It is important for any franchisee or franchisor to understand the difference between a licence agreement and a franchise agreement.
The major distinction between a franchise and other types of agreement which involve some kind of licensing of rights is the issue of the use of the trade name and logo; and business systems.
While you can call your business whatever you like – a license, a franchise, or a distributorship the real distinction is NOT in the NAME but in the AGREEMENT itself
According to the Franchising Code of Conduct, if your agreement contains the following 4 elements it as a franchise and so requires compliance with Franchising Laws.
The 4 elements are:
- There is a written, oral or implied agreement,
- There is a payment of a fee, either up front or ongoing, for the provision of goods or services,
- The supply of goods and/or services is under a system or marketing plan,
- The business is substantially associated with a trade mark, advertising or commercial symbol
Business models of growth will generally constitute an agreement and a payment of some nature. Therefore, the real distinction between a franchise and a licence must lie between element c and d.
c. The supply of goods and/or services is under a system or marketing plan,
d. The business is substantially associated with a trade mark, advertising or commercial symbol
So the question becomes which of these criteria do you leave out?
Do you want them to trade under your name (element d) without any input or support from you, and if so, what will this do to your brand name and reputation?
Do you want to give them advice on how to best sell your product/service (element c) but then have them do so under their own brand name as such will become a competitor?
