The difference between licensing and franchising can be drawn clearly on the following grounds. In franchising, there is a lot of support from the company to the franchisee in terms of advertisement and training whereas there is no such support in the case of licensing. Franchisees typically retain rights to the parent companys trademark and logo. We will now turn to the differences between licensing and franchising. Its easy to become confused between franchising and licensing because on the surface they sound remarkably similar. Difference between franchising and licensing compare the.
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 franchising explained. As similar as these two may sound, theres quite a lot of differences between the two. 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. We are often asked the difference between a license and a franchise agreement. What is the difference between a licence and franchise. If an arrangement between parties meet all of the criteria then it is a franchise agreement, there is no contracting. Franchising is a concept whereby independent entities embark upon mutual cooperation, as a part of which the franchisor as the systems organiser transfers onto the franchisees, in exchange. 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. 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 technology, whereas franchising involves a relationship that goes beyond the grant of a license and includes a relationship of control where the underlying business is required to operate in accordance with designated systems and procedures. What is the difference between franchising and licensing. Under this, dealers were given the right to distribute goods for a manufacturer. Our web page licensing or franchising outlines the difference between licensing and franchising. Whats the difference between franchising and licensing.
For a company looking to expand, franchising and licensing are often appealing business models. Difference between licensing and franchising with comparison. Usually it centers on a product or service that can be offered for money. Large companies have both the models to offer to a person who wishes to be liked with them. It involves finding franchisees with the skills necessary to operate branches of the same business. Franchising vs licensing is often the tough question potential wouldbe business owners ask themselves, as both are popular business models. Often, the difference between a licence and a franchise comes down to whether. What is the difference between an agreement and a deed.
Licensing and franchising, what is the difference and does it. A license arrangement is primarily composed of 2 elements. But this is not the case, as franchising is totally different to licensing. The main differences most agreed on can be found here. This guide discusses some of the differences between a simple license and a franchise. There is a world of difference between licensing and franchising but its not always easy to distinguish between them. Licensing top national franchise lawyers based in ny. In order to understand the difference, it is necessary to understand exactly what a licence and a franchise are. For these entrepreneurs, establishing a franchise system unnecessarily appears to be a daunting task and is disregarded in favor of licensing. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. Differences between licensing and franchising marketinginsider.
Franchising is an ongoing business relationship between franchisor and franchisee that includes not only the product, service and trademark, but the entire business concept itself a marketing strategy and plan, operating. The franchising code of conduct provides a definition of a franchise. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use products and goods where the ownership remains with the licensor whereas franchising refers to an arrangement between franchiser and franchisee where the latter will enjoy the ownership of a business on behalf of the franchiser in lieu. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. Franchising is a wonderful way to go into business for yourself, but not by yourself. However, some people still think that franchising and licensing are almost the same and have no specific difference. Each model has its advantages and can offer an effective strategy for expansion. Jul 26, 2016 franchising us department of commerce defines franchising according to the federal trade commission rule ftc 436 as. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. The hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. Franchising on the other hand is often confused with the term licensing.
Each growth strategy has its own advantages and disadvantages, and each has its own legal ramifications. Difference between licensing and franchising praxis legal. Franchising is a form of licensing whereby the franchiser provides a standard package of components or ingredients together with management and marketing expertise, and the franchisee provides capital, market knowledge, and personal involvement. Unclear about the differences between licensing and franchising. What are the advantages and disadvantages of owning a franchise. Franchising might be right for your business, but it is not your only option. Selling a disguised franchise by calling it a license can be the most serious and costly mistake your firm ever makes. What is the difference between franchising and licensing in regards to expanding a business when it comes to expanding a business, whats.
Determining the amount of control you want to have in a business is the key to choosing whether licensing or franchising is the right option for you. February 9, 2010 min read opinions expressed by entrepreneur contributors are. At the franchise institute, we encourage people to consider the two options carefully before they. Whats the difference between a licence and franchise. 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 technology, whereas franchising involves a relationship that goes beyond the grant of a license and includes a relationship of control where the underlying business is required to operate in accordance with designated systems and. Elements of a franchise a franchise has been described as a license on steroids. Both the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper. In fact, licensing when used as an alternative to franchisingis a trap that may damage your. Starting and running a small business can be challenging, so its important to determine what is best for you and your business. 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 technology, whereas franchising involves a relationship that goes beyond the grant of a license and includes a relationship of control where the underlying business is required to operate in accordance with designated. Difference between licensing and franchising the tasa group. Licensing and franchising are sometimes used to mean the same thing, but there are differences.
What is the difference between a franchise and a licence. We have also advised both franchisees and licensees. Although there are pros and cons to growing your business through either licensing or franchising, your business may be better suited for one route over the other. 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. There are, however, important differences between a licence and franchise agreement that you should understand. An idea is the first milestone in the process of founding a business. 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 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. The major difference between franchising and licensing. Holmes northern california office s outhern california office 555 chorro street, suite. The first and foremost difference between licensing and franchising are that the former is mainly associated with the production and marketing of. Licensing vs franchising top 5 best differences with infographics. A business idea is a concept that can be used to make money. How does franchising differ from licensing in australia. The main differences are summarized in the following table. Often we are asked what is the difference between a franchise and a licence.
