Franchise or License? What’s the Difference…And How Can You Tell?

Featuring Crimson Melt as a Real-World Example

When I first walked into Crimson Melt’s flagship store, I was immediately pulled in by the aroma of toasted sourdough and sizzling cheese. This little spot in Moore, Oklahoma is known for its gourmet grilled cheese sandwiches and over-the-top milkshakes; think milkshakes piled high with cookies, candy, and frosting like something out of a sugar-filled fever dream. It’s the kind of place you can easily imagine someone wanting to replicate in their own city.

So when I saw that Crimson Melt was offering business opportunities under what they described as a licensing model, I knew it was time to pull back the curtain.

This post isn’t about dragging a brand through the mud. It’s about education. Because many prospective entrepreneurs see the word “franchise” on a website and assume they know what that means. But just because a brand uses franchise-style language doesn’t mean they’re following franchise laws, and that can be a serious risk to your investment.

Why This Matters

Franchising is regulated. Licensing isn’t; at least not in the same way.

That distinction might seem like semantics, but it’s actually a legal line that determines your protections, your obligations, and whether you’re being sold something with full transparency or not.

🔍 Crimson Melt: Franchise or License?

Let’s take a closer look at what Crimson Melt is offering:

• “Innovative concept”

• “Strength of the Crimson Melt name”

• “Strong brand support” by way of their “established reputation and customer loyalty”

• But nearly every mention within their materials refers to a “franchise” opportunity

  • “You must have the legal right to own and operate a franchise in the United States.”

  • “An initial franchise fee of $10,000 in non-gifted, non-borrowed funds is required.”

• They dictate your level of involvement with this sentence: “Full-time, hands-on involvement in the daily ownership and operation of your restaurant is essential.”

• They tell you what you need to stop investing in once you become a “franchisee,” “You will need to divest yourself of all non-passive business opportunities to fully pursue a Crimson Melt franchise.”

That’s already a bit confusing, right? So which is it?

🧾 The Legal Difference: Franchise vs. License

At first glance, the terms franchise and license might seem interchangeable. But from a legal perspective, they’re very different, and those differences have huge implications for your rights and protections.

A franchise is a highly regulated business model. If a brand allows you to use its trademark, exerts significant control over how you run the business, and charges you a fee of $500 or more, it likely qualifies as a franchise under the FTC Franchise Rule. Franchises must provide a Franchise Disclosure Document (FDD), register in certain states, and meet strict legal obligations to the people they sell to.

A license, on the other hand, usually means you’re paying for the right to use a brand name or logo but the company leaves how you run the business mostly up to you. There’s generally more freedom, but a lot less protection. The company doesn’t need to give you a disclosure document, doesn’t have to register the opportunity, and isn’t obligated to provide training, support, or marketing help unless the contract specifically says so.

Here’s how to think about it:

• If you’re paying a fee, using a brand’s name, and required to follow their systems or get their approval to operate, it’s likely a franchise.

• If you’re just buying the rights to use their branding or recipes, but running the business however you want, with little oversight, it’s probably a license.

The key difference is control. The more control the brand exercises over how you operate, the more likely it falls under franchise law regardless of what they choose to call it.

💸 What About Their Earnings Claim?

In their “Franchise Letter,” Crimson Melt makes the following claim:

“In the past year, we achieved significant milestones, including an impressive net revenue of $551K...”

To the average person, that sounds like a small gold mine. But let’s pause and unpack what’s really being said, and what’s being left out.

❗Net Revenue is Not Net Profit

Net Revenue is the total money collected from customers (after deductions, returns, discounts, and allowances) before subtracting expenses like:

• Rent

• Labor

• COGS

• Insurance

• Taxes

• Marketing

Net Income (or net profit) is what’s left over after all of those costs.

So when they say they made $551,000 in net revenue, that number may sound impressive, but we have no idea if they actually made money or lost it. At a minimum, they’d like everyone to think they are making money. Lots of it.

