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What is a Franchise License?

By Neetal Parekh on August 20, 2009 1:39 PM

Budding entrepreneurs can start a business from scratch or they can choose to represent an already-established brand.  When a business owner 'buys' a franchise they are actually purchasing a license to use established trademarks and trade names. 

What is a franchise license all about?

A franchise license helps create the commercial and contractual relationship between franchisor and franchisee.  It passes on certain rights to the franchisee to use the name, logo, and identity of the established brand in order to start a branch of the franchise.  Franchise licenses can give the small business owner rights to different aspects of the business.

In fact, there are two main types of franchise licenses:

  • license to use product or trade name is where the franchise owner sells the franchisee a license to use the right to the name and trademark.  It is the more basic form of a franchise license.
  • license to use the business format gives the entrepreneur access to the business model of the franchise and usually entails a more comprehensive relationship between franchisor and franchisee.  This can include training, input on selecting a location for the branch, supplying products for the franchisee to sell, and possibly assistance in financing the venture.

In case you were wondering if the franchising option is popular, it is.  Close to 1/3 of all U.S. retail sales come from the country's 500,000 franchise locations.  


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