1851

It’s easy to understand why people sometimes get confused about the difference between licensing and franchising because both are legal agreements to use a brand name that —&nbsp;if you’ve done your research properly — has a proven record of success.A licensing agreement allows the licensee to use, make and sell an idea, design, name or logo for a fee, whereas a <a href="https://1851franchise.com/sportclips/are-franchise-agreements-really-one-sided-4103#stories">franchise agreement</a> allows the franchisee to operate a business as an independent branch of a company for a fee. And whether you sign a franchise agreement or a licensing agreement, you’ll have to pay a certain percentage of your sales back to the franchisor or licensor in royalties.&nbsp;But there are also many differences between the two types of agreements, and legal oversight is one of the biggest.&nbsp;Franchise agreements are governed by securities law while licensing agreements are governed by contract law. Often described as a “license on steroids,” the <a href="https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise-rule?utm_source=1851franchise.com&utm_medium=article&utm_campaign=whats-the-difference-between-licensing-and-franchising-2715756" target="_blank" rel="nofollow">Federal Franchise Rule</a> governs all franchise transactions throughout the U.S. and is enforced by the Federal Trade Commission. The rule requires franchisors to provide all potential franchisees with a disclosure document containing specific information they need in order to weigh the risks and benefits of a franchise investment. The Federal Franchise Rule defines a franchise as a company that meets the following criteria:<ul><li>Has a trademark, trade name, advertising or other commercial symbol the recipient can use in its business</li><li>Provides significant assistance to the recipient in their business operations</li><li>Charges a fee for their services</li></ul>While a licensor may likely have one or two of those elements, if it doesn’t have all three, it’s not a franchise. And that means a licensing agreement is not governed by the FTC, but rather state contract law through a <a href="http://www.jurisdiction.com/grant.htm?utm_source=1851franchise.com&utm_medium=article&utm_campaign=whats-the-difference-between-licensing-and-franchising-2715756" target="_blank" rel="nofollow">grant clause</a>. If problems arise, remedy for a breach of contract would be resolved by the state where the contract was drawn, so it makes sense to check specific state laws, especially with regards to the statute of limitations.Territorial rights are another thing to consider when debating between a franchise and a license agreement. Franchisors typically ensure that franchisees don’t cannibalize each other’s revenues, while licenses are usually non-exclusive, meaning they can be sold to multiple competing companies serving the same market.Support and training is one of the hallmarks of most franchises, giving franchisees access to branding and marketing support, ongoing training programs, coaches, mentors and more. And with many of the elements and operations of running a business already in place, franchisees can often hit the ground running much quicker than they would if they were running their own business.&nbsp;While licensees typically do not receive the same kind of training, counseling and support to ensure their success, they often enjoy a lot more freedom than franchisees. If you buy a franchise, you are bound to adhere to the operations and processes set forth by the franchisor, which in some cases can be <a href="https://www.nytimes.com/2019/06/28/business/subway-franchisees.html?utm_source=1851franchise.com&utm_medium=article&utm_campaign=whats-the-difference-between-licensing-and-franchising-2715756" target="_blank" rel="nofollow">overly controlling, harsh and punitive</a>. If you purchase a license, your business operations will not be controlled by the licensor.&nbsp;Whether you decide to become a franchisee or a licensee is often a matter of your personal preferences as a business owner. But in the end, the most important decision isn’t the type of legal agreement you enter into — it’s the company and the brand that will determine your success.&nbsp;

What’s the Difference Between Licensing and Franchising?

1851 Franchise

Often the choice between licensing and franchising boils down to whether you want a turnkey business or a business free of restrictions and control.

whats-the-difference-between-licensing-and-franchising

Fresh Coat

Photo of two Fresh Coat vans parked outside a building

Scaling With Fresh Coat Painters: Insights and Tips From the Field

fresh-coat-painters-franchise-scaling-tips

Pigtails & Crewcuts

A Business That Fills Your Heart: Why Pigtails & Crewcuts Franchisees Say It’s More Than a Career

a-business-that-fills-your-heart-why-pigtails-crewcuts-franchisees-say-its-more-than-a-career

Caring Transitions

Why Consider a Corporate Career Change? Find Meaningful Work Helping Others With Caring Transitions

why-consider-a-corporate-career-change-find-meaningful-work-helping-others-with-caring-transitions

Comfort Keepers

How This Financial Strategist Built a Flourishing Purpose-Driven Business With Comfort Keepers®

how-this-financial-strategist-built-a-flourishing-purpose-driven-business-with-comfort-keepers

Fitness Premier

Fitness Premier: A Legacy of Excellence, Built on a Foundation of Fitness

fitness-premier-a-legacy-of-excellence-built-on-a-foundation-of-fitness

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

U.S. Budget Deficit Rises as Tariff Revenues Increase — Potential Considerations for Franchising

us-budget-deficit-rises-as-tariff-revenues-increase-potential-considerations-for-franchising

Dickey's Franchisee Backlash - Lawsuits - Disputes - 1851 Franchise

Texas-Based Dickey’s Barbecue Pit Grapples with Franchisee Backlash

dickeys-barbecue-pit-franchisee-lawsuits

Design with person in blazer, with laptop, holding sign that reads "LOOKING FOR A JOB"

Uptick in Jobless Claims Points to Continued Instability in Labor Market

jobless-claims-franchise-growth

Extraordinary Brands Acquires CycleBar and Rumble, Shaking Up Boutique Fitness Franchising

extraordinary-brands-cyclebar-rumble-boxing-acquisition

NJCAR v. Ford - New Jersey Supreme Court Limits Standing Under Franchise Practices Act

New Jersey Supreme Court Limits Standing Under Franchise Practices Act

new-jersey-franchise-practices-act-njcar-v-ford

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores - Agg - 1851 Franchise

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores

hooters-franchise-model-company-owned-closures

"Come in, We're OPEN" sign against abstract background

Small Business Optimism Dips, Raising Concerns for Franchise Owners

small-business-optimism-dips-raising-concerns-for-franchise-owners

Wendy's CEO Kirk Tanner Steps Down - Breaking News - 1851 Franchise

Wendy’s CEO Kirk Tanner Steps Down Amid Challenges, Leaving Franchisees Facing Uncertainty

wendys-ceo-transition-kirk-tanner-franchisee-uncertainty

Rising Jobless Claims Could Signal Challenges — and Opportunities — for Franchising

rising-jobless-claims-affect-franchising

Hely and Hiral Patel Bring Their Longtime Dream to Life With The Brass Tap

brass-tap-franchise-pasadena-maryland-hely-hiral-patel

1851 Keyword - The Secret To Succeeding With a Part-Time Franchise Is Picking the Right Model

The Secret To Succeeding With a Part-Time Franchise Is Picking the Right Model

part-time-franchises-picking-the-right-model

Navy Veteran and Professional Artist Couple Open Caring Transitions in Texas

What’s the Difference Between Licensing and Franchising?

MORE STORIES LIKE THIS