Franchise Vs. License Agreements

The distinctions between licensing and purchasing a franchise are numerous and important. To sum them up, it may be best to say that a business is franchised while the products and memorabilia for that business are licensed. If someone tries to sell you licensing for a restaurant chain, be very careful and make sure that you verify the credibility of the person and their contract.

What is a Franchise?

A franchise is a contract to duplicate a specific business. Part of the contract specifies how the business is to be run, the products that will be sold and may even include uniform clothing requirements and training procedures. The idea of a franchise is that it reproduces a tried-and-true formula rather than introducing new ideas.


An example of licensing is when a store sells products with professional sports logos on them. Before the company can sell products with those logos, they must license the right to use them. In general, licensing to sell the products is purchased from the franchise owner but does not include any rights to the franchise itself. For example, many stores are licensed to sell Disney memorabilia, but the store can only be called The Disney Store if a franchise is purchased from the Disney Corporation.

Corporate Franchising

According to Franchise Foundations, an organization dedicated to successful franchise planning and operation, purchasing a franchise includes adhering to a dual set of regulations. The first set, the franchise disclosure-registration laws, defines exactly how the business is to be operated to conform to the procedures of the company. The second set, business opportunity laws, describes the regulations under which the business must be run and provides the framework for business management under the franchise. The seller is obligated to make all paperwork available to the buyer before the sale, and allow the buyer sufficient time to become familiar with the documents as they are presented.

Cutting Corners Costs More

Illegal franchise sales are often disguised as licensing agreements. This type of contract does not convey the right to use the company logo or provide customers with goods or services that are only available through a legally obtained franchise. Purchasing a license agreement may seem like a less-expensive method of opening a franchise, but the fact is that such copycat stores are illegal and will eventually result in fines and other legal actions that surpass the cost of what buying a franchise would have been. A license agreement does not convey the right to claim the business as a franchise, nor does it entitle the business owner to support from the parent company.