What’s the Difference Between a Licensing Agreement and a Franchise Agreement?
A franchise agreement involves a contractual agreement where a franchisor (the owner of the franchise, brand, or business system) grants a franchisee (the party entering into the franchise agreement) certain benefits as well as responsibilities when it comes to meeting brand standards, consistency of brand delivery, access to trade secrets, and business practices that could provide a new business with a competitive advantage. Major chain restaurants are examples of franchises, where the business owners are required to replicate the look and feel of the brand, meet strict brand standards when it comes to food quality, uniforms and packaging, and restaurant appearance, while enjoying the benefits of brand recognition, marketing, and access to training and other benefits. In exchange for this, the franchisee is required to pay a regular fee to the franchise owner. With a franchise, the owner of the franchise generally outlines in the contract how the business will operate, how employees will be trained, and how management will operate the business. Often, oversight from the franchisor will be ongoing in a franchise agreement. The franchisee may regularly have franchise representatives or district managers visit the business to ensure quality control. Payment for a franchise agreement may be annually or monthly, and may also require some up-front costs.
With a licensing agreement, a license owner grants a licensee the right to use a brand or trademark, sell certain patented or trademarked goods and services, or use technology owned by the person granting the license. An example of a licensing agreement might be a case where a baseball team grants another company the right to use the baseball team’s logo on its shirts or in connection with a promotion made by the business. Generally, with a licensing agreement, a specific brand or trademark or logo is being licensed and the agreement doesn’t cover how the licensor conducts business, or sells the products. However, a licensor, may, in certain contracts, outline how the logo can be used or for what specific purpose it is permitted to be used.
These two types of agreements can be very different depending on the nature of the business and the nature of the trademark or logo or brand. When licensing your brand or business model or system to another company or party, it is important to take steps to protect your brand, your trade secrets, and your rights. Furthermore, if you are the licensor or franchisor, you worked hard to build your brand, logo, or trademark. You’ll want to make sure that a licensor or franchisor doesn’t misuse the logo, brand, or trademark, or negatively impact consumer perception of your brand or trademark. These issues can be addressed in your franchise or licensing agreement.
If you are purchasing a franchise or license, you’ll also want to take the time to review the contract and understand your rights and responsibilities. Buying a franchise involves many legal aspects as well as additional responsibilities on the part of a business owner who has a franchise. Legal Counsel, P.A. is a business law firm in Orlando, Florida that can review these contracts, advise you as to your rights and responsibilities, and assist you with the next steps. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.
What Might Be Included in a Franchise Agreement?
A franchise agreement may include several elements. First, the contract may include specific language that makes clear that the franchisor owns the brand, logo, and intellectual property of the franchise. The agreement may also outline how long the agreement will be in effect, where the agreement will be in effect, and where the franchisee will be able to open his or her franchise. The agreement may also include specific information about fees, training, support, and details about marketing and advertising. The franchise agreement may also include information about how the franchisor is permitted to use the intellectual property of the franchise, which may include logos, brands, trade secrets, and other business systems.
If you are thinking of purchasing a franchise, it is important to review the contracts, and understand your rights and obligations before moving forward. Research the franchise you are thinking of purchasing and consider speaking to other franchise owners about their experience with the franchise. Consider your own skills and think about whether they match with the franchise because when you purchase a franchise you may be agreeing to implement standards and protocols. Either you will need to be able to do this or hire those who can. Finally, having a lawyer read over and review the franchising agreement with you can be very helpful so that you understand in plain English your responsibilities and rights under the agreement. Thinking about buying a franchise? Legal Counsel, P.A. is a business law firm in Orlando, Florida that may be able to assist you with reviewing contracts, helping you understand your rights and obligations, and other requirements under the law. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.
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