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Licensing is the legal act of the franchisor granting rights to a franchisee, to a legally protected property in exchange for a fee or royalty. The franchisor reaches a lease agreement with a franchisee permitting them to produce and market its product, service or trade name. The franchisee uses this right as a marketing tool to associate the franchisors idea, design, or character to his products.

Licensing benefits both the franchisor and the franchisee. It enables the franchisor to profit from the capabilities of the franchisee, such as special technical or sales skills, resources, or the expanding markets and distribution channels. The success and name recognition of the product helps the franchisee to reduce development costs and get a faster start in an industry.

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