For many individuals who wish to start a business, selling an existing product or brand might make sense. However, while there are many advantages in selling a known product, they also may come with some restraints. The two ways that a business may sell an existing product or brand are through licensing or franchising agreements. In this article, we will discuss the difference between licensing and franchising.
What Is Licensing?
A licensing agreement is an agreement in which an existing company allows a business or individual to use its products or trademark. An example of a licensing agreement is in the sportswear industry. When a company like Under Armor produces NFL Jerseys, they can do so with a licensing agreement from the NFL. That agreement gives Under Armor the right to use the trademark logo and names of specific NFL Teams.
Benefits Of A License
The main benefit of a licensing agreement is that it allows the companies to be independent of each other concerning operations. A company or individual with a license has a wide latitude as to how to operate their business. There is little to no interference from the license grantor. This also allows the license holder to grow their business by tying itself to an existing brand. This offers the business using the license to tie themselves to a company or name that many people trust and are familiar with.
Concerns About A License Agreement
As mentioned above, since the grantor of the license and the grantee operate independently, the grantor might lose some control over their trademarks. As a result, the licensing agreement needs to have protected the trademark from being abused without overly controlling the license holder’s rights.
What Is A Franchise?
A franchise is when an individual buys into an existing business model and the corporation grants them certain territorial rights to operate. The corporation that the franchisee is buying has greater control. They can require the franchisee to use their equipment, recipes, procedures, uniforms, etc. The most well-known and largest franchise is that of the McDonald’s chain restaurant. When a person buys a McDonald’s franchise, they must use approved equipment, sell approved menu items, use approved uniforms, etc.
Benefits Of A Franchise
The biggest benefit to operating a franchise is that they tend to be more successful than an independent store. A franchise offers a proven concept with a corporation behind it. Having a corporation to back up their business allows the franchise owner to take advantage of perks such as marketing campaigns. Franchises also offer a built-in customer base.
Concerns About A Franchise
The major concern about owning a franchise is that the franchisee loses independence from the corporation. This means that corporate decisions can impact you as an independent franchise owner. Franchises also tend to be more expensive to enter into as not only does a person have to be a franchise fee, but they also have to pay for everything related to the franchise, such as software, equipment, uniforms, etc.
Which Option Is Best For My Business?
Whether you’re starting, expanding, or buying a business, licensing and franchising options may be worth exploring. With that said, acquiring a license and a franchise each come with different legal obligations. If you’re interested in exploring either option, contact Dowd Law for a consultation. We will take the time to learn your goals and aspirations and give you legal advice as to which model is best suited to help you achieve those goals.