What Are the Key Differences Between a Franchise and a License?

In franchise law, it does not matter what name you give your relationship, if you meet the 3 criteria that of the federal definition (trademark under which the licensee will operate, $500 or greater collectively received by the licensor in the first 6 months for product, fees, etc., and control by the licensor over the licensee), it will be deemed a franchise. Many companies come to me and ask how they can avoid the disclosure requirements and costs of setting up a franchise. The answer is that if the business being sold meets the three requirements, it is a franchise and, unless it meets with one of the exemptions, it will require disclosure and the costs involved. In addition, certain states have requirements and definitions of a franchise that may vary from the FTC definition. It is important to consult with experienced franchise counsel to determine if your situation is a franchise.  Making the wrong decision can be extremely costly in both federal and state penalties.

Posted In: Franchising
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