What Is a Licensee?

A licensee is any business, organization, or individual that has been granted legal permission by another entity to engage in an activity. The permission, or license, can be given on an express or implied basis.

Understanding Licensees

A licensee has received legal permission from another party to conduct some sort of business over which the other party holds some control, ownership, or authority. The licensee may pay outright for this permission, known as a licensing fee, or may make payments based on the results of the business arrangement, known as licensing revenue.

[Important: The licensee may pay the licensor for the permission, or share revenue arising from activities arising from the permission.]

Many variations on this relationship exist in the business world. Some common examples of licensee arrangements include the following.

Franchises

Under a franchise agreement, the franchisee is granted permission to use the franchiser’s assets, such as supply chain, trademarks, or other intellectual property for a certain period of time. Typically, the franchisee is granted exclusive rights to those assets within a certain localized area.

Brand Licensing

In brand licensing, the licensee is permitted to use a licensor’s trademarks and logos on its own manufactured products, such a sports apparel.

Government License

A government license is a mechanism for local governments to oversee, and in many cases tax, business operators. A liquor license is an example of this type. By issuing the license, a city or county ensures compliance with local regulations regarding alcoholic beverages and receives an additional revenue stream specifically associated with the sale of alcohol.

A license to sell securities is a sort of similar permission granted on a nationwide basis—although technically speaking, it is not granted by the government, but by the Financial Industry Regulatory Authority (FINRA), a private regulatory authority that enforces the rules governing registered brokers and broker-dealer firms in the United States.

Implied License

An implied license can be a more ambiguous relationship, as no express permission has been legally granted. The classic example is the implied permission a firefighter has to enter a burning building, even if the owner is not present to formally approve the entry. In business, this concept tends to involve a licensee interpreting communications with a licensor as implied permission to make use of an asset.

key takeaways

  • A licensee is a business, entity, or individual that has legal permission to conduct activities using something that another party owns or controls.
  • The licensee may pay the licensor for the permission, or share revenue arising from activities arising from the permission.
  • Business examples of licensee arrangements include franchises, brand licenses, and government licenses.

Real Estate Licensees

An important use of licensee refers to permissions granted to access real estate. Typically, a licensee of a property has been granted express permission to make use of land by the owner. The property in question is not open to the general public.

A common example used in law schools is that of a hunter who has written permission to hunt on a landowner’s property. Without this permission, the hunter would be considered a trespasser and under very little legal protection from hazards encountered while hunting there. Nor could the hunter be considered an invitee, a legal term to describe a guest with recourse to take legal action in response to damages suffered while in the property.

Special Considerations for Licensees

In addition to paying any fees or revenues associated with being granted a license, licensees are often subject to requirements that they treat the granted permission responsibly. The hunter is expected to leave the property in the condition they found it. The securities broker is required to recommend investments appropriate to the client. The liquor store operator is prohibited from selling to underage or intoxicated customers.

A license does not grant free reign to exploit the licensed rights, whether they be to a public or private asset.