Franchise or trade mark licence in Mexico: how to tell them apart

If you want to expand your business through third-party operators, you may be considering starting with a trade mark licence and turning it into a franchise later. However, the name of the agreement does not, on its own, determine the relationship you are creating. Before offering your business model, review the rights, know-how and support you will provide. Understanding this distinction helps you grow within the franchise sector with clear commitments, rather than presenting what is really an operating system as mere permission to use a trade mark.

1. Identify what you are providing beyond the trade mark

Mexico’s Federal Law on the Protection of Industrial Property (LFPPI) expressly regulates franchising. Article 245 states that a franchise exists when a written trade mark licence is accompanied by the transfer of technical knowledge or the provision of technical assistance, enabling uniform operation through the operational, commercial and administrative methods established by the trade mark owner to maintain quality, reputation and image.

In practice, the difference lies in the overall package of commitments. A licence authorises the use of a trade mark under specified conditions. A franchise also includes know-how or assistance that enables the operator to replicate a way of producing goods, selling or providing services.

For example, allowing a third party to use a trade mark on certain products does not automatically mean granting them a franchise. By contrast, authorising use of the trade mark and providing customer service, preparation, sales and management methods to replicate an outlet points towards a franchise relationship.

Simply calling the document a “licence”, “alliance” or “distribution agreement” is not enough. Nor does charging a monthly fee determine the classification on its own: you need to examine the substance of the relationship.

2. Map out the actual commitments

Before commissioning an agreement, prepare a table with three columns: what you will provide, what purpose it will serve and what the operator must comply with. Include both what you already do and what you promise in your sales materials.

Review the following elements:

• Trade mark: authorised uses, the products or services covered, and presentation requirements.
• Technical knowledge: recipes, service procedures, production techniques or instructions for running the business.
• Commercial and administrative methods: processes for sales, customer service, record-keeping and managing the outlet.
• Assistance: guidance on setting up, launching or maintaining operations in line with the model.
• Uniformity: the results and practices you will require to preserve the brand’s quality and image.

Do not treat this list as an automatic test. A licence can include quality controls without necessarily being a franchise. What matters is assessing how the trade mark, know-how or assistance, and methods combine to enable uniform operation.

Include sales presentations, messages to prospective operators and financial proposals in your review. If you advertise a “business ready to operate”, but the agreement only promises permission to use the trade mark, there is a mismatch worth resolving before approaching prospects.

3. Understand the obligations a franchise triggers

Where the model qualifies as a franchise, it is unwise to use a short licence agreement as a substitute for the appropriate documentation.

The LFPPI requires information about the state of the business to be provided to the prospective franchisee before the agreement is signed, within the applicable statutory timeframe. This obligation is usually fulfilled through the Circular de Oferta de Franquicia (COF), Mexico’s franchise disclosure document. A sales brochure or verbal explanation is not a substitute for compliance.

Article 246 also requires the franchise agreement to be in writing and specifies its minimum content. This includes the geographical area, the characteristics of the premises, certain financial policies, training, technical assistance, and supervision and assessment criteria.

Mexico does not require prior government authorisation to offer or operate a franchise. This does not remove disclosure and contractual obligations, or the need for any permits required for the outlet’s activities.

Nor is there a statutory minimum trading history for a business to grant franchises. That absence does not establish that a business is ready: its ability to transfer and sustain the model must be assessed separately.

4. Align your offer before taking it to market

Give your table to a lawyer with experience in franchising and industrial property. Ask them to review the entire operation, not just the title of the agreement.

Then compare three documents: the commercial proposal, the agreement and the description of the services you will actually provide. They should be consistent about what the operator receives, what they must comply with and what support you can provide.

If you intend to grant only a licence, confirm that the actual commitments are consistent with that arrangement. If you want to replicate a business system under your brand, put the legal and operational structure of a franchise in place from the outset. Limiting obligations on paper while promising comprehensive support merely postpones the problem.

Practical takeaway: before choosing what to call the agreement, describe what you will transfer and how the third-party operator must run the business. That description should guide the legal review and the offer you take to market.