Licence vs Franchise vs Trademark
Licence vs franchise vs trademark — what each intangible is, how each is recognised under IFRS 3 / IAS 38, and how UK founders value each at exit.
Three intangible asset types sit close together and are routinely confused: licences, franchises, and trademarks. A trademark is a registered legal right protecting a brand identifier under the UK Trade Marks Act 1994 — perpetual if renewed. A licence is a contractual grant of the right to use an intangible asset for a defined purpose and period — typically finite-life. A franchise is a comprehensive business-system grant combining trademark licence, know-how, training, and operating support. The three nest rather than substitute: a franchise contains a licence; a licence may transfer rights to a trademark.
| Criteria | Trademark (Trade Mark) | Licence and Franchise |
|---|---|---|
| What it is | Registered legal right protecting a brand identifier — name, logo, slogan, sign | Licence: contractual grant of the right to use an intangible asset. Franchise: comprehensive business-system grant — trademark, know-how, training, marketing, support |
| Legal basis (UK) | Trade Marks Act 1994; UKIPO registration | General contract law; franchise agreements also reference the British Franchise Association code (voluntary) |
| Typical term | 10 years initially; renewable indefinitely | Licence: 1-20 years. Franchise: 5-20 years, typically renewable |
| Scope of rights | Exclusive use within registered classes of goods and services | Licence: defined purpose, geography, term — exclusive or non-exclusive. Franchise: operating system + trademark + know-how + support |
| Cost of obtaining | UK UKIPO registration: £170 single class plus £50 per additional class | Licence: up-front fee plus ongoing royalty. Franchise: up-front franchise fee plus initial training/fit-out plus ongoing royalty |
| Accounting recognition (acquirer) | Recognised at fair value under IFRS 3 (UK and global) or ASC 805 (US) | Licence: recognised at fair value or up-front cost. Franchise: recognised at up-front fee + initial contributions |
| Accounting recognition (internally generated) | Prohibited under IAS 38 paragraph 63 | Not applicable — licence and franchise are always external |
| Useful life — IFRS | Indefinite (rare) or finite (typical, 10-25 years) | Aligned to contractual term plus realistic renewal expectation |
| Useful life — FRS 102 (UK GAAP) | Finite; default 10 years if unreliable | Aligned to contractual / franchise term |
| Valuation method | RFR (dominant) or market approach | Licence: RFR or DCF using contracted royalty stream. Franchise: RFR or MPEEM depending on franchisor / franchisee perspective |
| Royalty rate typical range | 1-15% of revenue depending on sector and brand strength | Licence: 1-20% depending on IP type and exclusivity. Franchise: 4-10% plus fixed up-front fee |
| Renewal | Renewable indefinitely on payment of renewal fee | Per contractual or franchise agreement terms |
| UK tax treatment | Intangible Fixed Assets regime (CTA 2009 Part 8) — amortisation deductible for post-2002 acquisitions | Same — IFA regime for licence and franchise asset; ongoing royalties expensed in the period incurred |
| IP-backed lending | Trademark portfolios are a primary collateral class | Licences (held by licensee) provide secondary collateral; franchise networks (held by franchisor) provide a recurring royalty stream |
When to Use Each Approach
Trademark (Trade Mark)
- Founder fundraising where the underlying brand is the substantive asset
- M&A where UKIPO-registered marks need fair-value attribution
- IP-backed lending applications referencing trade mark portfolios
- Brand-strength assessment via RFR with comparable royalty-rate evidence
Licence and Franchise
- Licensee balance-sheet recognition of up-front consideration for multi-year IP use
- Franchisee recognition of up-front franchise fees and initial contributions
- Franchisor valuation of the contracted royalty stream across a franchise network
- PPA work in M&A targets with licence or franchise arrangements
Our Verdict
Trademark is the legal foundation; licence is a contractual right to use the foundation; franchise is a comprehensive business system that includes the licence as one of its components. All three are recognised when acquired but with very different scopes, useful lives, and valuation approaches. The audit, valuation, and tax treatment differ across all three — the taxonomy matters.
Related Glossary Terms
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