Licence vs Franchise vs Trademark

Introduction

Three intangible asset types are routinely confused in UK founder and CFO conversations: licences, franchises, and trademarks. They sit close together in the IP landscape, they share commercial DNA, and they sometimes coexist within the same agreement. The distinctions matter when valuing each for fundraising, M&A, IP-backed lending, or post-acquisition accounting.

A trademark (UK: trade mark) is a legal right that protects a brand identifier — name, logo, symbol, or distinctive sign — registered under the Trade Marks Act 1994 in the UK, or via the EUIPO, USPTO, or WIPO Madrid System internationally. A licence is a contractual grant of the right to use an intangible asset (often a trademark, but also patents, copyright, software, or other IP) for a defined purpose and period. A franchise is a comprehensive business-system grant — typically combining a trademark licence, operating know-how, training, marketing, and supply arrangements — under a formal franchise agreement.

The three are nested rather than alternative. A franchise typically contains a trademark licence as one of its components. A trademark can exist independently or be licensed. A licence can transfer rights to a trademark or to other IP. The taxonomy matters because the accounting recognition, the useful life, the valuation method, and the legal protection differ across all three.

TL;DR: A trademark is a registered legal right protecting a brand identifier under the UK Trade Marks Act 1994 (or international equivalents) — perpetual if renewed. A licence is a contractual 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 — typically a multi-year renewable agreement. All three are recognised as intangible assets when acquired under IFRS 3; internally generated brands underlying trademarks are prohibited from recognition.

Trademark (Trade Mark)

A trademark — formally "trade mark" under the UK Trade Marks Act 1994 — is a registered legal right protecting a brand identifier: word marks, figurative marks, logos, slogans, packaging, sound marks, and other distinctive signs. Registration confers exclusive rights to use the mark within the registered classes of goods and services, for an initial 10-year term renewable indefinitely.

In intangible-asset accounting, a trademark is recognised under IAS 38 paragraph 8 (UK and global IFRS) as an identifiable non-monetary asset arising from contractual or legal rights. Internally generated trademarks (or rather, the brand value underlying them) are prohibited from recognition under IAS 38 paragraph 63; acquired trademarks are recognised at fair value under IFRS 3 (UK and global) or ASC 805 (US).

How a trademark gets recognised

1. The trademark is registered under the UK Trade Marks Act 1994 (or international equivalents — EUIPO, USPTO, WIPO Madrid System)
2. Where the trademark is acquired (in a business combination or asset purchase), it is recognised at fair value under IFRS 3 / ASC 805
3. The trademark is amortised under FRS 102 over its useful life (default 10 years if useful life cannot be reliably estimated); under IAS 38, indefinite-life trademarks (where renewal is automatic and the brand is well-established) may not be amortised but tested for impairment annually under IAS 36
4. Impairment indicators are reviewed at each reporting date

Typical trademark valuation methods

• Relief from Royalty (RFR) — the dominant approach. Royalty rates from comparable trademark licensing transactions (typically 1-15% of revenue depending on sector and brand strength) are applied to projected revenue, then discounted to present value.
• Multi-Period Excess Earnings (MPEEM) — used where the trademark is the primary driver of business cash flows (rare for trademarks; more common for customer relationships).
• Market approach — comparable trademark sales or licensing transactions, where adequate evidence exists.

What auditors look for in trademark recognition

• Registration evidence under the relevant jurisdiction
• Class coverage and renewal status
• Royalty rate comparables (for RFR valuations) drawn from reputable databases
• Useful-life assessment supported by brand strength, sector dynamics, and renewal pattern
• Impairment-indicator review

Licence

A licence is a contractual grant of the right to use an intangible asset — typically a trademark, but also patents, copyright, software, designs, know-how, or other IP — for a defined purpose, in a defined geography, for a defined period. Licences are intangible assets in the hands of the licensee (the party receiving the right to use) and are typically recognised separately from any underlying trademark or other IP.

The licence is distinct from the underlying IP. A licensee that acquires a 10-year UK retail licence to use a brand owns the licence (an intangible asset) but does not own the underlying trademark (which remains with the licensor).

How a licence gets recognised

Two perspectives:

Licensee perspective. Where the licensee pays a substantial up-front consideration or has a multi-period right to use, the licence is capitalised as an intangible asset at the up-front cost (or fair value if acquired in a business combination). Amortised over the licence term. Ongoing royalty payments are typically expensed.

