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But there are still strict controls on … There are many merchandises which bear these characters on it; like bags, cups, bottles, etc. Though both share similar advantages, licensing can be called a subset of franchising; i.e. Licensing involves fewer requirements in that unlike franchising, there is no specific legislation setting out how you can and cannot deal with a licensee. Licensor, however, has no autonomy over the business of the licensor. Mickey Mouse, on their products. Franchising vs. licensing are two different business development vehicles that both can yield rapid growth for your company. They should perform a name-brand availability search and investigate Intellectual Property issues such as patent ownership. 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. 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. A license agreement drafted to disguise a franchise agreement may skirt the laws of the Federal Trade Commission briefly, but ultimately the facts will challenge its validity down the road. They take longer and cost more to set up than licenses. Franchising vs Licensing. License vs. Post by Faai Steuer. Here we discuss the top difference between Licensing and Franchising along with infographics and comparison table. 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. Licensor does not have control over the ultimate use of its intellectual property rights. Tweet . PUBLISHED October 5, 2020 - LAST UPDATED October 27, 2020. 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. They are not looking through the lens of an expert with alm… After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. Unclear about the differences between licensing and franchising? 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. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. Franchising is administrated by law sanctuaries while licensing is directed by agreement law. While the two may appear to be relatively similar, stark contrasts exist. In exchange, the licensor receives payments from the licensee. In fact, they are paving the way for a future lawsuit. Licensees also enjoy lowered risk because they're usually entering the marketplace with a known quantity and a built-in customer base. Franchising. If you read this far, you should follow us: "Franchising vs Licensing." 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. Diffen.com. This has been a guide to Licensing vs 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. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. Licensing and franchising share a few similar advantages. However, they enjoy a lot more freedom than franchisees. Franchisor gets access to the geographically diversified marketplace without compromising on brand value. a company using Microsoft Office on its computers. 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. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. So the government requires franchises to be registered and for franchisers to disclose all risks to potential franchisees. It can also apply to the use of software, e.g. Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property (IP), brand, design or business programs. It brings a ready-made customer base and often comes with client listings. But it is also important for aspiring entrepreneurs who are interested in purchasing a franchise or licensing a product. When someone wants to start their business, franchising as well as licensing both look tempting business models. Complete business package (including technical know-how) will be shared with the franchisee. What is the change involving franchising and licensing? In exchange, the licensee pays royalty fees to the licensor. Both models require that the franchisee/lincensee make payments to the original business that owns the brand or intellectual property. In such a situation, the licensor needs to either (a.) 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. The terms on which you grant licences or franchises need to be carefully considered. Franchising vs. When deciding to open a business using an already established brand, you may have heard people talk about franchising and licensing. Anyone selling a license should ensure that their Intellectual Property is protected by law and specify what rights it grants the licensee. 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. Show 6 more Show 6 less . Edit or create new comparisons in your area of expertise. They pay monthly or some time yearly royalty to the brand owner its all depends upon the contract. There is a huge difference between both franchising and licensing, but quite often it is difficult to differentiate between them. 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 … This may make running a business with a licensing agreement and running a franchise … They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks. When considering which model is likely to work best for your business needs, you will need to take into account both the nature of your business, and the degree of control that you feel you will need over your intellectual property and/or brand if it is to be used by other parties. Franchising Vs. Franchising vs. Tweet . Licensing does not require registration, whereas registration is a must in the case of franchising. Franchising vs Licensing. And that persons pay some amount according to the brand requirement. Licensing is governed by a licensing agreement, which involves a one-time transfer of property or rights for a fee. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. 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 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. Franchising USA is a monthly digital publication bringing you all the latest news, expert advice, and information from the world of franchising. Licensing is essentially how you exploit intellectual property. Both licensing and franchising are excellent ways to grow a business, but franchising is still the more popular option. Franchising vs Licensing: Choosing a Retail Model for Your Cannabis Business (Part 2) Retail Store. 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 governed by an elaborate agreement specifying the responsibilities & duties of both the parties involved. Licensing. There is no technical support or assistance provided by the licensor in most cases. The main differences are summarized in the following table: Licensing. 3 Dec 2020. Whether you are licensing or franchising, the important thing is to start by protecting your IP. 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. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. The degree of autonomy is very less for the franchisee in the operational matters of the business. 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 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. 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. Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. 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. 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. Franchising is a type of licensing arrangement. The brand has some significant control over the franchise also they gave the proper model to … From both a legal and business perspective, the franchise vs. license choice should be an easy one to make. 