Franchising vs Licensing: Understanding the Differences
Just like a perfect gravestone, choosing between franchising or licensing requires quality craftsmanship and careful customizing. And just as SPB Stoneworks Ltd believes in valuing the precision and attention-to-detail when it comes to memorial or gravestone, one must pay heed to such when choosing between comprehensive franchise agreements and licensing agreements. For as long as there have been businesses, there have been business contracts. In fact, the first contract was invented because ownership cannot be fully transferred without one. Likewise, it cannot be said that a licensing agreement is a different mortal being from franchising agreement. Nevertheless, people freely interchange these terms as though they mean the same thing.
On a broad scale analysis, the differences between franchise and licensing agreement are as follows: Where a franchisee pays the franchisor for the business to use a logo and brand name, the licensor only permits the licensee to use a patent, copyright or other intellectual property in their business. A franchisee must participate in the ambit of business structure that has been set out by the franchisor. Otherwise, the quality and consistency of services and/or products will suffer. By contrast, a licensing agreement is much more flexible, and allows the licensee to use the licensor’s intellectual property “as-is”. In business, unless you are the best of the best, not everyone wants to sell similar products, even if they are your products. Therefore, even if a franchise presents to be very lucrative on the surface, turning it down for a licensing agreement may actually be a better idea, depending on your individual circumstances.
A business contract is only as good as the money that backs it. If the party that means to stick to its end of the deal goes bankrupt, there would be little opportunity for redress. You can be sure that it will be no different in the case of franchise and licensing agreement. Even for money that was paid, it may become difficult to recover when the other party falls on hard times. On the flip side, if you were unable to deliver on your end of the bargain, you will have to prepare for the consequences.
It is not sufficient to just know what a franchise and licensing agreement entails. You would need to know where certain agreement is appropriate, when, how, and where not to use them. This rings true for all business contracts, but especially so for franchise and licensing agreements, because it is not as if they are an off-the-shelf purchase. A contract may require numerous amendments in order to meet the needs of your business model. This is why contacting a lawyer is important.
Therefore, it would be prudent to consult with a franchise agreements lawyer before using a franchise as your business model. For instance, there are a lot of limitations when it comes to selling tobacco. Not even a person that has a licensed distribution for cannabis can set up a franchise that sells cannabis, even if all the other requirements have been met. If you approach a lawyer, they would be able to inform you of the latest developments in franchising. They would also be able to inform you of any legal limbo and caveats to look out for.