Licensing and franchising both let another business use your brand or intellectual property in return for a fee, and both can grow a business without you opening every new location yourself. They are not the same thing, though, and choosing the wrong one can leave you with too little control or with far more work than you planned for. This guide compares licensing vs franchising: what each one is, the main differences, the pros and cons of each, and how to decide which suits your business model.
What is licensing?
The Intellectual Property Office (IPO) describes a licence as an agreement between the owner of an intellectual property right and another party that gives them permission to do something that would otherwise infringe that right. The person granting the licence is usually called the licensor and the person receiving it the licensee. You can license out your own IP for a fee, or license in someone else’s to use in your business.
The licensed IP can be a trade mark, a design, copyright material, a patent or know-how. A brand licence might let a manufacturer put your name on its products, while a technology licence might let another company use your software or process inside its own business. The IPO lists the usual benefits as sharing costs and risk, earning revenue from new markets, reaching territories the owner cannot cover, saving time and giving the licensee access to expertise it does not have in-house.
What is franchising?
Franchising goes further. In a business format franchise, the owner of an established business format, the franchisor, grants the franchisee the right to sell products or perform services using that system. HMRC’s description adds that the franchisee usually gets the use of the system and management back-up for a set period, in return for an initial fee and continuing fees. Business Gateway calls it buying and running a copy of an already successful business.
So a franchise includes a licence of the brand, but it also includes the whole way of running the business, training, ongoing support and a lot of control by the franchisor over how the franchisee operates. TLT, a law firm, notes that the franchise agreement itself licenses franchisees to use the franchisor’s intellectual property, so no separate formal licence is needed. If you want to understand the franchisor side in more depth, see our guide to what a franchisor is.
The key differences between licensing and franchising
Goldstein Legal, a franchise and licensing law firm, puts the main difference simply: a licence tends not to involve copying an existing business format. Often the aim is the opposite, licensing a brand to a company that will use it in a market where the brand owner has no presence or expertise. The table below sets out the other differences you will usually see.
| Area | Licensing | Franchising |
|---|---|---|
| What is granted | The right to use specific IP (a brand, design, patent, software or know-how) | The right to run a copy of the whole business, using the brand and the system |
| Control | Usually limited to how the IP is used and the quality of goods it appears on | Detailed control over how the business is run, set out in the agreement and operations manual |
| Support and training | Often little or none | Initial training and ongoing support are part of what the franchisee pays for |
| Fees | Usually a licence fee or royalty on sales of licensed products | Usually an initial fee plus continuing fees, often a percentage of turnover, and a marketing contribution |
| Who the other party is | Often an established business adding your IP to what it already does | Usually a new business set up to trade under your brand |
| Set-up for the owner | Generally cheaper and simpler | Needs a proven model, a pilot, an operations manual and a support team |
Pros and cons of licensing
Goldstein Legal lists three main advantages of a licence: it can be easier to manage than a franchise, the licensee has more freedom to run its business its own way, and it is generally cheaper and easier to set up and less demanding on management time.
The disadvantages come from that same freedom. A licence agreement has to focus carefully on quality and on compliance with your standards, and it needs to let you end the arrangement if quality slips. The IPO warns brand owners to be wary of licensing to companies that might lessen the value of the IP, for example by putting your trade mark on goods that damage the brand. It also points out that if you can commercialise the IP yourself, you might be better off doing so.
Pros and cons of franchising
Franchising gives the franchisor a regular income from franchisees for the use of the brand and the business model, and extends the brand to a wider area and audience. Because the franchisor controls how each outlet is run, customers should get the same experience wherever they go, which protects the brand’s reputation.
The costs and obligations are higher. Goldstein Legal says a franchise is unlikely to thrive without a business model that has a proven track record of profitability, and that franchisors often spent upwards of £30,000 before launch at the time of writing (2015), on a business analysis, a pilot, a prospectus, recruitment marketing and the agreement. The franchisor also takes on an ongoing duty to support its franchisees. Our guide on how to franchise your business walks through each stage.
Legal points for both models
Neither model has its own statute in the UK. Pinsent Masons explains that franchising is governed mainly by contract, competition and intellectual property law, with self-regulation through the British Franchise Association’s code of ethics for its members. Licences sit under the same general law. A few points matter for both:
- Register the IP you plan to license. GOV.UK says a UK trade mark lasts 10 years and must be renewed every 10 years, and the IPO recommends telling it within six months when you grant a licence, because the licensee may lose some rights if you do not.
- Restrictions on prices, territories or sales channels must comply with competition law. Franchise and many licence arrangements are vertical agreements, covered by the Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022. Under that Order, fixing a minimum or fixed sale price is a hardcore restriction, while recommended and maximum prices are allowed.
- Have the agreement drafted for your business. The IPO publishes a skeleton licence and licensing checklists, but recommends professional legal advice before entering into a licence. A franchise agreement is longer and more detailed, as our guide to franchise agreements explains.
One trap is calling something a licence when it works like a franchise. If what you are offering includes your brand, a full method of running the business and ongoing support in return for fees, it looks much more like a franchise than a licence, and the agreement should be drafted with that in mind. A solicitor who handles both can tell you where your arrangement sits.
Which is right for your business?
Goldstein Legal gives some useful examples. Licensing suits brands that want to appear on products made by someone else (it cites perfume houses making fragrances under licence from fashion brands) and businesses with technology, designs or know-how that other firms want to build into their own operations, such as software. Franchising suits businesses whose value is in a repeatable way of running an outlet or service, where customers expect the same thing everywhere. Coaching and training concepts, it notes, have worked as either.
Some questions that usually settle it:
- Is what you are selling a piece of IP, or a whole business system? A brand or patent points to licensing; a proven outlet or service model points to franchising.
- How much control do you need over the customer experience? The more it matters, the more a franchise fits.
- Are you ready to train and support other business owners for years? If not, a licence is the lighter commitment.
- Will the other party be an established business or someone starting out? Established firms usually take licences; people starting out usually want a franchise.
A specialist adviser can look at your business model and tell you which route fits. Our directory lists franchise agreement solicitors, many of whom also draft licence agreements, as well as franchise consultants and franchise development firms if you decide to franchise.
Sources
- Licensing intellectual property (Intellectual Property Office, GOV.UK, updated 1 April 2026)
- BIM57601, Franchising: general (HMRC Business Income Manual, GOV.UK)
- Franchising (Business Gateway)
- Franchising vs licensing, which is right for my business? (Goldstein Legal, 2015)
- Franchise laws, the UK market guide (TLT)
- Operating a franchise in the UK (Pinsent Masons, Out-Law guide, October 2025)
- Register a trade mark (GOV.UK)
- The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022, article 8 (legislation.gov.uk)