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. The franchisor assists in setting up the service provider with adequate skill & knowledge to emanate its brand to the customers. When you have a great business model, there are two powerful ways to see it reach its full potential: either franchising or licensing your brand. 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. 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. Franchising vs Licensing. Licensing deals with Products & Goods like software patented technologies etc. The brand value which is built after years of struggle is at stake for these niche companies. Licensing. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. A franchise is a more extensive legal relationship that includes a license. Franchising vs Licensing. 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. There are a few licensing deals which are so similar to franchising that there is hardly any difference to make between both of them. The franchise’s costs typically vary according to the type of franchises that you buy. Franchise Business contracts Securities transactions Intellectual property Trademarks Trade names Tangible assets of a business Business Consumer protection. PUBLISHED October 5, 2020 - LAST UPDATED October 27, 2020. Now obviously, deciding to become a licensor or a licensee vs. a franchisor or franchisee will vary person to person. Therefore the franchiser controls whether or not the franchisee makes money. Licensing Franchising As opposed to Licensing. These licenses are typically non-exclusive so competing companies can serve the same market. Learn abut the key differences here. Franchising. When considering expanding a business both franchising and licensing are possible options. For a company looking to expand, franchising and licensing are often appealing business models. The main differences are summarized in the following table: Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. of the Licensor (Established Entity) for an agreed royalty. It is really a great feeling to be changing over from an employee to an owner. Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Doing it right the first time will save money and significant legal headaches down the road. Neither franchising or licensing is easy. Licensing Franchising and licensing are means of expanding a business. There is a difference between these two business models, but what exactly is that difference? This is the second instalment of a series. 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. If you’re looking into franchise vs. license agreements, it’s probably because you’re looking into either building your business into a franchise business or loaning your brand to another company for use. -, Not offered; licensee can sell similar licenses and products in same area, Logo and trademark retained by franchiser and used by franchisee. 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. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. February 9, 2010 min read Opinions expressed by Entrepreneur contributors are their own. 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. A licensor will grant a licensee the right to use their intellectual property but the licensor will not provide … A popular debate among those seeking to expand their current business is the pros and cons of licensing and franchising. Licensing is typically used in cases where technology is being sold through a distribution system. Franchising vs. And a licensee has more freedom to run his or her business when it comes to marketing and sales. Franchising vs. licensing is a question we are asked all the times. Franchising and licensing are very appealing. A comprehensive difference is shown in the following table. Franchising vs Licensing. Franchising? Considering Licensing vs. a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. ; Licensing has a more flexible and straightforward agreement because it only covers one or a few protective marks. Franchising & Licensing - What are they? A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. These licenses are typically non-exclusive so competing companies can serve the same market. Franchising Both licensing and franchising are legal relationships, that must follow laws in order to be used to develop and expand your business. 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. This is the second instalment of a series. To learn more about licensing vs. franchising get the guide. 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. Differences between Licensing and Franchising. Understanding the difference between franchising and licensing is important for business owners looking to expand their operations. A license agreement is essentially a “portion” of a franchise agreement. Franchisee gets continual support from the franchisor to extend an already successful business. Franchising is a much broader concept since it involves a greater degree of control by the franchisor. 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. A license is a limited legal relationship. 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. Posted: 19 May 2018 | 7 minutes read Share: Which proven business model would suit you best? Yamarie Grullon - June 28, 2019. Franchise: A Very Quick Overview. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. The licensor may have a say in how the intellectual property is used but not how the licensee operates their business. Licensing Pros and Cons Pros. 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As prescribed in the following table: franchising vs licensing: Choosing a Retail model for Cannabis... The production and marketing of goods actually creating unintentional franchises with one.. In fact, a businessman should look at balance sheets and bottom lines and compare it to similar in... An individual to be used to develop and expand your business through franchising or licensing product... It comes to marketing and sales logo for a fee the times relationship that includes a license sell. For less investment than opening new locations themselves business through franchising or licensing. ; licensing has a more legal. Be shared casually, and information from the licensee pays royalty fees to the brand.... Or franchises need to be self-employed while also investing in a week is protected law! ; you may also have a say in how the licensee pays royalty fees to the differences between vs. End up actually creating unintentional franchises of Walt Disney brings a ready-made base... Only covers one or a licensee vs. a franchisor or franchisee will person! Some licensing agreements to transfer the use of software, e.g you become a franchise is monthly! More like a … franchising vs licensing your business, click here say in how intellectual... Come from two distinct areas the important thing is to start at the following articles –, ©. There is a much broader concept since it involves a greater degree of control the. Way for a company ever makes to $ 50,000 or more the to. Beginning, read Part one here franchising both licensing and franchising are used interchangeably to define a business. Which model is better – franchising vs licensing: Choosing a Retail model for your Cannabis business ( 2. S costs typically vary according to the service business, but the details of each of make...

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