Licensing even though from the looks of it, a licensing opportunity seems to be less advantageous as compared to a franchising business, licensing has its advantages as well. Most of the time when we hear the term franchising it refers to business format franchising. In a licensing business model, the licensor does not exert control over the. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of. Jan 07, 2011 difference between franchising and licensing large companies have both the models to offer to a person who wishes to be liked with them. Dec 23, 2008 there is a difference between licensing franchising and dealer networks. Its easy to become confused between franchising and licensing because on the surface they sound remarkably similar. Those fees generally include a flat amount to join the franchise, along with ongoing royalties. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. Apr 09, 2017 if a licence agreement is actually a franchise agreement, then the franchising code of conduct will apply. We will now turn to the differences between licensing and franchising. Licensing works best when a company does not have any desire to exert any type of control over its operators, wants to just teach someone how to do the business then walk away and maybe become a supplier for these operators.
Many times, people think licensing is an easier route to franchising. In franchising, the franchisor licenses its intellectual property to the franchisee. Difference between licensing and franchising praxis legal. To understand the difference between licensing and franchising the starting point is to look at what each term means. There are various obligations that you must comply with even if these obligations are. What is the difference between a licence and franchise. Licensing vs franchising top 5 best differences with. Our web page licensing or franchising outlines the difference between licensing and franchising. Whats the difference between franchising and licensing.
Licensing and franchising, what is the difference and does it. Here is a quick look at the differences between licensing and franchising to provide a starting point in determining which option is best for your business. Licensing versus franchising august 23, 20 for a business looking to grow, the option of franchising or licensing can be very appealing. There is a difference between licensing franchising and dealer networks. If a licence agreement is actually a franchise agreement, then the franchising code of conduct will apply. Franchising, however, encompasses the whole business format. Franchising vs licensing compare contrast business model. As you consider the difference between franchising and licensing, add up the pros and cons of your situation, goals, personality, and products.
This allows the small guy access to a successfully established product with a 30 year track record. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. February 9, 2010 min read opinions expressed by entrepreneur contributors are their own. Franchising vs licensing difference and comparison diffen. The major difference between franchising and licensing we would like to take a minute to answer a very common question often asked. Franchising is based on securities law while licensing falls under the purview of contract law. Franchising is a type of licensing that goes beyond use of a specific product or branding and encompasses your business model. Sep 04, 2014 in a typical licensing agreement, the licensor grants the licensee the right to sell goods, apply a brand name or trademark, or use patented technology owned by the licensor, in exchange for payments to the licensor paid by the licensee for use of. Indeed, both can offer a route to successful expansion, as an alternative to organic growth, and with lower risk than. Dec 29, 2014 here is a quick look at the differences between licensing and franchising to provide a starting point in determining which option is best for your business. Dec 15, 2014 difference between licensing and franchising the hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. In some cases, the franchiser also assists the franchisee in running the business.
Build biotech tags, electronic signatures or holograms into products to distinguish them from fakes 6. Licensing and franchising, what is the difference and does. This is a complex area of the law that requires a legal professional. If you continue browsing the site, you agree to the use of cookies on this website. For example, among other differences, as suggested above, federal law is implicated with respect to franchises.
The major difference between franchising and licensing the. Ensure licensing and franchising provide oversight of ip 4. Difference between franchising and licensing compare the. What is the difference between a license and a franchise. In product trade name franchising, a franchisor owns the right to the name or trademark and sells that right to a franchisee. Certainly no licensor expected to end up defending franchise allegations. Under a franchise, the owner franchisor retains control of the brand and licenses that is, grants permissions to the franchisee to use its. Difference between licensing and franchising with comparison. Jul 10, 2017 franchising might be right for your business, but it is not your only option. Franchising vs licensing differences between franchising. In laymans terms, this means that if a business wishes to expand through franchising, it must register in the appropriate jurisdictions and also incorporate certain information into its franchise agreement. Many business owners choose to implement a licensing agreement arrangement to expand their business.
Many businesspeople and professionals think that franchising and licensing are the same, but the fact is that they are different. Franchising might be right for your business, but it is not your only option. The hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. Licensing when considering which model will work best for your business you need to consider the nature of your business and what degree of control you need over your ip or brand when it is. Used by businesses across the world, these two models carry their own sets of advantages and shortfalls. Yet, these situations arise with considerable frequency. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use.
What is the difference between a licence and franchise agreement. But business owners are seldom given much advice on the difference between the two, and. Ensure there is a sound distribution channel in place with concentration on surveillance and security. What is the difference between franchising and licensing in. Jan 16, 2017 the fundamental difference between franchising and licensing is that in licensing, the small business owner doesnt relinquish as much control over their business as with franchising. In licensing, another individual is buying the rights to use aspects of another companys branding, products, and trademarks in exchange for a percentage of. The difference between licensing and franchising is that licensing is a legal relationship that is limited in scope and relates only to the use of a trademark or. But this is not the case, as franchising is totally different to licensing. Franchising is an arrangement in which the franchisor permits. Licensing vs franchising top 5 best differences with infographics. However, some people still think that franchising and licensing are almost the same and have no specific difference. Franchise systems use a branded system of distribution. Covers the total business format, including knowhow, intellectual rights, goodwill, trade marks and business contacts.
Whats the difference between producttrade name franchising. The franchise business will contact you by means of email and or telephone only to the email address and phone number you have provided. Differences between licensing and franchising marketing. If the answer is yes, then you have entered into a franchise agreement. However, many businesses especially the nascent ones fail to differentiate between the two. The main differences are summarized in the following table. If he feels that he can work hard and sell the products of the company in the face of competition from others, he. The most distinctive feature of a franchise agreement is that a franchisor exercises significantly more control over franchisees than a licensor. But theres often a lack of clarity as to how the two models differ and business owners sometimes head in the.
