A franchised contract is also a kind of contract, but it differs from a licensing agreement by giving the franchisor more control over how the franchisee uses the franchisee`s ownership. Franchise agreements generally contain specific guidelines on how a franchisee should manage its business. Franchising is a business method where a company (the “franchisee”) enters into a contract with another company (the “franchisee”) where it is agreed that the franchisee will obtain from the franchisor the right, in return for remuneration, to use a business with a recognizable business concept (franchised form), including the commercial name of the franchisor, for a specified period of time in a given territory (often exclusively). In addition, the franchisor has an independent and extensive duty of care. This duty of care implies, among other things, that medium-term financial objectives are realistic and achievable and that franchisees must support the franchisee independently in this regard. The level of control you exercise is your ability to significantly guide or limit the franchisee`s business plan. Even if you don`t control most aspects of the franchisee if you offer most of the above things, then you`re probably franchising (instead of licensing) your business. A franchise is an extension of an existing brand or a company that wants to grow. It is an asset of your brand that is subject to the federal law on securities of value. If you are running a franchise disguised as a license, you may accidentally violate the franchising code of conduct, so you are open to possible enforcement action.
The decision to enter into a license or franchise agreement is based on a number of factors, but the key factor is usually the level of control you want to maintain over your business partners. You must act in good faith when interacting with the franchisee and disclose certain information about a disclosure document (which franchisors must update each year). The “licensee” may not have entered into the contract with you if you had disclosed the information required by law. You can then claim damages for losses you have suffered as a result of your inadequate disclosure. Even with this checklist, it is not always clear if your trade agreement is considered a franchise agreement. A frequently asked question is what does it mean to have a “substantial” system or a marketing plan? Even if the code does not comply with the contract you have with your partners as a franchisor, the law still requires you to abide by it. If you break the code, the franchisee can claim damages or you may be hit by the courts with fines. At the most basic level; the difference between a franchise and a license is the amount of support you can expect to get. A franchise system helps you in the selection of sites `Comma; training` comma; Marketing and much more – comma; while a licensing agreement offers you little or nothing of that.
Franchising grants various rights that are part of the franchise formula, including advisory and/or training rights through the franchisor and, in addition, often multiple licences, z.B. Often-comma; a licensing agreement between a brand and an existing company that only wants to expand its product line and therefore, this lack of support for people with an established business may not be a great thing.