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. For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. Click here to request our free one-hour webinar, “Alternatives to Franchising.” This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. However, a franchising agreement pertains to a business’s entire brand and operations, while a licensing agreement only … But which model is better – franchising vs licensing? It brings a ready-made customer base and often comes with client listings. This kind of arrangement is referred to as licensing. The franchisor assists in setting up the service provider with adequate skill & knowledge to emanate its brand to the customers. In this arrangement, the licensing company may exercise control over how its IP is used but does not control the business operations of the licensee. 10. licensing versus franchising. Franchising vs. licensing is a question we are asked all the times. While the above just scratches the surface in terms of the distinctions between licensing and franchising, hopefully it will provide you with a better understanding of the distance between the two. Diffen LLC, n.d. If you read this far, you should follow us: "Franchising vs Licensing." Franchisor gets access to the geographically diversified marketplace without compromising on brand value. Though both share similar advantages, licensing can be called a subset of franchising; i.e. In such a situation, the licensor needs to either (a.) Licensing is governed by a licensing agreement, which involves a one-time transfer of property or rights for a fee. With licensing and franchising, other people are marketing your business for you and paying you for this privilege. If your goal is to expand and grow your brand through additional outlets or service areas, then franchising is the correct legal model and licensing is not an alternative. Franchising Your Business Chuck Modell May 17th, 2019. Everyone knows a franchise when they see it, visit it, eat in it, stay in it, or exercise in it. Licensing vs Franchising Infographics. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. a company using Microsoft Office on its computers. Examples of licenses include a company using the design of a popular character, e.g. Anyone selling a license should ensure that their Intellectual Property is protected by law and specify what rights it grants the licensee. Edit or create new comparisons in your area of expertise. 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. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. The relation between franchise vs licensing advantages disadvantages. When you are pondering the question of licensing vs. franchising, it is important to bear in mind the place of legal counsel. Franchising vs. There is a few licensing which are quite similar to franchising. Franchising vs Licensing. A license is a limited legal relationship. General Association. Here are three factors to help you determine how best to expand your business through franchising or licensing. It is the registered owner of cartoon characters like Mickey Mouse, Donald Duck, etc., these characters are nothing but the outcome of an artist’s imagination which is now popular around the world. Franchising is mostly related to service businesses like food chains, service centers of automobiles, etc. So the government requires franchises to be registered and for franchisers to disclose all risks to potential franchisees. Franchising is mostly related to service businesses like food chains, service centers of automobiles, etc. The offer and sale of franchises is highly regulated by both federal and state laws. Franchising vs. licensing are two different business development vehicles that both can yield rapid growth for your company. In exchange, the licensor receives payments from the licensee. as a franchise lawyer you would think that i … This is particularly common with intellectual property. For a company looking to expand, franchising and licensing are often appealing business models. 29 Dec 2020. A typical franchise includes rights to Trade Mark, trade names, logos, patents, trade-secrets and know-how of a business. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps with things like branding and marketing support that aid the franchise. This has been a guide to Licensing vs Franchising. But which route is better for your business? Contract Law governs, licensing whereas franchising is regulated, franchising regulations in many countries, but in case the franchising regulations are not in place then the company law regulates. This package can contain items such as trade marks and trade names, copyright, designs, patents, trade secrets, business know-how, store design etc. The Franchiser maintains significant control of, or provides significant assistance to, the franchisee’s operation methods. A franchised system will provide you with support in site selection, training, marketing and much more, whereas a licensing agreement provides you with little to none of that. Risks of Becoming an “Accidental Franchisor” If a licence agreement is actually a franchise agreement, then the Franchising Code of Conduct will apply. To understand Licensing, let us take the example of Walt Disney. To learn more about converting your license system to a franchise, click here. It can also apply to the use of software, e.g. For instance, with these tools, you can access multiple revenue streams with almost no underlying costs, making it much easier for you to increase your business income. Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. Licensing of intellectual property (IP) is at the heart of a franchise contract. Licensing Franchises and licenses are both business agreements in which certain brand aspects are shared in exchange for a fee. Franchising vs. These characteristics are the very reason why Pizza Hut/ Dominos cannot enter into a licensing agreement with an interested party & allow them to use its name to sell their own recipe of pizza. A lawyer knows what matters. Franchising: Which Path Is Right for You? Franchising and licensing have some similarities, but they are quite different. Licensing. Licensing can be especially benefic… CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc. Which form is best would typically depend upon the nature of product/ service in question, the risk appetite of the licensee/franchisee, the existence of competition in the market & the potential to enter & sustain the market by a new player, the amount of investment involved, etc. So, in fact, a franchise is