What is the difference between a Franchise and a License?
Franchising as a concept is not a business itself, but a methodology of doing business. Franchising allows for the rapid expansion of a business system by the licensing of intellectual property using tried and proven methods of doing business.
Franchising can be defined by the relationship between the “franchisor”, who is the owner of the business and intellectual property, who licenses to independent people or companies known as “franchisees” the rights to market and distribute the franchisor’s goods or service, and to use the business name for a fixed period of time. The contract will provide for an assignment for an initial fee plus an ongoing royalty for the right to conduct business under the name of the franchisor.
The four main elements of franchising are:
1. A written, verbal or implied agreement between two parties
2. The rights to market and distribute the franchisor’s goods or service, and to use the business name and marketing plan determined and controlled by the franchisor for a fixed period of time
3. Business operations are substantially and materially connected with a trademark, advertising or logo owned or specified by the franchisor
4. There is a payment made from the franchisee to the franchisor for initial capital investment or for goods or services or as a percentage of income.
A franchise business model requires all of the abovementioned points – this is the differing point between a franchise and a license (which only requires three of the four elements to be present – typically, point two is missing from the model).
If your business is a franchise, it must operate under The Franchising Code of Conduct (FCC). The FCC was designed to protect potential franchisees from any unscrupulous conduct by franchisors, and requires the disclosure of important information to the franchisee.
Different business models have different tax obligations – speak with us today if you are unsure your business tax obligations are being met.
Here at The Quinn Group our experienced team of lawyers and accountants can assist you with starting up your own business or franchises. If you need advice, or have any questions please call us on 1300 QUINNS (784 667) or make an enquiry online.