A franchise is a legal relationship in which one party, called Franchisor, grants the other party, known as a “franchisee,” the right to develop, establish and duplicate the franchisor`s business activity. There are many examples of franchise relationships throughout the U.S. economy and include restaurants such as McDonalds, retailers such as GNC and companies in a variety of industries that even include healthcare such as American Family Care. Compared to a license, a franchise will look much more expensive and more complicated. The initial deductible fee can cost between $10,000 and $50,000 — and then you have to meet the operating costs. This may seem exorbitant, but it`s important to remember that you have access to an entire business. In comparison, by a licensing agreement, you only have access to the use of certain brands in certain ways. So a license will be cheaper and less complicated, but it also gives you access to much less. Licensing agreements are often used between a current business owner and a brand when the owner wants to expand a product line and the lack of support is not serious. For example, you can own a fashion brand and choose to add a series of sunglasses. After examining the cost of making sunglasses yourself, you realize that it is easier or cheaper to relocate and enter into an agreement with a manufacturer.

The manufacturer then designs and produces sunglasses with your brand. In this example, a licensing agreement would allow the manufacturer to use your brand. All of these criteria must be met in order for an agreement to be considered a franchise agreement. If you answered yes to all of these questions, it is very likely that you have a franchise system and that the franchising code of conduct applies. Setting up a franchise system may cost more than entering into licensing agreements, but franchise agreements give you more control over how the franchisee works. In this way, you can deploy a common marketing plan for all franchises, monitor franchise performance and dictate the exact methods the franchisee must use, including uniforms, location and store-fit-out. (b) Degree of control – you ask your licensee to enter into an agreement that, as a franchisor, gives you some control over your franchisee`s activity, i.e.: They limit what they can and cannot sell from their business; and two of the most well-known brands that manage licensing agreements are Disney and Calvin Klein. What works best for you depends on how much control you want to maintain over how your business works and the support you need. If you have a trademark license ` comma; You benefit from all the knowledge it has received` comgule; But you`re alone enough to run the business. Again- it doesn`t matter if you already have a well-established business.

In a franchise agreement, the franchisor can set specific guidelines on how the franchisee markets the business, uses brands, where the business is located and how the business is managed. In other words, the franchisor can exercise much of the control over the franchisee`s business and operation – because it is essentially an extension of its own business. Because of these cost differences, contractors sometimes opt for licensing agreements rather than franchising agreements; However, as mentioned, they are not interchangeable and often do not work for the same types of businesses. In addition, you also expose yourself to legal risk by entering into a licensing agreement for transactions that do fall under the franchise category. If the upfront fee prohibits you from creating a franchise, you should consider these lower-cost deductible options, or you can also look for franchise financing to help you fund these expenses. Franchises are regulated by the Federal Trade Commission franchise rule and must comply with state laws.