Insight
Licence vs Franchise Agreement: What's the Difference?
30 Sep 2026
In short
A licence agreement grants permission to use something you own — a trade mark, a product, software — on agreed terms. A franchise agreement grants the right to operate a business under your brand and your system, with you controlling how it is run. The difference that matters in Australia is regulatory: a franchise is caught by the Franchising Code of Conduct and a pure licence is not, and it is the substance of the arrangement, not the label on the document, that decides which one you have.
Next step: Expanding through third-party operators? Get the structure decided before the documents are drafted. See business contracts or speak to our franchise lawyers.
Licence vs franchise at a glance
| Licence agreement | Franchise agreement | |
|---|---|---|
| What is granted | Permission to use a defined right — trade mark, product range, technology, content | The right to operate a business under the franchisor's brand and system |
| Control over operations | Limited — the licensee runs their own business their own way | Extensive — systems, training, suppliers, fit-out, reporting |
| Franchising Code of Conduct | Does not apply | Applies |
| Disclosure document | Not required | Required, at least 14 days before signing, updated annually |
| Cooling-off period | None | 14 days |
| Good faith obligation | General law only | Statutory obligation under the Code |
| Dispute resolution | As drafted | Code-mandated process before court |
| Fees | Licence fee or royalty as agreed | Upfront fee, ongoing royalties, marketing fund contributions |
| Typical use | Distribution, brand collaborations, software, IP licensing | Multi-site replication of a proven business model |
What a licence agreement actually is
A licence is permission. The owner of a right — a registered trade mark, a patent, copyright material, software, a product line — allows another party to use it for a defined purpose, in a defined territory, for a defined period, usually in exchange for a fee or royalty. The licensee remains an independent business making its own commercial decisions.
Common commercial licences include:
- Trade mark licences — permission to apply your brand to the licensee's goods or premises.
- Distribution and reseller arrangements — the right to sell your product, sometimes exclusively in a region.
- Software and technology licences — the right to use software on stated terms, which is the ordinary form of a SaaS or on-premise agreement.
- Content and merchandising licences — the right to reproduce images, designs or characters.
A licence is governed by its own terms plus general contract law, the Australian Consumer Law and, where relevant, the unfair contract terms regime. There is no industry-specific code sitting over the top of it.
What makes something a franchise
The Franchising Code of Conduct defines a franchise agreement by reference to four elements. Where all four are present, you have a franchise — whatever the document is called:
- A right to carry on a business supplying goods or services.
- Under a system or marketing plan substantially determined, controlled or suggested by the franchisor.
- Associated with the franchisor's trade mark, advertising or commercial symbol.
- A payment, or agreement to pay, required before the business starts operating.
The second element does most of the work. If you tell the operator how to run the business — mandated systems, training manuals, approved suppliers, pricing structures, store layout, reporting requirements — you are supplying a system, not simply lending a brand.
Accidental franchising: the risk nobody plans for
The most common problem we see is not a business choosing the wrong structure. It is a business that thought it had a licence or distribution agreement and finds, often during a dispute, that the arrangement satisfies all four elements of the Code.
The consequences are not cosmetic:
- The disclosure obligations applied and were not met, which is a breach in itself.
- The franchisee may have rights to terminate or to relief that were never contemplated.
- Termination and transfer provisions in the document may be unenforceable to the extent they conflict with the Code.
- The ACCC can investigate and pursue civil penalties for Code contraventions.
- The statutory good faith obligation applies to conduct that has already happened.
Labelling the document a "licence" or "partnership" does not help. The Code looks at substance.
Choosing between them
Ask what you are really selling.
If the value is in the asset — your mark, your product, your technology — and you are comfortable with the operator running their own business, a licence is the right instrument. It is faster to document, cheaper to maintain, and carries no annual disclosure cycle.
If the value is in the system — the reason a customer gets the same experience at every site — you need control, and control means franchising. Accept the Code, build the disclosure document properly, and use the regime rather than trying to engineer around it. Arrangements designed to avoid the Code while retaining franchise-level control tend to fail at exactly the wrong moment.
What to get right in the documents
For a licence: scope of the grant, exclusivity, territory, quality control over how the mark is used, term and renewal, fees, what happens to stock and branding on termination, and clear words that no franchise, partnership or agency relationship is created.
For a franchise: a compliant disclosure document and information statement, the 14-day pre-signing period, cooling-off rights, marketing fund accounting, territory and site rights, renewal and end-of-term arrangements, restraints, and a dispute process that matches the Code.
Frequently asked questions
What is the difference between a licence agreement and a franchise agreement?
A licence agreement grants permission to use something — a trade mark, software, a product range — on agreed terms. A franchise agreement grants the right to operate a business under the franchisor's brand and system, with the franchisor controlling how the business is run. In Australia the practical difference is regulatory: a franchise is caught by the Franchising Code of Conduct, a pure licence is not.
When does a licence become a franchise under Australian law?
Under the Franchising Code of Conduct a franchise agreement exists where four elements are present: a right to carry on business supplying goods or services, under a system or marketing plan substantially determined, controlled or suggested by the franchisor, associated with the franchisor's trade mark or commercial symbol, and a payment (or agreement to pay) is required before the business starts. If all four are present, calling the document a licence makes no difference.
Can you accidentally create a franchise?
Yes, and it happens regularly. A supplier who lets a distributor trade under its brand, dictates how the business must operate, and charges an upfront fee has created a franchise in substance. The consequence is that the Code applies retrospectively — disclosure document, cooling-off period, mandatory dispute resolution and good faith obligations — and non-compliance exposes the franchisor to ACCC enforcement and penalties.
What obligations does the Franchising Code impose that a licence does not?
A franchisor must give a disclosure document and an information statement at least 14 days before the agreement is signed, allow a 14-day cooling-off period, comply with restrictions on termination and transfer, maintain a marketing fund account where fees are collected, participate in the Code's dispute resolution process, and act in good faith. A licence agreement carries none of these — it is governed by its own terms and general contract and consumer law.
Is a licence agreement cheaper and simpler than franchising?
Usually, yes — there is no disclosure document to prepare and update annually and no Code compliance regime. But a licence gives you far less control over how your brand is used. If you need to mandate systems, pricing structures, fit-out or training, you are in franchise territory and should be documented as such rather than trying to structure around the Code.
Which should I use to expand my business?
Licence if you want to grant limited rights to use your brand, product or technology and are comfortable with the operator running their business their own way. Franchise if the value of what you are selling is the system itself and you need control over how each site operates. The decision should be made before drafting, because the documents, the disclosure obligations and the exit rights are entirely different.
Getting the structure right before you draft
We advise on whether an expansion model is a licence or a franchise, prepare both sets of documents, and review existing arrangements that may have drifted into franchise territory. Fees are fixed and agreed upfront before any work starts. Contact Envision Legal to discuss your arrangement.
Two ways to start
Get a fixed fee before any work starts.
Answer a few short questions, attach your documents if you have them, and a senior lawyer replies with the scope and the price.
Know what you need? Request a fixed-fee quote and upload your documents. Not sure of scope? Book a short call with a senior lawyer instead.