91. Collaborative Arrangements: Licensing, Franchising, Management Contracts

A license is contractual right that helps you control, manage and protect your IP. Intellectual property (IP) is intangible property that is created in someone's mind. Categories include art, literary works, music, inventions, designs, processes and trademarks. Licenses and Your Rights

Types of Property Rights

Be familiar with the different types of property rights before you create a licensing agreement. It's also key to know the scope of your rights, such as exclusive property rights. While the law often changes in this area, the best protection is to register for any or all rights that apply to your situation:

• Copyrights - original works of authorship fixed in any tangible expression form

• Patents - inventions

• Trademarks - words, names or symbols identifying goods made or sold, distinguishing them from others

A license allows an intellectual property rights holder (the licensor) to make money from an invention or creative work by charging a user – the buyer of the lisence (the licensee) for product use. Licenses protect proprietary rights in things such as software and other computer products

Franchising is a business model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues. The parent company also provides the franchisee with support, including advertising and training, as part of the franchising agreement. .

The franchising business model consists of two operating partners: the franchisor, or parent company, and the franchisee, the proprietor that operates one or multiple store locations. Franchising agreements usually require the franchisee to pay an initial fee plus royalties equal to a certain percentage of the store's monthly or yearly sales. Initial fees vary significantly across each industry, Royalty fees are also variable. The franchisee also covers the costs of actually starting and operating the store, including legal fees, occupancy or construction costs, inventory costs, and labor. Franchise agreements usually have a term of between 10 and 20 years, depending on the company.

The parent company authorizes the franchisee's use of the company's trademarks (for example, selling Big Mac's at McDonald's) as part of the franchising agreement. Additionally, the franchisor provides training and support as well as regional and/or national advertising.

Franchising is a faster, cheaper form of expansion than adding company-owned stores, because it costs the parent company much less when new stores are owned and operated by a third party. On the flip side, potential for revenue growth is more limited because the parent company will only earn a percentage of the earnings from each new store

Advantages of the Franchising Model

• Franchisees require less initial capital than independently starting a company and can use proven successful strategies and trademarks.

• Franchisees are provided with significant amounts of training, not common to most entrepreneurs.

• The franchisor benefits because it can expand rapidly without having to increase its labor force and operating costs, using much less capital.

• Franchised stores have a higher margin for the parent company than company-owned stores because of minimal operating expenses in maintaining franchised stores.

Drawbacks of the Franchising Model

• Franchising stores reduces the amount of control that the parent company has over its products and service, which may lead store quality to vary greatly from store to store.

• Franchisees must pay a percentage of their revenues to the parent company, reducing their overall earnings.

A management contract is an arrangement under which operational control of an enterprise is vested (наделять правом) by contract in a separate enterprise which performs the necessary managerial functions in return for a fee. Thus, management contract is a business format which separates ownership from operation. Management contract is a formal arrangement under which the owner of a business employs the services of an operator to act as his/her agent to provide professional management, in return for a fee. The operator assumes full responsibility for the management of the business, while the ultimate legal and financial responsibilities and rights of ownership of the property, its furniture and equipment, its working capital and the benefits of its profits (or burden of its losses) remain those of the owner. A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training.

The owner usually seeks an effective return, the contractor an effective earnings stream. Typically, the fee structure is in two parts: a base fee of around 3 per cent of a business turnover and an achievement fee of around 10 per cent of gross operating profit or earnings before debt, interest and tax. Management contracts are often formed where there is a lack of local skills to run a project