Though both share similar advantages, licensing can be called a subset of franchising; i.e. Franchising vs. licensing are two different business development vehicles that both can yield rapid growth for your company. 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. When buying a franchise, a businessman should look at balance sheets and bottom lines and compare it to similar franchises in similar areas. Licensing is a broad term that businesses use for contracting purposes. Licensing is a business relationship in which one business (the licensee) is legally allowed to generate, establish and expand their revenue streams using a product, service, technology or any other asset owned by another business (the licensor) for a fee, over a … Licensing Versus Franchising. 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. Franchising is a type of licensing arrangement. Licensing: Advantages and Disadvantages A licensing agreement grants another company the right to manufacture and/or sell goods, apply a brand name or trademark, or use patented technology owned by the parent company. This Guide discusses some of the differences between a simple license and a franchise. PUBLISHED October 5, 2020 - LAST UPDATED October 27, 2020. ; now Walt Disney is not the sole manufacturer of this merchandise. This is the second instalment of a series. Neither franchising or licensing is easy. Franchising vs. A company’s decision regarding which arrangement to use to expand their operations into a new market depends on various factors, such as the kind of product/service they are seeking to expand, the competition in the market, the degree of investment involved, and so on. Compared with a franchisee, licensees usually don’t get training or support from the licensor, but licensing costs can be considerably less than those of a franchise. Understanding the difference between franchising and licensing is important for business owners looking to expand their operations. Licensing refers to a relationship that licenses a name OR a system to a business partner who will have rights to distribute or do business with that system or trademark. 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. Trevor Johnson reports. The reason you want to have pizza at these outlets can be; they are known for selling amazing variety & quality of pizza, they have made their mark in the industry by exclusively selling pizzas, they have their own signature dishes which no other pizza outlet in the market can provide, they enjoy a market reputation when it comes to pizza. 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. Doing it right the first time will save money and significant legal headaches down the road. Licensing vs. PUBLISHED October 5, 2020 - LAST UPDATED October 27, 2020. Franchising Vs. Licensing. So the government requires franchises to be registered and for franchisers to disclose all risks to potential franchisees. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. 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 ; Licensing has a more flexible and straightforward agreement because it only covers one or a few protective marks. Examples of licenses include a company using the design of a popular character, e.g. In fact, they are paving the way for a future lawsuit. Here we discuss the top difference between Licensing and Franchising along with infographics and comparison table. They should perform a name-brand availability search and investigate Intellectual Property issues such as patent ownership. Generally situations, the terms licensing and franchising are applied interchangeably to determine a equivalent business relationship. The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. Licensing does not require registration, whereas registration is a must in the case of franchising. ; Cons. A license simply provides an individual or company with the right to use licensed material or to do something that would otherwise be considered illegal. But which route is better for your business? These licenses are typically non-exclusive so competing companies can serve the same market. Yamarie Grullon - June 28, 2019. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. 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. So, in fact, a franchise is licensing of a business format in a particular way. In a franchise, the franchising fee would cover the lease and buildout, it would likely get you some national marketing from the brand and the franchise would likely have training for you and your staff. Registration of Franchise; Franchising: A franchisor must register the franchise with the Registrar of Franchises before he can operate the franchise business or make an offer to sell the franchise to any person. Anyone selling a license should ensure that their Intellectual Property is protected by law and specify what rights it grants the licensee. Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Some licensing agreements may end up actually creating unintentional franchises. Franchising vs. The difference between franchising and licensing can be a fine one. Licensing Pros and Cons Pros. 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. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. Considering Licensing vs. A typical franchise includes rights to Trade Mark, trade names, logos, patents, trade-secrets and know-how of a business. To understand Licensing, let us take the example of Walt Disney. Failing to follow these requirements can open you up to the possibility of legal action by those you enter into agreements with and even worse with the government and regulatory agencies. The degree of autonomy is very less for the franchisee in the operational matters of the business. To learn more about converting your license system to a franchise, click here. The fee can range from $5,000 to $50,000 or more. A licensor will grant a licensee the right to use their intellectual property but the licensor will not provide … The relation between franchise vs licensing advantages disadvantages. For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. 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 individuals prevalent on the internet who claim (via very unprofessional-looking websites) that merely calling the relationship a “license”dispenses with the franchise laws are not doing you any favors. A lawyer knows what matters. 