When you are expanding your business, there are many directions that you can take it in. When expanding your brand, you may need a licence agreement to give someone else the right to use your intellectual property. In contrast, if you wish to enlist the assistance of external parties to help you grow your business, you may need to use a contractor agreement. So you can use both licence and contractor agreements to grow your business, but in different ways. This article will outline:

  • what licence and contractor agreements are;
  • the key difference between the two; and 
  • when you would want to use one over the other.

What Is a Licence Agreement? 

You give someone else a licence to use your intellectual property when you (the Licensor):

  • own or have the rights to that property (the Licensed Property); and
  • allow another person or company (the Licensee) to use it in return for payment.

This means that you would let someone else use your trademark (such as branded product or copyrighted work) or business processes. You draw this up in a licensing agreement. The agreement would likely cover:

  • definition – outline what property you are licencing. This means listing its exact specifications, and how the licensee is to use it. This may mean where they can display your logo, or what kind of business practices they can use;
  • time – explain how long the licensee can use the licensed property. You may want to specify a finite time or let them use it indefinitely;
  • payment – outline what kind of fees the licensee pays you in return for the licence. Is it ongoing, or is it a lump sum? You may not want to charge any fees at all;
  • restrictions – you may want to restrict where the licensee can conduct business so that it does not infringe on your market, or leave certain areas open if you’re going to licence your property to other people as well; and
  • control – it is a good idea to still maintain some control over your intellectual property rights by putting specific requirements on how they can operate with it. This is so that you can prevent any negative connotations being associated with your brand through the licensee’s usage.

What Is a Contractor Agreement?

When you enlist the services of a contractor, this means that you are entering into a formal arrangement with an independent contractor to carry out work for your business. They are not an employee of your business, so they do not have the same entitlements that an employee would.

However, they still complete work for you and send you an invoice for payment to cover the work they do. In your contractor agreement, you would likely cover the exact nature of the services they are providing. In addition, you would specify how you are paying them for those services.

Often, businesses will hire contractors to work on specific projects if you need more resources, or those contractors have specialised knowledge that is useful to you. For example, you could hire a contractor to work on the IT activities of your business.

Key Differences Between the Licence and Contractor Agreements

 

Licence Agreement

Contractor Agreement

Payment

You can charge a fee for the use of your intellectual property with a licence.

Contractors charge you with an invoice in exchange for their services.

Involvement

You provide the licensee with the means necessary to operate their business like yours, according to the licence. This may include branding and logos or staffing structures.

A contractor will usually provide their own tools or know-how to complete the work.

Control

You have a higher level of control over how a licensee can use your brand, to make sure it does not have any adverse effect on your own business.

You do not have as much control with a contractor, but you may put a restraint of trade clause into your agreement, preventing them from competing with your business.

When Would I Use One Agreement Over The Other?

To answer this question you need to consider how you want to grow your business. For example, do you want to focus on getting your brand into the world, and more well-known through multiple people using it? Or, do you want to focus on the quantity or quality of the work you are doing, by hiring extra help with the workload? This will help you decide whether you need to use a licence or contractor agreement. 

Key Takeaways

You can use both a licence and contractor agreements to grow your business, but in different ways. Licencing out your brand or your unique business practices to other individuals or companies may get you more brand recognition, and expand your market in that way. Using a contractor to complete specific projects, either because of the increased workforce or their specialised skills, means that you are focusing on increasing how much work your business does, and the quality of that work. What path you want to take will determine which agreement you use. If you would like more information or legal advice about your licence and contractor agreements, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

What is a contractor agreement?

A contractor agreement is a contract between your business and an independent contractor, hiring them to complete work for your business. They may have special knowledge that you are taking advantage of, or you need a larger workforce for a period of time.

What is a licence agreement?

A licence agreement is a contract drawn up when you (the licensor) allow another person or company (the licensee) to use intellectual property that you own in exchange for payment. This means you can let another party use your branding, logos, or business practices, and charge a fee for their usage.

Is a contractor the same as an employee?

If you engage the services of a contractor with a contractor agreement, they are not your employee. So, they do not get the benefits and protections under the law that employees do. Instead of being paid a wage, they invoice you for the costs of their work.

What are the advantages of licencing?

Licencing can be a good way of marketing and spreading your business’s reputation without worrying about the costs of distribution. It means that you can bring your brand to new geographic locations, and potentially foreign markets as well.

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