Licensor perspective. The licensor continues to recognise the underlying IP. Royalty receipts are revenue. The licence is not a separate balance-sheet item for the licensor.

Typical licence valuation methods

• Relief from Royalty (RFR) — common where the licence is exclusive and the licensee can be modelled as the comparator
• DCF using contracted royalty receipts — common where the licence has fixed or minimum-guarantee royalty payments
• Cost approach — rare; used for licences with limited residual value
• Market approach — comparable licence transactions where evidence exists

What auditors look for in licence recognition

• Written licence agreement with defined scope, term, and consideration
• Allocation of up-front consideration between the licence asset and any ongoing royalty obligation
• Useful life aligned to the contractual term, including renewal expectations
• Impairment-indicator review, particularly where the underlying IP weakens

Franchise

A franchise is a comprehensive business-system grant: a contractual arrangement under which the franchisor grants the franchisee the right to operate a business using the franchisor's trademark, business system, operating know-how, training, marketing materials, and ongoing support. UK franchises are governed by general contract law (no UK franchise-specific statute) and are typically structured as multi-year renewable agreements with up-front franchise fees plus ongoing royalty payments.

A franchise is broader than a licence. A licence transfers the right to use a single asset (trademark, patent, software); a franchise transfers a packaged operating system. In intangible-asset terms, a franchise is typically treated as a single composite intangible asset rather than separately allocating value to the trademark, the operating system, the training, and the marketing.

How a franchise gets recognised

1. The franchisee enters into a franchise agreement and pays the up-front franchise fee plus any initial training, fit-out, or marketing contribution
2. The up-front fee and initial contributions are capitalised as a franchise intangible asset
3. Amortised over the franchise term (typically 5-20 years, often with renewal options)
4. Ongoing royalty payments to the franchisor are expensed
5. Impairment indicators are reviewed at each reporting date

Typical franchise valuation methods

• Relief from Royalty (RFR) — comparing the franchise royalty rate to what the franchisee would otherwise pay to license equivalent rights
• MPEEM — where the franchise is the primary driver of cash flows for the franchisee's business
• DCF using contracted royalty stream — common for franchisor-side valuation of franchise networks
• Market approach — comparable franchise sales or fee structures where evidence exists

What auditors look for in franchise recognition

• Written franchise agreement with defined term, territory, renewal terms, and consideration structure
• Allocation of up-front consideration between the franchise asset and any deferred obligations
• Useful life consistent with the franchise term plus realistic renewal expectations
• Impairment-indicator review where the underlying franchise system weakens

Side-by-Side Comparison

The table below contrasts the three intangible-asset types across the dimensions UK founders and CFOs encounter most often.

How the three nest together in a real agreement

The relationships are best understood through a worked structure:

1. Trademark only. A UK consumer brand business owns a UK-registered trademark used within its own operations. The trademark is acquired (on M&A) or built (internally — prohibited from recognition). No external party has rights to use it.
2. Licence over trademark. The same business grants a 5-year exclusive licence to use the trademark in a specific geography or class. The licensee recognises the licence as a separate intangible asset; the licensor continues to recognise the underlying trademark.
3. Franchise over trademark + system. The same business converts to a franchise model — granting franchisees the right to use the trademark plus the operating system, training, marketing, and supply arrangements. Franchisees recognise the franchise as a composite intangible asset; the franchisor recognises the trademark and operates the franchise network.

The same trademark can be the underlying IP for all three structures simultaneously. The licence-and-franchise layers are commercial constructs built on top of the trademark.

Why the Distinction Matters

Three areas drive the practical importance for UK founders, CFOs, and investors.

Fundraising narrative. A founder pitching to investors needs to distinguish between the brand (the underlying trademark), the licensing position (rights to use other parties' IP), and any franchise model (a comprehensive operating system). Conflating the three undersells some assets and overstates others. The IP audit underpinning a credible Series A or Series B pitch should inventory each separately.

M&A diligence. Buyers in M&A test the three structures separately. Trademark portfolios are evidenced by UKIPO registrations. Licences are evidenced by the underlying agreements and the allocation of up-front consideration vs ongoing royalty. Franchise arrangements are evidenced by the franchise agreement, renewal history, and ongoing royalty performance. A target with weak documentation across any of the three faces diligence questions.

