Franchise Licensing

During franchise licensing, the relationship between a franchise owner and a franchisee is established. The franchise license created in this process can take two primary forms. The first one is the one by which the franchisor licenses the franchisee to use the franchise’s name and its trademark.

The second one is more extensive. It licenses the franchisee to use the business format of the franchise. This is a more involved relationship between the franchisee and the franchisor. The franchisor may give the franchisee some financial backing, supply the franchisee with the goods to sell and provide the franchisee with training. These are just some of the characteristics of the license to use the business format. There may be others, including the franchisor’s direct involvement in the process of selecting the locations for the franchise units.

Franchise licensing can take a variety of forms. This is as it should be: Franchisors vary in the kinds of arrangements they are willing to make with their franchisees because their respective businesses come with unique circumstances and needs. Thus, when they undertake franchise licensing, they have to make sure their license documents are worded carefully. The licenses are legally binding; hence, they must be categorical about what they permit.

Franchise licensing establishes responsibilities for franchisors and franchisees alike, including the conditions under which these responsibilities must be met and the details about payment for the rights granted under the license. It is also important for the license to address the steps that the franchisor and franchisee should follow if either or both of them fail to fulfill their responsibilities.

 

The Basics of the Franchise Licensing Process

 

In order to draw up a comprehensive franchise license, a franchisor should consider various factors. These factors have implications for the amount of money he or she will earn from the franchising arrangement, so it is important for them to be thought through carefully. They include clear indications about the limits of the license. For instance, it should be evident whether the franchisee maintains exclusive rights within a particular territory. It should also indicate whether the franchisee has to meet a minimal threshold for sales. The license should also be specific about whose responsibility it is to administer and maintain all intellectual property associated with the franchise.

Preparing the license is bound to cost money if it is done by a professional and if it is done well. Thus, the franchisor needs to decide whether to pay for the franchise licensing process or to somehow recoup the expenses from the franchisee. The license must also include a breakdown of financial obligations and penalties. The licensing fee should be indicated, as should the royalty rates. There should also be provisions for resolving any disputes.