Franchising-Licensing

Franchising-Licensing

Franchising-Licensing come from two distinct areas of the law

Franchising is based on securities law and licensing is a form of contract law. If one takes up franchising as a means of expanding a business, then compliance with the franchise laws, like the securities laws, requires registration of the franchise in the applicable jurisdictions. Licensing on the other hand, is merely a contract between two independent contractors and franchise registration is not required.

Some companies license their brands but are not structured as franchise systems

Licensing is a business structure and method of expanding the distribution of goods and services, using a licensing legal structure, rather than create a franchising business structure that is a much more exacting and time-consuming process because of required procedures and restrictions as well as substantial costs.

A license grants permission to engage in a limited business activity

Companies that only license products and services are more passively involved in the sale of their product or service. They supervise the proper use of their license and collect license fees, but they do not get involved in the actual business operations of businesspeople who buy the licenses. Instead, they are more concerned about limiting the ability of a businessperson to modify the trademark or reduce the value of the licensed product or service. They monitor the sale of their product or service to be sure the licensee offers the product or service in the way specified by the licensing company.

A franchise is the right granted to a business by a company - the franchisor - to use the company’s name and sell its products and services

Franchisors do license the use of their trademark, but they take a much more active role in how the businessperson who buys the right to sell the product or services of another company (the franchisee) actually operates the business using that license. However, the way in which the franchisee operates the business is often overseen and somewhat controlled by the franchisor.

Return from Franchising-Licensing to What is a Franchise