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Franchising versus Licensing

Date: 10/25/2011 | Category: Start a Franchise | No comments

This is a topic that comes up often. Many times I am contacted by a business owner who‚ by all accounts‚ has created a financially profiable licensing program but is faced with franchise violation claims. Also clients frequently question if licensing is better than franchising.

Licensing is a Component to Franchising

To start with it is importantt to understand that "licensing" is a component to "franchising". That is every franchise includes a license but not ever license is a franchise.

What is the Difference?

Licensing‚ traditionally‚ is limited to the grand (by a licensor) of a license permitting a third party (licensee) to utilize the licensor's trademarks. From a legal standpoint franchising can be described as a "super license" where the franchisor grants the franchisee the license and right to use the franchisors trademarks and systems. The "plus elements" that legally convert a license into a franchise‚ include factors‚ such as:

  1. Payment of a fee;
  2. Payment of a royalty;
  3. Control over advertising programs; and
  4. Control over franchisee opportunities.

Proceed with Caution
From a legal standpoint licenses are extremely limited. Many times what you believe to be or call a "license" is in fact a franchise. The laws vary amont the states and in many instances are intentionally ambiguous. So‚ proceed with caution and before structuring and proceeding with a "licensing program" speak to your attorney to ensure that the proper restrictions are in place and that you do not cross the line into franchise territory. Consider if you may be better off by just structuring a franchise – many times you will be better off.

To continue reading information about the option to franchise your business read:
"How to Franchise Your Business"

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