After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. The difference between franchising and licensing may 20, 2015 by trembly law leave a comment if you are looking to buy a business, or youve got an existing business that is growing rapidly, youll want to understand the basics of franchising versus licensing. Difference between licensing and franchising the tasa group. Often, the difference between a licence and a franchise comes down to whether. What is the difference between franchising and licensing. When you delve deeper, youll notice there are many key differences between the two, than can impact the manner in which your brand is used and how much control you have over it. Franchising on the other hand is often confused with the term licensing. If you are a business owner, you may want to license the use of your brand or products to another business in order to gain more exposure for your company and earn revenue on the side. Click here to request our free onehour webinar, alternatives to franchising. What is the difference between a franchise and a licence. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of his or her business. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer. This package can contain items such as trade marks and trade names, designs, patents, trade secrets, business knowhow, store design etc.
This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps. Firstly, franchising in australia is governed by the franchising code of conduct the code. Difference between licensing and franchising praxis. 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 of a business on behalf of the franchiser in lieu. The fundamental difference between franchising and licensing is that in licensing, the small business owner doesnt relinquish as much control over their business as with franchising. The obvious advantages of licensing over franchising include reduced legal costs, reduced accounting and auditing costs, no registration and approval of the license program with any state, and quicker entry into the marketplace.
Franchising is a way to scale a business once it is successful and proven. Franchising allows another business to replicate your entire company and business model in exchange for fees. Like a licence agreement, a franchise agreement is also a type of contract. In franchising, the franchisee gets the right to display the same brand logo, trademark, name and image as that of the parent company. Unlike a licence agreement, franchise agreements will contain specific directions on how the franchise must operate. Jun 01, 2012 ifranchise group ceo and franchise expert mark siebert helps you understand the definition of a franchise and distinguish it from a license. Franchising and licensing are excellent options for business owners looking to expand because they provide an alternative to organic growth, which often entails less risk. The first and foremost difference between licensing and franchising is that the former is mainly associated with the production and marketing of. Licensing the license does not transfer ownership of the intellectual property, but merely gives the licensee the right to use it. Both the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper.
Licensing arrangements are governed by standard contract law so there are less administrative burdens than in a franchising arrangement. This is most often seen in the soft drink or automotive industry. The latest in franchising sent free to your inbox the information you submit via our enquiry form is shared only with the franchise business that you have selected. This guide discusses some of the differences between a simple license and a franchise. While franchising is perhaps the worlds most powerful growth vehicle, the entrepreneur considering growth options would be. You should refer to that page for a definition and application of the terms. Licensing is an arrangement in which a company licensor sells the right to use intellectual property, or produce a companys product to the licensee, for a negotiated fee i.
Aug 26, 20 both the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper. Aug 12, 2017 the difference between licensing and franchising can be drawn clearly on the following grounds. Whats the difference between producttrade name franchising and business format franchising. A licensing arrangement can slip into an unintentional franchising structure if the licensing contracts are drafted poorly or if the licensor inappropriately controls the business operations of the licensee. Jan 28, 2017 how do i know if i am licensing or franchising. If you like having many elements of your business preplanned for you, head in the franchise direction. Differences between licensing and franchising marketinginsider. For a company looking to expand, franchising and licensing are often appealing business models. Difference between franchising and licensing difference. Large companies have both the models to offer to a person who wishes to be liked with them.
Structuring licenses to avoid the inadvertent franchise by rochelle spandorf or any type of monthly fee based on gross receipts for the distribution or licensing rights. It involves finding franchisees with the skills necessary to operate branches of the same business. What is the difference and how do you know if franchising vs. This is a question that a lot of business owners and aspiring entrepreneurs ask themselves as they try to figure out which business model may be best for them. Share in a producttrade name franchise the franchisee will be a distributor of the product. Contact an experienced franchise, distributorship and licensing lawyer serving orange county and all of california if you try to operate a franchise business as a distributorship or licensed relationship you are opening yourself up for all sorts of legal and financial liabilities. The difference between licensing and franchising can be drawn clearly on the following grounds. Elements of a franchise a franchise has been described as a license on steroids. Franchising is a wonderful way to go into business for yourself, but not by yourself. Structuring licenses to avoid the inadvertent franchise. What is the difference between licensing and franchising. When a business is being offered as a license agreement, money is made by a onetime fee that is paid to you maybe renewed once a year. Franchising vs licensing is often the tough question potential wouldbe business owners ask themselves, as both are popular business models.
In a nutshell, a franchise is a license wherein the licensor controls the licensee and benefits from that cont. However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it is critical that you. In a typical licensing agreement, the licensor grants the licensee the right to sell goods, apply a brand name or trademark, or use patented technology owned by the licensor, in exchange for payments to the licensor paid by the licensee for use of. One advantage is that licensing costs much lesser in terms of the initial investment and ongoing charges. The difference between franchising and licensing elite.
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. A franchise is the agreement or license between two legally independent parties which gives. Under this, dealers were given the right to distribute goods for a manufacturer. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee.
In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of the company. The franchisor, being a business with a strong brand and a wellestablished and profitable business model, looks to replicate that model by franchising it to other people the franchisees. Leonard can help you understand the difference between franchise laws in california and the laws that apply to licensing agreements. In such a situation, the licensor needs to either a. As a business owner, one has to choose from the two models as to how he wishes to go ahead. This is because licensing is not subject to the ftc franchise rule. At the franchise institute, we encourage people to consider the two options carefully before they. The advantages and disadvantages of franchising by david e. Password based security systems, surveillance and firewalls. In franchising, the franchiser not only sells intangible property to the franchisee, but also insists that the franchisee abide by the rules of the business. In a traditional distribution agreement, the distributors business is just that.
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