The Difference Between Franchisee and Licensee (Part A)

If you are pursuing a business opportunity, it is important to know the difference between a franchisee and licensee. A business and franchise lawyer can answer all of your questions about owning and operating a business and help guide you in the decisions that will most benefit your interests. If you are pursuing a business in New York, a New York business lawyer can answer any questions you may have.

Franchises vs. "Licensed" Business Opportunities

There are some fundamental differences between becoming involved in a franchise versus another type of "licensed" business opportunity. In a franchise you are the franchisee and in the business opportunity, you are the licensee. One of the marked differences that is most seen between the two is in the type of relationship between the parent company and the operator.

Franchises are readily identified by the franchisor's trademark, whereas the licensee is not necessarily marked by the parent company's trademark or other distinguishing factors. Listed below are a few more differences you will find between the two:

• A franchisee receives ongoing support, training and help with marketing while a licensee usually receives little or no support;
• A franchisee offers exclusive or semi-exclusive products and/or services while a licensee may offer a wide variety of products and/or services;
• The franchise will often grant the franchisee a guarantee of exclusivity in a region, whereas the licensing company will make no such offer to the licensee; and/or
• Franchisees are responsible for paying an ongoing royalty fee which is determined by the gross sales of business while a licensee's payments aren't based on gross sales, rather on the purchase of products made from the licensor.

There are some advantages that a non-franchise business opportunity can afford over franchising. In a non-franchise business opportunity, there is more independence and flexibility. Start-up costs are typically less than franchises and there aren't ongoing royalty fees to pay. This can add up to a significant amount of savings on overhead costs.

A licensed business opportunity can also make for a great second income, an opportunity to work a part-time job or a home-based business.

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