If you’re building a brand and considering how to expand—whether into new markets or through partnerships—you’ve likely come across two common strategies: franchising and licensing. Though often used interchangeably in casual conversation, they are legally and structurally distinct, and choosing the wrong model without understanding the implications can expose your business to serious legal risk.
At The Jones Firm, we counsel business owners, creatives, and investors on the appropriate structure for scaling. Here’s a breakdown of what separates a franchise from a license—and why that distinction matters.
Franchise vs. License: The Legal Definition
Franchise
A franchise is a business model regulated by federal and state law, where the franchisor grants the franchisee the right to operate a business using its brand, system, and support in exchange for fees. Under the FTC Franchise Rule, a business arrangement is legally a franchise if it meets these three criteria:
- The right to use a trademark or brand
- Payment of a fee
- Significant control or assistance in business operations
If all three apply, you are operating a franchise, even if you call it a “license agreement.”
License
A license grants the right to use intellectual property (IP)—such as a trademark, name, or content—without controlling how the licensee runs its business. The licensor is usually hands-off, and there’s no comprehensive system or operations manual provided.
Licensing can be used for:
- Software products
- Fashion and merchandise branding
- Educational content
- Character or entertainment IP
Why the Distinction Matters Legally
Misclassifying a Franchise as a License
This is a common and costly mistake. If your agreement meets the legal test for a franchise, but you’ve structured it as a license to avoid registration and disclosure rules, regulators (like the FTC or state authorities) can impose penalties, fines, rescission, and even criminal charges.
Example:
A business offering “licensed storefronts” using their brand name and operating model—but also providing training, pricing guidance, and ongoing support—may inadvertently be selling unregistered franchises.
Key Business Differences
| Category | Franchise | License |
|---|---|---|
| Regulation | Heavily regulated (FTC + states) | Minimal regulation |
| Startup Cost | Typically high (franchise fees, etc.) | Generally lower |
| Control & Support | High (manuals, training, audits) | Low to none |
| Consistency | Strong brand uniformity | Inconsistent customer experience |
| Revenue Model | Royalties + upfront fees | Flat license fee or revenue share |
Which Model Is Right for You?
- Choose franchising if you want tight control over how your brand is delivered, offer ongoing operational support, and scale through replication.
- Choose licensing if you’re monetizing IP without operational involvement, such as branding, characters, or content, and want flexibility.
Conclusion
Whether you’re scaling a successful local business, expanding a personal brand, or monetizing intellectual property, selecting the correct structure is more than a business decision—it’s a legal necessity. At The Jones Firm, we help founders, creatives, and investors navigate the franchise vs. license decision to ensure compliance, protect your brand, and scale sustainably.
Ready to expand your brand legally and strategically? Contact The Jones Firm for tailored legal guidance.
