You might have come across the terms ‘franchising’ and ‘licensing’. As similar as these two may sound, there’s quite a lot of differences between the two.

While franchising is a recognized legal terminology, in the sense that it subjects the party offering these services to certain rules and regulations, licensing does not come with these issues, but it is necessary to be careful as licensing can also be considered a franchise from a legal standpoint.

In franchising, the franchisee and the franchisor are very closely linked and have better working relationships. The franchisee gets to retain the rights to the franchisor’s logo and trademark. This also goes a long way in providing a visible presentation of the relationship between the two. Franchisees are often an extension of the parent company, in that they represent the parent company’s brand and image. Therefore, they are usually provided some level of training and support. Also, they get to leverage some amount of territorial exclusivity in addition to control over the products and services offered.

The relationship between a licensee and the parent company is not as tight-knit as a Licensee franchisor relationship. That is because a licensee does not hold the rights to the trademark and logo of the parent company’s brand. Also, the franchisee is expected to create its own niche and identity in the market. Another key difference is in the fact that licensees do not get to have territorial rights from the parent company. Which means that licensing organization gets to sell similar licenses and products in the same geographical area. Licensees also do not receive the same extent of support and training as compared to a franchisee.

Even though from the looks of it, a licensing opportunity seems to be less advantageous as compared to a franchising business, licensing has its advantages as well. One advantage is that licensing costs much lesser in terms of the initial investment and ongoing charges. While a franchising business may require you to pay royalty every time a profit is made, a licensing opportunity does not demand such an expense. Also, once the licensee is able to successfully set up its business and spin off on its own, the relationship between licensee and the parent company is restricted to the frequent purchase of products.