Franchise Agreement vs Licence
Last updated: February 2025
Quick Comparison
| Aspect | Franchise Agreement | Licence Agreement |
|---|---|---|
| Scope | Entire business system, brand, and operations | Specific intellectual property rights only |
| Control | Franchisor controls operational standards closely | Licensor has limited control over licensee's operations |
| Support | Ongoing training, marketing, and operational support | Minimal support unless agreed |
| Fees | Upfront fee plus ongoing royalties and marketing contributions | Royalty or flat fee; typically lower total cost |
| Autonomy | Low; must follow the franchisor's system | High; licensee runs their own business |
What Is a Franchise Agreement?
A contract granting the right to operate a business using the franchisor's brand, systems, and business model in exchange for fees and compliance with operational standards.
Key Features
- • Comprehensive business system including brand, operations, and support
- • Ongoing fees including initial franchise fee and royalties
- • Franchisor provides training, marketing, and operational support
- • Strict compliance with operational manuals and standards
Best For
- • Replicating a proven business model across locations
- • Entrepreneurs wanting a turnkey business
- • Brands wanting rapid expansion with consistent quality
What Is a Licence Agreement?
A contract granting permission to use specific intellectual property such as a brand name, technology, or content, typically with fewer operational obligations.
Key Features
- • Permission to use specific IP assets
- • Fewer operational requirements than a franchise
- • Licensee has more autonomy over how they operate
- • Fees typically based on royalties or a flat licence fee
Best For
- • Monetising IP without providing a full business system
- • Granting rights to use technology, content, or brand elements
- • Arrangements where operational independence is appropriate
When to Use a Franchise Agreement
Use a franchise agreement when you are offering a complete business system with brand, operations, training, and support. This suits businesses wanting consistent execution across multiple locations.
When to Use a Licence Agreement
Use a licence agreement when you are granting rights to use specific IP without providing a complete business system. This is more appropriate for technology licensing, brand endorsements, or content distribution.
Which Does Your Business Need?
The distinction matters for regulatory and practical reasons. A franchise involves a comprehensive business system, ongoing support, and significant control. A licence is narrower, focusing on IP rights. If your arrangement involves operational control and a complete system, it is likely a franchise regardless of how you label it.
FAQ
Is there a franchise law in the UK?
No. Unlike many other countries, the UK has no specific franchise legislation. Franchise agreements are governed by general contract law, competition law, and intellectual property law. The British Franchise Association provides a voluntary code of ethics.
What is the typical cost of a franchise in the UK?
Franchise fees in the UK typically range from £10,000 to £250,000+ depending on the brand and sector, plus ongoing royalties of 4-10% of turnover and marketing contributions of 1-3%. The franchisee also bears fit-out and working capital costs.
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Get Started FreeThis is guidance for UK businesses, not legal advice. Consult a solicitor for complex matters.
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