And here’s the kicker: under the FTC Franchise Rule, any time a franchise brand makes an earnings claim, that claim must be disclosed in a properly formatted Item 19 of a Franchise Disclosure Document, with substantiating data.

Since Crimson Melt says they’re offering a license, not a franchise, they’ve likely skipped the FDD altogether; which means this earnings claim was not reviewed for compliance and may not be backed by data.

⚠️ Why This Matters

Even though Crimson Melt claims to offer a license, it appears to meet all three elements of a franchise under FTC Franchise Rule Title 16, Chapter I, Subchapter D, Part 436:

1. Trademark use – You’re using the Crimson Melt name and branding

2. Significant control or assistance – They offer operations support, marketing assistance, and help with training and menu development. They even control how much time they want you to spend in your Crimson Melt location and whether you can have other business interests outside of Crimson Melt.

3. Fee of $500 or more – They charge a $10,000 “franchise” fee (yes, they even use that term)

If all three are present, it’s a franchise by law, no matter what they call it.

Calling something a “license” when it’s legally a franchise may allow the brand to avoid franchise disclosure requirements, state registration, and ongoing obligations to franchisees…at least until someone complains.

🧠 Why Some Brands Use a License Instead

There are three main reasons:

1. Avoid Regulations

Franchise sales require legal disclosures, audited financials, and annual renewals. Licensing can skip that entirely unless challenged.

2. Lower Cost to Launch

It’s faster and cheaper for the brand to license. They don’t have to spend $25,000+ on FDD development and compliance.

3. More Flexibility for Both Sides

Licensing agreements can be looser, allowing the licensee to change the menu, décor, pricing, or even branding elements, though that also means fewer protections for them.

💬 Anecdotal Red Flag: They Only Have One Location

Crimson Melt has only one store that has been open for over two years. That’s not inherently a problem but it raises a question:

If the model is ready to expand, why hasn’t it?

One possibility is that the business isn’t yet validated. Another is that by marketing licenses instead of franchises, Crimson Melt can begin collecting fees and growing brand presence without going through the legal process of registering as a franchisor.

✅ Due Diligence Tips for Prospective Owners

If you’re exploring a brand, whether they say it’s a license or a franchise, ask these questions:

1. Do they provide a FDD?

If not, why not? Are they registered to offer franchises in your state?

2. Do they control your operations?

If they mandate how you run your business (even portions of it), you’re likely in franchise territory.

3. What fees are involved?

An upfront fee over $500 combined with branding and operations support may trigger franchise law.

4. What happens if you walk away?

Licensing agreements often offer less protection when you terminate or sell.

5. Are they making earnings claims?

If so, ask for documentation, and beware of any earnings statements not backed by proper financial disclosures.

🧭 The Bottom Line

If a brand calls it a “license” but markets it as a franchise and exercises franchisor-level control, it might be operating illegally or at least unethically.

Crimson Melt may be a delicious concept with a great aesthetic, but from a legal and compliance standpoint, this is a brand that walks and talks like a franchise while calling itself a license. That kind of blurred line puts you, the investor, at risk.

Your job is to dig deeper, ask questions, and never assume that “franchise” on a website means it’s actually compliant. And if there’s no FDD, walk away or at least press pause until you know what you’re really buying.

The information provided in this blog post is for educational and informational purposes only and is not intended as legal advice. Franchise Reality Check™ is not a law firm and does not offer legal representation. The content herein reflects the author’s interpretation of publicly available information and should not be relied upon as a substitute for independent legal counsel.

Any references to specific brands, including Crimson Melt, are based on materials published by the companies themselves or public records at the time of writing. The inclusion of such brands does not imply wrongdoing or legal violation but is intended to illustrate key concepts in franchise and licensing models.

If you are considering purchasing a franchise or license, or are unsure whether a business opportunity is compliant with state or federal regulations, you should consult with a qualified franchise attorney before making any decisions.