Franchise and license agreements confer certain rights and privileges for one party to use certain identifying features of another party’s company or business for their own venture. While both types of agreements involve using another’s information, there are some essential differences. So, what is the difference between a franchise and a license?
What is a Franchise?
Traveling through the Sunshine State, you may have noticed multiple locations of the same business or restaurant in different cities. It’s not unusual to see familiar storefronts and logos for businesses such as Dairy Queen, Dunkin’, Wingstop, and 7Eleven throughout different Florida cities and towns. These and other identical businesses you may encounter are known as franchise locations.
What is a franchise? A franchise exists when two parties agree that one may use the other’s brand to open a separate location of the same business. The franchise location will use the same name, products, and services and essentially be identical to the original business. For instance, you may have noticed that Dunkin’ uses recognizable colors and signs at all of its locations. Further, each store will have the same interior and offer identical products and promotions. The restaurants will also always have the same type of tables, napkins, and coffee cups. The reason for all of these similarities is that these Dunkin’ locations exist under a franchising agreement.
How is a Franchise Created?
Franchises are created through franchising agreements. The franchisee will pay the franchisor a fee for the use of their brand. The franchisor will usually also offer guidance and support to the franchising entity. In exchange, the franchisee can open their own location of the franchisor’s business.
Although the franchisee will own their business, the franchisor will retain the right to direct how the franchisee presents and uses their brand image and name and how the location will operate. For example, a Wingstop franchisee would most likely be required to use the same décor as other locations and offer the same menu items. However, the Wingstop franchisee would probably not be permitted to sell food products outside of those promoted and approved by the franchisor.
How are Franchises Regulated?
The Federal Trade Commission (FTC) regulates franchises, and all locations are required to comply with the laws of the state where they are located.
What is a License?
A licensing agreement gives one party the right to use another business or entity’s trademarked name and logo. For instance, when shopping, you may run across a famous brand name such as Disney. However, the products you see may or may not have been manufactured and produced by the Disney corporation. Instead, you may be looking at something created under the famous name and logo through a licensing agreement.
In a licensing agreement, one party, the licensor, owns the rights to their logo and name, which the licensee is granted permission to use. As with a franchise agreement, the licensee will pay the licensor for the right to use the licensor’s company’s brand name and insignia. Licensing agreements can be beneficial when one entity wants to sell its product under a more widely-recognized brand name.
What is the Difference Between a Franchise and a License?
Although franchise and license agreements may have some features in common, there are some essential differences. One of the primary and most critical distinctions is that each agreement has its own legal requirements. Additionally, these agreements may be best suited for certain types of products and services. For instance, franchising is often seen with restaurants and other service industry companies. By contrast, licensing tends to be used for merchandise and other tangible products.
Choosing Between a Franchise and a License
Whether you choose to enter into a franchising or licensing agreement will depend on several factors. For example, issues such as the type of business you want to operate and how much control you want the other party to have, and how much you have to invest will all matter when deciding between the two types of agreements. You will also need to consider that franchising agreements typically have more extensive legal requirements than licensing agreements. There may also be additional state and federal regulations to consider.
Consult with an Experienced Business Attorney
Depending on your circumstances, you may benefit from having a franchising or licensing agreement. However, it’s important to note that these legally binding contracts can impose significant obligations. Therefore, it’s imperative that you understand the implications of each type of agreement before moving forward.
The best way to evaluate whether a franchising or licensing agreement is best for your business is to consult with an experienced business attorney. Your lawyer can provide you with the advice and information you need to plan for your future business.
Contact an Experienced Florida Business Lawyer
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.