If your business has been successful, you may be looking to expand. There are always risks when it comes to investing capital. However, two ways of growing a business that offer protection to the business owner by delegating more risks to the third party are franchising and licensing. These kinds of agreements may offer your company an opportunity to grow in a way you feel comfortable.
When a business owner licenses their business, they are selling the rights to a third party to use their brand, design, or business model. A business that chooses to franchise includes rights to all intellectual property, including trade secrets. While licensing and franchising are similar in many ways, they each have their own distinct pros and cons.
Licensing
- Cost effective for the licensee.
- No financial obligations after the initial fee.
- Few legal restrictions.
- Non-exclusive, meaning they can be sold to multiple companies at once.
- The Licensor does not have the power to exercise control over the license.
Franchising
- Exclusivity- the franchise will enjoy territorial protection within the set geographical boundary.
- The initial fee to purchase a franchise agreement can be expensive.
- Royalty payments on sales.
- Must follow the Federal Trade Commission regulations.
- The Franchisee is controlled by the Franchisor.
It is important to consult with a lawyer who has experience dealing with the expansion of businesses to advise which type of agreement is best for you in growing your business. Call Bellavia, Blatt & Crossett, P.C. at (516) 873-3000 or (631) 224-7000.