It’s easy to become confused between the terms licensing and franchising because they sound similar on the surface. However, it’s important to understand the distinction between these two concepts before you enter into any license or franchise agreements. This article provides basic information about licensing and franchising but it’s a good idea to consult with a professional or expert before you sign any document. That will help you avoid any problems in the future.
In licensing, a licensor will provide you the right to use their intellectual property or use their product in order to make profit. You can either purchase the license completely or pay royalties on a monthly or yearly basis. Licence agreements come in different forms and can have different terms. You should consider the contract carefully before you sign the dotted line.
In franchising, the franchisor allows you to use their intellectual property, business model, branding, and products for a fee or royalty. They might even ask for a share of profits based on the value of the franchise. Highly successful franchises are more expensive because they have more brand value. Franchise contracts can be quite complicated so it’s a good idea to read through them carefully, get a professional opinion, and then sign them. Franchise owners will provide a copy of their standard contract on request so you can get a copy and study it before you choose a franchise to invest in.
A licence contract will give the licensor control over the intellectual property and how it is used. For example, they can stop you from using the licensed property in a different state. However, they can’t stop you from establishing a business in that state. They have no control over how you run your business and can only control how and where their products or intellectual property is used.
Franchisors have a lot of control over how you run the business and where you establish it. Their branding and operations procedure is their primary currency so they will dictate how you run the business. They will even have termination clauses in the contract to ensure you follow their operations procedure and branding properly.
The licensing process is very easy and quick. You just need to negotiate with the licensor over the contract, pay the money, and gain access to the product or intellectual property. After this initial transaction, you’ll only have contact with the licensor to pay fees or royalties.
Franchising process is more complicated and time-consuming. After you purchase a franchise branch, you’ll need to maintain constant contact with your franchisor and provide reports on operations, branding, and revenue. Franchisors will also provide training and support to help you run the business effectively. Licensors will not provide any training aside from an initial demonstration about how their products work.
Licenses don’t need to be registered or follow any special laws. They’re subject to the common contract laws. Franchises must be registered with the government and are subject to specialised laws created just for franchises. If you intend to purchase a franchise, you should get advice from a legal professional who specialises in this field. They will be familiar with the latest laws.
If you want to know more about the difference between franchising and licensing or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435