At Coleman Greig, we are often asked by clients "What is
the difference between licensing and franchising?"
Generally speaking, licensing and franchising both deal with the
selling of certain intellectual properties to third parties such as
software, trademark, or a business process. Franchising
however has a greater deal of control by the franchisor than a
A franchise always includes a licence of the brand and operating
methods, along with assistance (such as training and an Operations
Manual) or support (providing advice, quality control, inspections
The Franchising Code defines a franchise agreement as an
agreement, either written, verbal or implied, that has the
one party (the franchisor) grants another party (the
franchisee) the right to carry on the business of offering,
supplying or distributing goods or services under a specific system
or marketing plan;
the franchise business will be substantially or materially
associated with a trademark, advertising or a commercial symbol
owned, used, licensed or specified by the franchisor; and
the franchisee is required to pay, or agree to pay, a fee to
the franchisor before starting or continuing the business.
Simply because a business is called a licence does not mean it
cannot be a franchise. If a licence meets the above
definition, it is most likely a franchise and must comply with the
Licensing on the other hand is a business structure and method
of distributing goods and services. In most cases, the licensee
does not retain rights to use the company's trademark; does
not have exclusive territorial rights; and does not receive
training or ongoing support from the licensing company. The
licensor is often free to sell similar licences and products to
other people in the same geographic area.
Whilst licence opportunities are often less expensive than
franchises - in both the upfront investment and ongoing fees - the
major negative aspect of licensing is a lack of control over
licensees to get them to follow crucial systems such as sales
techniques.Whether you choose to licence or franchise, you need to
understand your obligations as a Franchisor/Licensor or
Franchisee/Licensee under both systems.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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