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Maybe you have done some research or have spoken to a lawyer and you have decided that‚ for one reason or another‚ that you would like to avoid franchising. That is‚ you believe that the costs and hurdles associated with franchising are too high and some you think that‚ maybe‚ you could just "license your business". That is‚ you are viewing licensing as a cost effective alternative to franchising.

Is Licensing an Alternative for Franchising or is it a Trap for the Unweary?

The short answer to this question‚ much more often than not‚ is that licensing is absolutely not an alternative to franchising and could turn out to be a costly trap. Consider that you dont define what is or is not a franchise or license relationship‚ what you call or name your agreement does not matter. The only thing that matters is what the federal and state laws define as constituting a franchise relationship to be and if these factors exist (no matter what you agreement says) a franchise relationship may exist and‚ with that (if you havent complied with the franchise laws) a significant liability.

What factors will convert and turn a licensing relationship into a franchise (remember we are not talking about what the agreement necessarly says but how you operate)?

  • A Degree of Control – That is you assert some degree of control over your licensee's operations‚ i.e.‚ the products that they can and cannot sell‚ their methods of service and how they operate.
  • A Trademark License – That is you grant your "licensee" the right to use your trademarks. Note however this is not required in every state‚ i.e.‚ a franchise relationship may exist even if you dont license a trademark.
  • A Fee is Paid – That is to acquire the "license rights" your "licensee" pays an upfront fee‚ an installment fee or a continuing fee.

If these factors exist what you have called a "license" may in fact be a franchise that will subject you to liability. Its may very well be a franchise trap and an unnecessary one at that.

What Do You Need to Know?

Well you need to know that "franchising" is absolutely within reach and is need not be difficult or expensive. If it is done correctly it can actually save you money over time‚ allow you to build an excellent revenue stream and shield you from unnecessary lawsuits. Different states have different laws‚ and if there is a disagreement‚ it may be left up to a court to determine the status of your business relationship.

Learn More about Converting Your License to a Franchise here.

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By Charles Internicola August 5, 2010

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