The Difference Between a Franchisee and Licensee

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When investing in a business opportunity, it is important to know the difference between specific business agreements. In this case, we will explore the differences between a franchisee and a licensee. If you have further questions regarding a specific business agreement, you can contact an experienced business and franchise lawyer.
The License Agreement

In literal terms, a license agreement is a business arrangement in which a licensor, who holds the right to intellectual property such as a patent, trademark or copyright, allows a licensee to use that intellectual property for a pre-determined fee.

For instance, in a trademark license, the licensee will be granted full privileges to the trademark, which can be used in the sale of goods and/or services. However, the licensee must abide by the guidelines established in the licensing agreement.

In such an agreement, there is generally no help from the licensor, such as with business training, product development or marketing support.

The Franchise Agreement

A franchise agreement is more involved than a licensing agreement. In a franchise agreement, the franchisee will typically receive training, mentoring and a large degree of technical advice. The franchisee will also be required to abide by the franchisor's business strategies.

In a franchise agreement, the franchisor will maintain a large degree of control over the franchisee. This usually includes the manufacture, supply, distribution and sales of goods and/or services.

In this respect, a licensing agreement offers more independence than a franchising agreement.

On the other hand, a franchise can offer you a lucrative part in a successful and world-wide enterprise. You'll also have the continued support of the franchisor. Franchisors often use the phrase "You're in business for yourself, but not by yourself."

Some of the advantages to owning a franchise include:

- the products and services are generally recognized, and already have a solid customer base;
- you will be granted territorial rights from the franchisor;
- shared marketing, advertising and other business costs;
- professional guidance, training and support;
- reduced risk of failure;
- advantages for buying goods in bulk; and
- consistent research and development from the business franchisor.

Choosing a Business Opportunity

When choosing a business opportunity, whether as a franchisee or as a licensee, you should always exercise due diligence. While there are plenty of good opportunities out there, there are some inferior ones as well. Before you come to any agreement, consult a business and franchise lawyer who can advise you on the potential risks and benefits of a business plan.