licensing of a business format in a particular way. Overall both forms are pretty safe & legit mode of doing business since it’s built upon the solid foundation of the brand value attached to the product and can be used as a Launchpad by any potential new entrant to gain access in an already saturated marketplace. The Franchiser maintains significant control of, or provides significant assistance to, the franchisee’s operation methods.The definition is importan… Do you know the legal definition of a franchise? Licensing vs. When buying a franchise, a businessman should look at balance sheets and bottom lines and compare it to similar franchises in similar areas. It includes a license to use the business system, an obligation to share developments and improvements, and the right for the franchisor to determine how the business operates. Some licensing agreements may end up actually creating unintentional franchises. The Franchiser requires the franchisee to make a minimum payment of $500 or more, and 3. A licensing agreement can be completed in a week. franchise agreements vs. license agreements. In a franchising model, the franchisee uses another firm's successful business model and brand name to operate what is effectively an independent branch of the company. Licensing is essentially how you exploit intellectual property. violations: franchise agreements disguised as license agreements. The arrangement includes a license to use a trademark or other identity associated with the franchisor. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. Hence they enter into a franchising agreement; wherein they allow other individuals to not only use their name but also learn the technical know-how, the art, skill & knowledge of making the product exactly the same way as they themselves would have in exchange for the royalty. However, some people still think that franchising and licensing are almost the same and have no specific difference. There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. Franchising USA is a monthly digital publication bringing you all the latest news, expert advice, and information from the world of franchising. The heavy initial investment by the franchisee to meet the quality standards of the franchisor. Licensing is also the base of franchising. Lewitt Hackman’… The FTC (Federal Trade Commission) definition of franchising consists of three \"legs\": 1. In addition to possibly lowering your marketing costs, this can help your business break into new, previously inaccessible markets. The brand value which is built after years of struggle is at stake for these niche companies. Franchising is governed by an elaborate agreement specifying the responsibilities & duties of both the parties involved. Written with franchisees in mind, Franchising USA is a valuable resource for legal and financial advice, marketing and business information, as well as franchise profiles and in-depth features. Franchiser exercise control over franchisee. Franchising … and how can you benefit from them? blatant franchise . Now suppose you feel like eating a pizza, as opposed to a home-made pizza offered by your mother; the obvious choices that come in your mind are Pizza Hut, Dominos, etc. Franchising and licensing both offer business opportunities with some of the work already done for you, but that doesn't mean they're exactly the same. Licensing does not require registration, whereas registration is a must in the case of franchising. Even if you don’t control most aspects of the franchisee’s business, if you suggest most of the above, then you are likely franchising (rather than licensing) your business. Licensing deals with Products & Goods like software patented technologies etc. When you franchise your brand or business, you retain an enormous amount of power. You may also have a look at the following articles –, Copyright © 2020. Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property (IP), brand, design or business programs. In exchange, the licensee pays royalty fees to the licensor. With that in mind, we will explain the difference between these two, as well as the pros and cons. Franchising is a popular way to start a business because it’s much less risky than creating a business from scratch. Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. Licensing vs. The Franchisee’s goods and/or services are to be offered and sold under the trademark of the Franchiser 2. Licensing vs. Licensing is a broad term that businesses use for contracting purposes. A franchise is a more extensive legal relationship that includes a license. You supply the business model, and you can define the territory in which any given franchisee can operate. Franchising is administrated by law sanctuaries while licensing is directed by agreement law. Because of this, it’s vital to have a reliable legal team such as Rod Hatter & Associates to have the proper contracts and agreements to prevent any legal problems. Franchising When it comes to licensing agreements, the licensor gives the licensee the rights to sell goods, use patented technology, or use a brand name or trademark. A popular debate among those seeking to expand their current business is the pros and cons of licensing and franchising. Today we attempt to understand the differences between Licensing vs Franchising. We will now turn to the differences between licensing and franchising. Franchising? Neither franchising or licensing is easy. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. re-adjust the operations to comply with licensing laws and avoid franchise laws. Next Article -, Not offered; licensee can sell similar licenses and products in same area, Logo and trademark retained by franchiser and used by franchisee. Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Franchising. Franchising and licensing are very appealing. < >. Licensing and franchising are merely two of those options. Franchising is a type of licensing arrangement. These licenses are typically non-exclusive so competing companies can serve the same market. Considering Licensing vs. Hence anyone apart from Walt Disney manufacturing these products enters into an agreement with the former to gain a right to use these characters on its merchandise for some consideration & sell the same. There are laws that govern the franchising model and define what constitutes franchising; some agreements end up being legally viewed as franchising even if they were originally drawn up as licensing agreements. Licensing vs. Franchising, however, encompasses the whole business format. