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What is franchising?Licensing vs franchising
Licensing only grants the right to use intellectual property; franchising also transfers the operating system, training and control over standards — a far tighter relationship.
Where this sits
Franchising is a business model in which a brand owner licenses its brand, operating system and know-how to an independent partner in exchange for fees and royalties. The brand scales through the partner's capital and effort while keeping standards consistent.
In practice
This section summarises United States federal regulation (16 CFR Part 436) as published by the Federal Trade Commission. Rules change and differ by country — check the source before acting. For reference only; not legal advice.
US federal law draws the line with a three-part test. Under 16 CFR 436.1(h) a relationship is a franchise — "whatever it may be called" — when all three are present: the right to operate under, or distribute goods associated with, the franchisor's trademark; significant control over, or significant assistance in, the franchisee's method of operation; and a required payment as a condition of getting started.
Strip out the second element and you are left with licensing: the right to use the mark, without the operating system and without control over how it is run. That is why relabelling a franchise as a "licence" changes nothing legally — the test looks at substance, not at the word on the cover.
Source: 16 CFR § 436.1(h) — Definition of "franchise" · Reviewed: 2026-09-02