This is because licensing is not subject to the ftc franchise rule. When you delve deeper, youll notice there are many key differences between the two, than can impact the manner in which your brand is used and how much control you have over it. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of. We get this question often and it is critical to understand the differences. 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 two have some significant differences, and if you are considering growing your business either through franchising or licensing, its important to understand how these arrangements are structured. Difference between licensing and franchising with comparison. When trying to expand or leverage your successful business to further growth two models that are commonly used are franchising and licensing. Maas pros, headquartered in markham, canada has been assisting businesses in implementing profitable and measurable digital marketing solutions in the areas of websit. Franchising is based on securities law while licensing falls under the purview of contract law. Structuring licenses to avoid the inadvertent franchise. Goldstein legals guide to franchising vs licensing franchising and licensing are excellent options for business owners looking at expansion, because they provide an alternative to organic growth, which often entails less risk.
Franchising vs licensing difference and comparison diffen. Whats the difference between franchising and licensing. In licensing, there is a onetime transfer of property or rights, but in franchising involves the ongoing assistance of franchiser. Aug 07, 2015 robert kiyosaki 2019 the speech that broke the internet keep them poor. Franchising and licensing are terms which describe very similar relationships but with stark differences. International franchising and licensing request pdf researchgate. Licensing when considering which model will work best for your business you need to consider the nature of your business and what degree of control you need over your ip or brand when it is. February 9, 2010 min read opinions expressed by entrepreneur contributors are their own. To franchise, or not to franchise, franchising and licensing.
When you are ready to expand, you may investigate both licensing and franchising as possible directions for business growth, but it can get confusing as to how these options differ. Franchising vs licensing differences between franchising. This memorandum, produced for a number of our clients considering franchising, brings together a bullet point list of the advantages and disadvantages both business and legal of moving to a franchised system of operation. Difference between licensing and franchising praxis.
Robert kiyosaki 2019 the speech that broke the internet keep them poor. The usual nontreaty equivalent of a pe, or tax nexus, is based on the situation. Licensing vs franchising top 5 best differences with infographics. Understanding the difference between franchising and licensing is important for. A license arrangement is primarily composed of 2 elements. It is really a great feeling to be changing over from an employee to an owner. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. 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. If you are looking for ways to expand your successful business, you may be tossing up between using a franchise or licence model. A franchise is a license to use the name, trademarks, and proprietary products of an existing company. A substantial measure of fee negotiation is there in licensing. We will now turn to the differences between licensing and franchising. Licensing arrangements are governed by standard contract law so there are less administrative burdens than in a franchising arrangement. Under a franchise, the owner franchisor retains control of the brand and licenses that is, grants permissions to the franchisee to use its.
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. In a nutshell, a franchise is a license wherein the licensor controls the licensee and benefits from that cont. Jan 27, 2018 a read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Owning your own franchise can be a great way to start a small business without taking on the risks that are associated with starting from scratch. Licensing and franchising, what is the difference and does it. Licensing works best when a company does not have any desire to exert any type of control over its operators, wants to just teach someone how to do the business. Click here to request our free onehour webinar, alternatives to franchising. Difference between licensing and franchising praxis legal.
Accomplishing these tasks can require a significant investment of time from corporate. The major difference between franchising and licensing. The advantages and disadvantages of franchising by david e. However, the ruling falls short of providing a clear framework for determining whether a license arrangement is subject to the arthur wishart act franchise disclosure, 2000 wishart act, as the decision simultaneously considers two. Licensing is an arrangement in which a company licensor sells the right to use intellectual property, or produce a companys product to the licensee, for a negotiated fee i. While franchising is a form of business licensing, not all licensing agreements are franchises. In fact, licensing when used as an alternative to franchisingis a trap that may damage your. Indeed, to be a proper franchisee you are required to use their logo, name, product, and business system. It is important that you are aware of the possibilities offered. The franchi sor licenses to the franchisee, for a defined period, the right to use the franchisors business model and intellectual property. A franchise is a more extensive legal relationship that includes a license. In accordance with federal laws, before a business can be franchised, prescribed legal documents must be created. Franchising vs licensing top 5 best differences with infographics.
But this is not the case, as franchising is totally different to licensing. The main differences are summarized in the following table. Jun 01, 2012 ifranchise group ceo and franchise expert mark siebert helps you understand the definition of a franchise and distinguish it from a license. The franchisee is granted a franchise license to use the franchise companys. Each model has its advantages and can offer an effective strategy for expansion. These legal documents are known as the franchise disclosure document and the franchise. Certainly no licensor expected to end up defending franchise allegations. Used by businesses across the world, these two models carry their own sets of advantages and shortfalls. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of the company. Franchising is a faster, cheaper form of expansion than adding companyowned stores, because it costs the parent company much less when new stores are owned and operated by a third party. On the flip side, potential for revenue growth is more limited because the parent. Feb 01, 2004 a restaurateur ponders taking the leap into franchising.
To understand licensing, let us take the example of walt disney. Yet, these situations arise with considerable frequency. Starting and running a small business can be challenging, so its important to determine what is best for you and your business. Whats the difference between licensing and franchising. But which model is better franchising vs licensing. Franchising vs licensing is often the tough question potential wouldbe business owners ask themselves, as both are popular business models. How does franchising differ from licensing in australia. Franchising might be right for your business, but it is not your only option. Distinguishing license agreements from franchise arrangements.
