial costs involved however, they could be an investment that is less expensive than if you start your own business starting from scratch.

It also benefits from the benefits of sharing a relationship. The franchisor can expand their business at a rapid pace while minimizing the amount of work which is done by franchisees. Furthermore, the franchisee collaborates with the franchisor in managing the business and develop new business techniques that they may not be aware of.

When compared with licensing One of the biggest advantages of franchising is deepness of the relationship between the franchisee and the franchisor. The franchise agreement can be a bit complicated however it offers many possibilities.

Cons Of Franchising

One of the downsides of becoming franchisees could be that they lose control. Although it’s your company, the majority of your business decisions will be taken by or, at the very least, must be approved by the franchisor. While this assistance can be helpful while you learn how to run a business, it may be a bit like being a micromanager to the more experienced business owners. But, this is beneficial for the franchisor as they still have the ability to control the way their brand is utilised.

When compared to a license it is far more expensive and complicated. Initial fees for a franchise can be anywhere between $30,000 and $50,000.and then there are annual fees to keep in your mind. It may seem expensive however, it’s crucial to be aware that you’re gaining access to an entire company. As a contrast, a license agreement gives you the ability to use certain trademarks only in specific ways. Therefore, a license will be less expensive and easier to manage however, it will also give you access to less.

Because of this disparity in costs businesses may choose licensing agreements rather than franchise agreements, but they’re not interchangeable and typically are not suitable with the same types of companies. Additionally that you’re also taking legal risks when you sign a licensing agreement for business operations that are franchise-related. If the initial costs prevent you from establishing a franchise, you may want to look out these franchises with low costs and look into financing for franchises to finance these costs.

The Difference Between Licensing and Franchising

The main Difference Between Licensing And Franchising can be seen in the fact that licence agreements are restricted to the use of the same product, technology or system, while franchise agreements allow for the total duplicated use of a business model branding and system. Both licensing and franchising require distinct legal agreements which confer different legal rights to the parties who are involved. Alongside those different rights, licensing and franchising are both defined and are governed by distinct and distinct rules and laws at the federal and state levels.

Different Rights

According to the terms of a license agreement, the licensee is granted by the licensor only a limited rights to a particular asset , such as the trademark, logo of the licensor or technology, formula and so on. However, the legal connection that is established between two parties in the terms of a license agreement doesn’t confer any authority on the licensor over the day-to-day operation of the licensee’s commercial operations.

The franchising process takes things a step further. Each franchise comes with an authorization that allows the owner to utilise the trademark of the franchisor. Franchisees are also granted additional rights and must follow specific rules and regulations in the terms of a franchise agreement.

Contrary to licensing, in the conditions of a franchise agreement the franchisee gets the ability to design and replicate the franchisee’s established business model, while using the trademarks of the franchisor and agreeing to adhere to their established processes. That means, along with being granted permission to make use of a registered trademark, franchisees also get a legal license to utilise the systems of operations and procedures.

Different Regulations

While licensing and franchise agreements are both subject to laws that are federal, and in some instances, state, however, the laws that regulate franchises aren’t the same as the laws that regulate licensing.

Although licenses are subject to specific rules at the state as well as national levels, franchising is managed through the Federal Trade Commission (FTC) under the federal Franchise Rule. Based on their location they may also have to comply with state laws and rules.

Conclusion

The Difference Between Licensing And Franchising is very narrow and defined by the level of control imposed through the underlying agreement. Franchising can be used to facilitate the expansion of a company’s brand through franchised facilities that operate and operate in accordance with uniform rules and guidelines. Licensing can be used to make money from trademarks as well as other assets of intellectual property, allowing licensees to utilise licensed assets within independently-operated companies. Licensing isn’t a replacement to franchising. If an agreement for license includes the right to license trademarks and the control of the operations of the business It could be regarded as an agreement for franchise. 

We have discussed everything about both Licensing And Franchising in detail. Thus, we hope that our blog will clear all your confusion regarding Difference Between Licensing And Franchising.

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