IP-backed lending. UK IP-backed lending propositions (NatWest, HSBC, specialist providers) treat the three structures differently. A trademark portfolio is a primary collateral class. A licence portfolio (rights held by the licensee) is a secondary collateral class. A franchise network (rights held by the franchisor) is a stronger collateral position because of the recurring royalty stream. The lending application needs to evidence each separately.

FAQ

What is the difference between a licence and a franchise?

A licence is a contractual right to use a single intangible asset (typically a trademark, patent, software, or other IP) for a defined purpose and period. A franchise is a comprehensive business-system grant that includes a trademark licence as one of its components, plus operating know-how, training, marketing, and ongoing support. A franchise is broader and typically longer-term than a licence.

Is a franchise a type of licence?

A franchise contains a trademark licence as a component, but a franchise is more than a licence. The franchise agreement transfers a packaged business system, not just the right to use a single asset. UK accounting practice typically treats a franchise as a single composite intangible asset rather than separately allocating value across its components.

How is a trademark valued for a UK acquisition?

The dominant approach is Relief from Royalty (RFR). The valuation team estimates the royalty rate the acquirer would have paid to license the trademark from an arm's-length third party (typically 1-15% of revenue depending on sector and brand strength), applies it to projected revenue, and discounts to present value. Comparable royalty-rate evidence is drawn from sector databases and recent transactions.

Can a UK trademark be capitalised if I built it myself?

No. IAS 38 paragraph 63 prohibits recognition of internally generated trademarks. The underlying brand value cannot be capitalised on the seller's balance sheet, even though the same trademark would be recognised at fair value on a buyer's balance sheet post-acquisition. This is one of the principal sources of the gap between book value and enterprise value for brand-led businesses.

How long does a UK trade mark last?

A UK trade mark is registered for an initial 10-year term and is renewable indefinitely on payment of a renewal fee. Many UK trade marks have been continuously renewed for 50+ years and remain in force. For accounting purposes, indefinite-life classification is permitted under IAS 38 only where the brand is well-established and renewal is expected without material cost — most trademarks are classified as finite-life with useful lives of 10-25 years.

What is the typical UK franchise term?

UK franchise agreements typically run for 5-20 years, with renewal options that often allow the franchisee to continue indefinitely subject to performance and renewal terms. The accounting useful life is typically the contractual term plus a realistic expectation of one or more renewals, capped where the underlying franchise system shows signs of weakening.

Can I get IP-backed lending against a franchise position?

Yes — UK IP-backed lending propositions recognise franchise networks as a collateral class, particularly where the franchisor owns the network and receives a recurring royalty stream. The lending application typically requires a DCF valuation of the contracted royalty stream plus documentation of the franchise agreement, renewal history, and franchisee performance.

Are licence costs amortised or expensed?

The treatment depends on the structure. Up-front consideration paid by a licensee for a multi-period right to use IP is typically capitalised as an intangible asset and amortised over the licence term. Ongoing royalty payments to the licensor are expensed as a cost of revenue. The allocation between up-front (capitalised) and ongoing (expensed) is a recurring audit point for licence-heavy businesses.

When to Seek Expert Support

The three structures often coexist within a single intangible-asset register, and the boundaries between them require judgement. Edge cases — composite agreements that bundle a trademark licence with operating know-how, sub-licensing arrangements where royalty streams flow between multiple parties, and multi-jurisdictional franchise networks — typically warrant specialist input.

Opagio's Asset Valuator module (within Opagio Intangibles) handles all three categories within a single intangible-asset register. Trademarks are inventoried by jurisdiction and class, valued via RFR using comparable royalty-rate evidence. Licences are inventoried by underlying IP, term, and consideration structure. Franchises are inventoried by territory, contractual term, and royalty stream. The model output reconciles the three views and produces audit-trail documentation suitable for PPA, fundraising, M&A, and IP-backed lending purposes.

For UK founders preparing for fundraising or sale, the inventory exercise typically uncovers value the founder had been treating as a single "brand" line item — separating the trademark itself, any outbound licences, any inbound licences, and any franchise structures into discrete asset classes with their own valuations.

Book a demo: See how Asset Valuator inventories and values trademarks, licences, and franchises within a single audit-trail intangible-asset register. Book a demo or speak to our team.

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