In franchising, the franchisee gets the right to display the same brand logo, trademark, name and image. Both concepts are ways in which the firm can establish business in other markets and therefore entry modes. If the answer is yes, then you have entered into a franchise agreement. Differences between licensing and franchising marketing. This includes terms and conditions, reselling, and licensing. In a nutshell, a franchise is a license wherein the licensor. Here we discuss the top difference between licensing and franchising along with. Running a franchise takes some business acumen to make. Franchising is based on securities law while licensing falls under the purview of contract law. What is the difference between licensing and franchising. This legal difference forms the basis for what information needs to be included in each type of agreement. This is because licensing is not subject to the ftc franchise rule. 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.
Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. A key difference lies in the area of law by which each business type is governed. But which model is better franchising vs licensing. However, many businesses especially the nascent ones fail to differentiate between the two. If you are looking for ways to expand your successful business, you may be tossing up between using a franchise or licence model. Under a franchise, the owner franchisor retains control of the brand and licenses that is, grants permissions to the franchisee to use its. We would like to take a minute to answer a very common question often asked.
The advantages and disadvantages of franchising by david e. In fact, some licensing deals are so close to franchising that they. What is the difference and how do you know if franchising vs. In franchising, the franchisor licenses its intellectual property to the franchisee. Traditionally a business owner like you wants everybody to operate under. There are very subtle differences between a distributordealer relationship and a franchise relationship, and there are numerous instances where a purported distributordealer has been deemed to be a franchise. 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. Licensing, franchising, and other contractual strategies. Franchising is a way to scale a business once it is successful and proven. What is the difference between a licence and franchise agreement.
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. What is the difference between franchising and licensing in. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of his or her business. First, its important to understand the difference between these two models.
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. Aug 12, 2017 many think that franchising and licensing are same, but the fact is that they are different, only the advantages of franchising are similar to those of licensing. As a business owner, one has to choose from the two models as to how he wishes to go ahead. Difference between an innovative idea and a business opportunity what is a business idea. Knowing the differences between franchising and multilevel marketing also called mlm or network marketing is important when youre choosing the best business model for your background, financing and longterm goals. 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. Now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Here is a quick look at the differences between licensing and franchising to provide a starting point in determining which option is best for your business.
Difference between licensing and franchising praxis. 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. Dec 23, 2008 what is the difference between franchising and licensing in regards to expanding a business when it comes to expanding a business, whats the difference between franchising and licensing. At the franchise institute, we encourage people to consider the two options. Many potential business owners are confused between the concepts of a franchise and license a. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of. Dec 29, 2014 although there are pros and cons to growing your business through either licensing or franchising, your business may be better suited for one route over the other. Nov 19, 2016 what is the difference between franchising and licensing. What is most important to you as a small business owner. It really depends on how much control you want to have over your operators. Many think that franchising and licensing are same, but the fact is that they are different, only the advantages of franchising are similar to those of licensing. To understand the difference between licensing and franchising the starting point is to look at what each term means. Franchising vs licensing differences between franchising. This can help you figure out the area into which a specific issue should fall.
In franchising, you have to pay royalty to the company every time you make a profit while in licensing, you keep the profits for yourself. While franchising is a recognized legal terminology, in the sense that it subjects the party offering these services to certain rules and regulations, licensing does not come with these issues, but it is necessary to be careful as licensing can also be. By contrast, starbucks has grown by opening its own branches. Franchising and licensing are terms which describe very similar relationships but with stark differences. To understand licensing, let us take the example of walt disney. February 9, 2010 min read opinions expressed by entrepreneur contributors are their own. When trying to expand or leverage your successful business to further growth two models that are commonly used are franchising and licensing. 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. Mcdonalds is one of the best known examples of a business that has grown through franchising. Whats the difference between licensing and franchising. Franchising us department of commerce defines franchising according to the federal trade commission rule ftc 436 as. Given the prevalence of franchising and the interstate, national, and even.
Apr 09, 2017 what is the difference between a licence and franchise agreement. International franchising and licensing request pdf researchgate. This definition is rather open and the nature of foreign activities is not specified. When considering the difference between business and corporate law, think of business as an activity and a corporation as the entity itself. Jul 10, 2017 franchising might be right for your business, but it is not your only option. Jan 28, 2017 how do i know if i am licensing or franchising.
The first and foremost difference between licensing and franchising are that the former is mainly associated with the production and marketing of goods while the latter is related to. Franchising is one of the most successful means for expanding almost any business. Used by businesses across the world, these two models carry their own sets of advantages and shortfalls. Licensing vs franchising top 5 best differences with.
Difference between franchising and licensing difference. 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. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer. Jan 16, 2017 now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business. Jan 07, 2011 difference between franchising and licensing. While franchising is a form of business licensing, not all licensing agreements are franchises. 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 vs licensing difference and comparison diffen.