Whats the difference between a licence and franchise. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of the. In general, a franchise is a business form where you pay a fee to the franchisors allowing you, the franchisee, to use their business logo, name, product, and business system. A franchise typically involves the granting by one party a franchisor to another party a franchisee the right to carry on a particular name or trade mark, according to an identified system, usually within a territory or at a location, for an agreed upon term. This article will explore different growth strategies with a particular emphasis on franchising, which is the most highly regulated of the growth strategies analyzed. Franchising a business is quite a bit more regulated than licensing one.
Aug 12, 2017 key differences between licensing and franchising. However, some people still think that franchising and licensing are almost the same and have no specific difference. The difference between licensing and franchising is that licensing is a legal relationship that is limited in scope and relates only to the use of a trademark or. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Each growth strategy has its own advantages and disadvantages, and each has its own legal ramifications. The idea was to introduce young people to franchising, to the many facets of the franchising business, and to the many opportunities that franchising offers for both employment and professional careers and for business opportunities and business ownership. Difference between franchising and licensing difference. While franchising is perhaps the worlds most powerful growth vehicle, the entrepreneur considering growth options would be.
Licensing vs franchising the primary difference between a franchisee and a licensee is that franchisees can expect to have a much closer relationship with their parent company than their licensee counterparts. The broad scope of the franchise laws may apply to a. Jan 16, 2017 now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business. Structuring licenses to avoid the inadvertent franchise by rochelle spandorf or any type of monthly fee based on gross receipts for the distribution or licensing rights. Marilyn monroe estate, 2014 onsc 4584 provides some guidance on the distinction between franchise agreements and license agreements. This guide discusses some of the differences between a simple license and a franchise. Differences between licensing and franchising marketing. Jul 10, 2017 franchising might be right for your business, but it is not your only option. This topic may spark some debate because, in the end, it really depends upon what you want out of the relationship. Elements of a franchise a franchise has been described as a license on steroids. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of his or her business. What is the difference and how do you know if franchising vs. This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. For a company looking to expand, franchising and licensing are often appealing business models.
However, licensing a business is generally far less expensive than buying a franchise. In exchange for these rights and services, the franchisor receives an upfront fee for the rights to a geographic area, as well as royalties based on sales. If you are thinking about expanding your operation through franchising, licensing may be an alternative because 1 it is substantially less expensive, and 2 it takes about ten to fifteen business days to complete rather than months and months for franchises. Converting licenses to franchises january 14th, 2019 ifranchise group request a copy of the whitepaper on converting franchises to licenses and viceversa, an informative piece exploring the business issues and pros and cons of franchise and nonfranchise systems. Introduction to franchising small business administration. Given the prevalence of franchising and the interstate, national, and even international scope of so many franchise networks today, attorneys need to know about potentially applicable federal, state, and foreign franchise. What is the difference between franchising and licensing. Here we discuss the top difference between licensing and franchising along with. Converting licenses to franchises franchise consultants. Cost when you license a business, there are no franchise fees, marketing fees or royalties. Licensing top national franchise lawyers based in ny. This allows the small guy access to a successfully established product with a 30 year track record. Franchising vs licensing compare contrast business model.
Both can be a route to successful expansion, as an alternative to organic growth and with less risk. In a pure trademark license, a licensor grants a single license to one licensee to enable the licensee to manufacture a product according to the licensors specifications, and to sell such product under the licensors trademark. Six days a week, in neighborhoods all across the country, more than 2,000 chickfil a restaurants are serving handbreaded chicken sandwiches, hot waffle fries and genuine hospitality. There are many opportunities for people who want to explore careers and business. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ.
Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. Difference between franchising and licensing compare the. But there is often a lack of clarity as to how the two models differ and. Franchisees typically retain rights to the parent companys trademark and logo. Franchising is a growing and important part of our economy franchising is a national and international strategy for grow ing a business. However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it is critical that you understand that licensing is not an alternative to franchising. Dec 15, 2014 difference between licensing and franchising the hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. For instance, starbucks licenses 41 percent of their stores the remainder are. Owning a franchise allows you to distribute the companys products as well as to use. There are, however, important differences between a licence and franchise agreement that you should understand.
While they may mistakenly be used interchangeably they are two distinct concepts and this article will discuss their differences to assist you in deciding between franchising vs. Franchise systems use a branded system of distribution. Its easy to become confused between franchising and licensing because on the surface they sound remarkably similar. Difference between licensing and franchising the hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. Unclear about the differences between licensing and franchising. Given the prevalence of franchising and the interstate, national, and even international scope of so many franchise networks today, attorneys need to know about potentially applicable federal, state, and foreign franchise laws. Franchising licensing licensing is lower cost and can be done quickly. In contrast, a licensing arrangement allows a licensee considerable freedom in. Another form of trademark license is a collateral product license. Growth through licensing and franchising licensing renting your brand or other intellectual property to increase sales. These may include national marketing, accounting, pointofsales information, site selection, and site acquisition. What is the difference between licensing and franchising. Youll pay an upfront fee to purchase the license, but recurring costs will be. Upon which the licensee would contribute appropriate capital investments to set the business running in.
The difference between licensing and franchising can be drawn clearly on the following grounds. Conversely, standard fee structure exists in franchising. Exemption based franchising for established and startup franchisors david b. In laymans 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. The major difference between franchising and licensing we would like to take a minute to answer a very common question often asked. The obvious advantages of licensing over franchising include reduced legal costs, reduced accounting and auditing costs, no registration and approval of the license program with any state, and quicker entry into the marketplace. Differences between licensing and franchising marketinginsider. At the franchise institute, we encourage people to consider the two options carefully before they.
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