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What Are the Advantages and Disadvantages of Licensing?

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Licensing establishes businesses and individuals as reliable and trustworthy but leaves them subject to regulations and with little control over markets and even personal conduct. Licenses afford businesses and individuals some degree of legal protection by ensuring that their ideas and products are not reproduced by others or taken without credit.

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With a license, companies can enjoy relatively continuous streams of royalty and revenue. Additionally, having a license makes them more attractive to investors and consumers. However, licensing has its share of downsides too: licensing may leave companies with little say over where their products are sold and who may purchase them. The costs associated with getting and retaining licenses may be quite high, which presents a problem primarily for small companies struggling to get started. According to the Entrepreneur Network, licenses can give companies more visibility and access to a consumer base. However, they can also restrict product sales outside certain markets and regions. This can pose significant problems for companies trying to expand operations, particularly to markets overseas. The cost of relicensing can also be expensive, as can the process of applying for different licenses. Finally, companies take a risk during the licensing process: if sales are not high enough, their royalty earnings might not cover legal expenses and other services.

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