Licensing versus Franchising: Is Licensing an Alternative to Franchising?

If you're looking to grow your business, expand the reach of your brand, and recruit qualified individuals to invest capital and open new locations and service territories, then licensing is not an alternative to franchising.

Here's the reason why!

Because the franchise laws broadly define the types of relationships that qualify as and constitute a franchise. If the legal relationship that you are considering involves (a) the license of a trademark, (b) the payment of a fee, and (c) an agreement that creates a degree of control, then its a franchise and compliance with the franchise laws are critical. Below we'll discuss why and how, with proper planning and mindset, you can turn franchising into a major advantage to the growth of your business.

The issue of franchising vs licensing comes up often and, usually, out of fear of franchising or misinformation, some are led to believe that if they can avoid franchising by structuring a license agreement supplemented by some other agreements, like a training agreement. Under this scenario the parties call it a "license" there are upfront fees but they are called "training fees" or something else and there is a form of agreement as to what the claimed licensee can and cannot do with the licensed mark. If a lawyer is involved, many times, the effort to avoid franchise regulation will be an effort to limit the degree of control that you have over the licensee's business.

Does this work? Much more often than not it doesn't.

Franchising is:
A continuing commercial relationship
A written or oral agreement
The license of a trademark
Control over your licensees'/franchisees' methods of operation
Accepting the payment of a fee

So if you are going to have any control, have to support that "licensee/franchisee", and accept any type of fee, you're a franchise.

There are many advantages of franchising including:
Multi-unit expansion
Capitalized expansion
Managerial talent
Additional revenue sources
Scalability

What's the difference between licensing and franchising? Read more in our free guide (link below in comments).

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