Create a licensing agreement

Last updated 19 March 2019

You can license the right to produce and sell your product, service or intellectual property (IP) to a third party. They will usually pay a licence fee upfront and royalties on each sale.

Licensing can be a quick and cost effective way to get your product or service into a new market. The cost of making, marketing and selling the product is paid by the licensee. In return they don’t have to spend time and money creating, designing and testing an idea.

Be selective when choosing a license or franchise partner. You’ll want to be confident that your product, service or IP will be used in the way you intended and that your standards will be maintained.

Licensing may not be an option in some markets. Research your market to find the best way to sell your product or service.

Set up a licensing agreement

There is a risk that your idea or IP could be stolen or the brand devalued by a product or service being delivered to a lower standard. A good licensing agreement should address these issues.

You’ll need legal advice to set up a licensing agreement to protect your IP. This can be costly but should be a one-off setup cost.

The licensing agreement should clearly state:

  • the type of licence granted (exclusive, non-exclusive or sole)
  • any limits to useage (sector or geographic)
  • any support that you’ll provide
  • if and when you can audit the licensee to check sales
  • the length of the licence
  • what happens when the licence ends