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. Franchise: A Very Quick Overview. 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. 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. Franchising VS Licensing: In the franchise model owner of the brand or any business transfers authority to another person. In exchange, the licensee pays royalty fees to the licensor. 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. There is a difference between these two business models, but what exactly is that difference? Franchising vs. In such a situation, the licensor needs to either (a.) There are a few licensing deals which are so similar to franchising that there is hardly any difference to make between both of them. Selling a disguised franchise as a “license” can be the most expensive mistake a company ever makes. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. Licensing vs. But if you are starting a small business that is dependent upon selling products of a big company, there are two ways you can do it. Franchising. The smaller company pays the … Next Article 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. Franchising vs Licensing. 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. And that persons pay some amount according to the brand requirement. The Truth About Franchising vs. Tweet . Franchising vs Licensing. 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. Licensing is typically used in cases where technology is being sold through a distribution system. A license agreement is essentially a “portion” of a franchise agreement. We will now turn to the differences between licensing and franchising. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. Licensing doesn’t have the same level of control, and the licensees determine their marketing system and the way they want to sell the products or services. Today we attempt to understand the differences between Licensing vs 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. Franchising USA is a monthly digital publication bringing you all the latest news, expert advice, and information from the world of franchising. are precious assets, which should not be shared casually, and should first be appropriately protected. Franchising vs. Franchise Business contracts Securities transactions Intellectual property Trademarks Trade names Tangible assets of a business Business Consumer protection. One may be easier than the other, depending on who is looking, but the details of each of them make them complex. Licensing involves fewer requirements in that unlike franchising, there is no specific legislation setting out how you can and cannot deal with a licensee. FRANCHISE VS. LICENSE 101 Both franchise and license agreements allow for established businesses to contract or license their brand for a separate party to run a similar business—in exchange for a fee and portion of the profits. Over the last few decades, franchising and licensing have become common expansion strategies for many business owners. We will now turn to the differences between licensing and franchising. Franchising? Differences between Licensing and Franchising. They take longer and cost more to set up than licenses. Mickey Mouse, on their products. It brings a ready-made customer base and often comes with client listings. Let’s take a look. Licensing – This is a model in which the Licensee (local business) will attain the intellectual property (Trademarks, Patents, Copyrights, etc.) CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. And a licensee has more freedom to run his or her business when it comes to marketing and sales. This is the second instalment of a series. Licensing only gives us access to a particular protected trademark, and nothing more. These licenses are typically non-exclusive so competing companies can serve the same market. A comprehensive difference is shown in the following table. The licensor may have a say in how the intellectual property is used but not how the licensee operates their business. Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. 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. Post by Faai Steuer. When considering expanding a business both franchising and licensing are possible options. This is mainly because of the way it’s structured in that the franchisor and franchisee work very closely together to manage and expand the business to various locations. To learn more about franchising your business, click here. Franchising is based on securities law while licensing falls under the purview of contract law. Either you get a license to sell the products or services, or you become a franchise of the company. There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. 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. Conclusion – licensing vs franchising. Franchising is more like a … License vs. 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. Franchising vs Licensing Advantages Disadvantages High Cost – The costs of purchasing a franchise can be very expensive. Licensing vs. Franchising is governed by an elaborate agreement specifying the responsibilities & duties of both the parties involved. 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 franchise agreement. Learn abut the key differences here. Anyone selling a franchise should be sure to protect their Intellectual Property and create comprehensive work manuals and maintenance programs. Key Differences between Licensing and Franchising. Diffen LLC, n.d. When you are pondering the question of licensing vs. franchising, it is important to bear in mind the place of legal counsel. Franchising vs Licensing: Choosing a Retail Model for Your Cannabis Business (Part 2) Retail Store. Hence putting the above in a tighter perspective, we can define the terms as. Diffen.com. Licensor, however, has no autonomy over the business of the licensor. These two terms are often confused with one another. Franchising vs Licensing. The franchise’s costs typically vary according to the type of franchises that you buy. Prior to moving forward with franchising a business or licensing a business it is important to understand the differences and how each may have an affect on you. It is really a great feeling to be changing over from an employee to an owner. When deciding to open a business using an already established brand, you may have heard people talk about franchising and licensing. 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