#3- Explain how franchising agreements differ from licensing agreements.
Licensing agreements are rights for the use of a company’s property to another user. A
license is a contract through which one party grants another permission to use its patents,
trademarks, copyrights, designs or trade secrets. The organization or business receiving the
license pays the owner of the license by a flat fee, royalties or a combination of the two.
The agreement does not mean ownership of the property is transferred.
Franchising grows a business in a similar way but the franchising party or franchisor gives
the franchisee permission to not only use its intellectual property but also its operating
system. In addition to their trademarks, franchisees often use the same distribution systems
and marketing campaigns to sell the franchisors’ products or services. In return, the
franchisee usually pays the franchisor an upfront fee, royalties, and sometimes even a
monthly or annual fee. Like licensing, franchising can help a small business grow rapidly
however, it requires more set-up and investment than a pure licensing deal, franchising
remains considerably more affordable than opening new locations.
A licensing agreement can be drafted and completed in a relatively short period of time.
However when it comes to francizing, a business must standardize its internal systems,
operations, marketing and distribution. A business must also complete extensive legal
documentation and draft franchising agreements before becoming a franchisor. Those who
francize are also subjected to a lengthy and thorough selection process. Franchising usually
