Difference Between a Franchise & a Distribution Agreement

Companies enter into franchising and distributing agreements in order to make their business grow. Franchises and distributors allow companies to outsource business into smaller units each with different types of regulations and obligations.

Functions

A franchise has different responsibilities and functions than a distributor. Franchisees enter into a legal contract with the parent company to serve as a licensed operator under the parent company's name and the company must provide adequate training to allow the franchisee to do so. A distribution agreement between the parent company and a distributor or seller permits the distributor to market and sell the parent company's products but under the distributor's name.

Trademarks

The franchisor, or parent company, lets the franchise use any trademarks or brand names needed to run the franchise. These trademarks bring the recognition of the parent company to the franchisee. McDonald's is an example of a franchise with brand name recognition. A distribution agreement does not allow the distributor to claim any trademarks or brands. Instead, the distributor uses its own business name to sell the parent company's products.

Obligations

A franchise must follow the guidelines and standards of the parent company. Franchises also must pay fees to the parent company for use of the company's name and products. The parent company has an obligation to ensure that the franchise has all the resources including training and technical advice needed for success. A distribution agreement obligates the distributor to effectively sell the company's products by keeping enough products in stock, minimizing employee turnover and advertising the products.

References

• Hamilton Pratt: What is the difference between Franchising, Distribution, Licensing and Agency?
• World Intellectual Property Organizaton: Franchising & Licensing