Licensing or a Franchise

Licensing

Much like the state government granting individuals a license to give them permission to drive, businesses sometimes grant other organizations licenses to give them permission to use their intellectual property. A license is a contract through which one party grants another permission to use its patents, trademarks, copyrights, designs or trade secrets. The organization receiving the license, or licensee, compensates the licensor by paying a flat fee, royalties or a combination of the two. The agreement does not transfer ownership of the intellectual property. By licensing to third parties, small business owners can expand their businesses' reach and grow sales without having to invest in new locations or distribution networks, and risking failure.

Franchising

Franchising grows a business in a similar way but the franchising party or franchisor gives the franchisee permission to not only use its intellectual property but also its operating system. In addition to their trademarks, franchisees often use frachisors' distribution systems and marketing campaigns to sell the franchisors' products or services. In return, the franchisee usually pays the franchisor an upfront fee, royalties, and sometimes even a monthly or annual fee. Like licensing, franchising can help a small business grow rapidly and, although it requires more set-up and investment than a pure licensing deal, franchising remains considerably more affordable than opening new locations.

By Oscar Guzman