Franchise agreement vs licence agreement, what’s the difference? Stick around and I’ll tell you.

Hi everyone, it’s Simon here from The Contract Company, contracts, that’s what we do all day every day and sometimes overnight, lucky us.

Anyway, you wanna find out the difference between a licence agreement and a franchise agreement, no problem.

What is a Licence Contract

A licence agreement generally only gives a person the right to use a specific piece of IP. It is usually a trademark, a patent or copyrighted material.

And for that right to use that IP, you then pay a licence fee and that’s usually all that’s set out in a licence agreement.

What is a Franchise Agreement

A franchise agreement allows a person the right to use a particular brand and set out a whole process and system that the franchisee also has to abide by. 

Let’s say it’s the Golden Arches.  The franchise agreement will not only allow a person to use the brand of the Golden Arches but it will set out a whole process and system that the franchisee also has to abide by.

For instance, the agreement will set out the fact that a store needs a fit out the same way as the franchise owner or fit-out to certain requirements. The franchise agreement will set out the fact that employees all have to wear a uniform.  Also, they’ll all have to make the food and compile it in a consistent manner.

There’ll be a whole lot of other processes in a franchise agreement and all that stuff doesn’t exist in the licence agreement.

And that’s the main difference between them.

Franchise Agreement and Licence Agreement: In Summary

A franchise agreement sets out the whole business process and the franchisor has control over what the franchisee is doing.  Whereas the licence agreement basically just gives a person a right to use a brand.  Usually it’s pretty hands-off in terms of what the licensee can do.

So that’s the main difference between them, think of it as really about control. Now if you have a licence agreement that actually is found to be a franchise agreement, well it’s not such a big deal.

You just got to make sure you comply with the franchising code of conduct. One of the big issues in the franchising code of conduct is you have to act in good faith. But that’s the subject for another video. I hope that was helpful.

If you have any questions please don’t hesitate to get in touch with us, simon@thecontractcompany.com.au or 1 800 355 455. Thanks very much.

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