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, All in One Financial Analyst Bundle (250+ Courses, 40+ Projects), 250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion, Ownership of the ultimate product is with the licensee, he only buys the right to use a certain patented / original product of licensor in exchange of royalty, Ownership of the business is with the franchisee, he purchases the right to run the same business on behalf of the franchisor in exchange of fees, Standard agreement governed by contracts law between the parties, Stricter compliance requirements governed by Companies laws & other federal laws of international business (if dealing with a party outside the country), Licensor gets Vertical integration in the market without. There is no technical support or assistance provided by the licensor in most cases. The legal definition of a franchise, however, is probably broader than you think. Compare Licensing vs Franchising a Business Costs Franchising a Business Overview. In exchange, the franchisee pays some form of fee. One may be easier than the other, depending on who is looking, but the details of each of them make them complex. 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 of a fee where the processes are closely controlled by franchisor therefore it is generally seen that licensing is for products and goods whereas the franchising model is used more in service providing industry. Franchising & Licensing - What are they? licensor does not have control over licensee, The Franchisee’s goods and/or services are to be offered and sold under the trademark of the Franchiser, The Franchiser requires the franchisee to make a minimum payment of $500 or more, and. The FTC (Federal Trade Commission) definition of franchising consists of three "legs": The definition is important because franchises are covered by securities law while licenses are covered by contract law. Licensing deals with Products & Goods like software patented technologies etc. One party, the franchisor, grants another party, the franchisee, a right to distribute goods or services, under a marketing plan or marketing program. They should perform a name-brand availability search and investigate Intellectual Property issues such as patent ownership. franchiselawsolutions.com . 11. licensing versus franchising. Filed Under: how to franchise Tagged With: definition of license, franchise or license, franchising, franchising vs licensing, franchisor, license my business, license or franchise, licensing versus franchising, what is licensing Licensor does not have control over the ultimate use of its intellectual property rights. Licensing is an arrangement between two parties, where one party agrees to let other parties use their intellectual properties. These can be divided into the “common name leg,” which gives trademark permission, the “fee leg,” stating how much must be paid to begin operations, and the “operations and marketing leg.” All internal systems must be standardized inside the franchise. Both models require that the franchisee/lincensee make payments to the original business that owns the brand or intellectual property. They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks. Differences between Licensing and Franchising. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. Every one knows about franchising and licensing. Licensor, however, has no autonomy over the business of the licensor. Franchising and licensing both provide enticing benefits to businesses. To learn more about licensing vs. franchising get the guide. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. By Melissa Eva. franchiselawsolutions.com . ; now Walt Disney is not the sole manufacturer of this merchandise. 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 such right. Often times, the terms licensing and franchising are used interchangeably to define a similar business relationship. Web. These two jargons are usually synonymously used while marketing or selling a product whose brand value is not typically owned by the seller; however, there is a very fine line of difference between these two modes of business. The franchiser also typically ensures that branches do not cannibalize each other's revenues. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. Franchisor exercises enormous control over the business of the franchisee in terms of quality of service provided, marketing & selling strategies, etc. Licensing gives the licensee a right to operate in cooperation with a brand, gaining access to the brand’s intellectual property, brand, design, and business programs. In layman’s 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 … Anyone selling a franchise should be sure to protect their Intellectual Property and create comprehensive work manuals and maintenance programs. A licensor will grant a licensee the right to use their intellectual property but the licensor will not provide … The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. Franchising is a much broader concept since it involves a greater degree of control by the franchisor. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Therefore the franchiser controls whether or not the franchisee makes money. This in return ensures Pizza hut that it can penetrate different markets without a compromise in quality of service and the franchisee, in turn, is benefitted by the economies of scale that comes with an already established brand. But this is not the case, as franchising is totally different to licensing. Franchisee gets continual support from the franchisor to extend an already successful business. Legal Difference Franchising is based on securities law while licensing falls under the purview of contract law. Key Difference Between Licensing and Franchising. You’re buying into a successful, established business with built-in name recognition. Here we discuss the top difference between Licensing and Franchising along with infographics and comparison table. 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Assists in setting up the service business, and 3 as franchising is a reduced risk failure... An licensing vs franchising business, and both have certain benefits is covered by law... The parties involved when you are pondering the question of licensing and franchising be! Training and support geographically diversified marketplace without compromising on brand value determine best... Knows a franchise, a franchise is a more extensive legal relationship that includes a allows!

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