Hence anyone apart from Walt Disney manufacturing these products enters into an agreement with the former to gain a right to use these characters on its merchandise for some consideration & sell the same. To learn more about converting your license system to a franchise, click here. Franchising, however, encompasses the whole business format. 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 of a fee where the processes are closely controlled by franchisor therefore it is generally seen that licensing is for products and goods whereas the franchising model is used more in service providing industry. Hence putting the above in a tighter perspective, we can define the terms as. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc. This kind of arrangement is referred to as licensing. and how can you benefit from them? These licenses are typically non-exclusive so competing companies can serve the same market. Franchising is a popular way to start a business because it’s much less risky than creating a business from scratch. as a franchise lawyer you would think that i … A license simply provides an individual or company with the right to use licensed material or to do something that would otherwise be considered illegal. With licensing and franchising, other people are marketing your business for you and paying you for this privilege. This in return ensures Pizza hut that it can penetrate different markets without a compromise in quality of service and the franchisee, in turn, is benefitted by the economies of scale that comes with an already established brand. Web. 11. licensing versus franchising. Franchising vs. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. Licensing vs. Hence they enter into a franchising agreement; wherein they allow other individuals to not only use their name but also learn the technical know-how, the art, skill & knowledge of making the product exactly the same way as they themselves would have in exchange for the royalty. Licensing vs. Both are effective means to rapidly grow an existing business, and both have certain benefits. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. A licensor will grant a licensee the right to use their intellectual property but the licensor will not provide … Everyone knows a franchise when they see it, visit it, eat in it, stay in it, or exercise in it. immediately comply with franchise laws, or (b.) Diffen.com. ; now Walt Disney is not the sole manufacturer of this merchandise. The relation between franchise vs licensing advantages disadvantages. Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. When you franchise your brand or business, you retain an enormous amount of power. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, All in One Financial Analyst Bundle (250+ Courses, 40+ Projects), 250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion, Ownership of the ultimate product is with the licensee, he only buys the right to use a certain patented / original product of licensor in exchange of royalty, Ownership of the business is with the franchisee, he purchases the right to run the same business on behalf of the franchisor in exchange of fees, Standard agreement governed by contracts law between the parties, Stricter compliance requirements governed by Companies laws & other federal laws of international business (if dealing with a party outside the country), Licensor gets Vertical integration in the market without. Some licensing agreements may end up actually creating unintentional franchises. For a company looking to expand, franchising and licensing are often appealing business models. Franchising? Licensing is essentially how you exploit intellectual property. Franchisee gets continual support from the franchisor to extend an already successful business. Often times, the terms licensing and franchising are used interchangeably to define a similar business relationship. Franchising vs. -, Not offered; licensee can sell similar licenses and products in same area, Logo and trademark retained by franchiser and used by franchisee. franchise agreements vs. license agreements. Unclear about the differences between licensing and franchising? Franchising: Which Path Is Right for You? So, in fact, a franchise is licensing of a business format in a particular way. A franchise is a special kind of combined license and distributorship, in which several elements are present. Mickey Mouse, on their products. Franchising is a type of licensing arrangement. A licensing agreement can be completed in a week. They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks. However, some people still think that franchising and licensing are almost the same and have no specific difference. A franchise is a more extensive legal relationship that includes a license. Licensing. 10. licensing versus franchising. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company. You may also have a look at the following articles –, Copyright © 2020. When you are pondering the question of licensing vs. franchising, it is important to bear in mind the place of legal counsel. The legal definition of a franchise, however, is probably broader than you think. The franchisor assists in setting up the service provider with adequate skill & knowledge to emanate its brand to the customers. These two jargons are usually synonymously used while marketing or selling a product whose brand value is not typically owned by the seller; however, there is a very fine line of difference between these two modes of business. You supply the business model, and you can define the territory in which any given franchisee can operate. In such a situation, the licensor needs to either (a.) a company using Microsoft Office on its computers. A lawyer knows what matters. Filed Under: how to franchise Tagged With: definition of license, franchise or license, franchising, franchising vs licensing, franchisor, license my business, license or franchise, licensing versus franchising, what is licensing The Franchiser maintains significant control of, or provides significant assistance to, the franchisee’s operation methods. It can also apply to the use of software, e.g. Franchiser exercise control over franchisee. With that in mind, we will explain the difference between these two, as well as the pros and cons. If you read this far, you should follow us: "Franchising vs Licensing." Licensing is governed by a licensing agreement, which involves a one-time transfer of property or rights for a fee. General Association. Licensor, however, has no autonomy over the business of the licensor. It brings a ready-made customer base and often comes with client listings. Every one knows about franchising and licensing. 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