I am often asked the difference between a franchise business model, a distribution model and a licensing relationship. Business owners may be under the mistaken belief that if they do not qualify their agreement as franchise, then it is not. They mistakenly believe that by calling the contract as a licensing agreement or distribution agreement, they are not required to comply with the extensive advertising obligations for franchise law or franchise registration requirements in California. It is essential that companies understand the legal definition of a franchise so as not to inadvertently become a franchise. A franchise agreement allows a business owner to sell products or services that are usually already established in the marketplace. The business owner or franchisee is not obligated to recreate, market or sell a product from scratch. Often, there is already a solid clientele for the article or article. A distribution agreement allows the distributor to enjoy the same benefits. Distributors sell products created and marketed by another company. The distributor does not need to recreate this product or brand awareness from scratch, but can enjoy the benefits of an integrated customer base. It is very important to know the partners they deal with and how their products go through the distribution and distribution process.
Knowledge of management`s basics and terminologies is essential. A real distribution agreement is that the distributor has the right to buy and sell a manufacturer`s products; the distributor buys the inventory at a price and sells it at a higher price (wholesale) to retailers who then resell the products to the general public at a retail price. Dealer agreements can also be entered into directly by the manufacturer with the distributor. In these cases, the products/services are actually purchased and sold, so that in reality it is only an inventory contract with a license to sell branded products/services. It is not a franchise agreement. As part of a franchise agreement, the franchisee is authorized and encouraged to use the franchisor`s trademarks and trademarks as part of its day-to-day business practices.