All software comes with a licence, but these licences do not all offer the same rights. Some limit the number of users, others let you change the source code, and some are free to use if you meet certain conditions.
Understanding the different types of software licences is an important part of software asset management, helping businesses control costs, stay compliant, and choose the right licensing model for their needs.
This article covers the main types of software licences, how they work, and when to use each one.
What is a software licence?
A software licence is a contract that gives a person or organisation the legal right to use or share a software application.
When someone buys software, they are not buying the software itself. Instead, they get the right to use it based on the rules in the licence agreement.
The licence agreement explains how you can use the software, if you can change it, how many devices you can install it on, and any rules about copying or sharing it.
Software licences protect developers’ intellectual property and make sure users follow the rules set for the software.
There are several types of software licences. Some, like open-source licences, let users change and share the software. Others, like proprietary licences, have stricter rules and limits.
Why are software licences important?
A software licence is a legal agreement between the company that makes the software and the person using it. It explains how you can use, copy, change, or share the software.
A licence explains the rules, such as how many people or devices can use the software, if you are allowed to resell it, and who owns the code.
Software licences also protect the rights of the software creator. They let the creator take legal action if someone breaks the rules for using their work.
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When you install new software, you usually have to agree to an EULA, which stands for End User Licence Agreement. The EULA explains what you can and cannot do with the software.
Benefits of software licence management
The right tools make managing software licences much simpler. Licence management software lets businesses track all their licences and subscriptions in one place, so they no longer need to rely on scattered spreadsheets or emails.
These tools help save time and money by making licence tracking easier and more accurate. Some main benefits are:
- Software licence management and SaaS management in one platform
Instead of using different systems for licences, subscriptions, and vendor contracts, a single platform lets IT, finance, and procurement teams see everything they own, use, and pay for in one place.
- Avoid penalties and maintain software licence compliance
Tracking licence counts in real time helps businesses follow their agreements and lowers the risk of expensive penalties, surprise audit results, or contract disputes with vendors.
- Streamline finances
By consolidating licence and subscription data, businesses gain clearer visibility into software spend, making it easier to spot duplicate purchases, unused seats, and opportunities to consolidate or renegotiate contracts.
- Never miss a licensing event with alerts
Automated alerts for renewals, expirations, and usage limits notify teams ahead of time. This helps them avoid unwanted auto-renewals or rushing to renegotiate terms at the last minute.
There are software licence management tools that automate tracking from the time you buy a licence until it is renewed or retired.
No matter how many licences a company has, good licence management software is important for streamlining business processes, lowering risk, and making the best use of resources.
What’s the difference between software licences and SaaS licences?
There are various differences between SaaS licences and software licences. They both deal with the ownership and use of software, but with distinguishing features.
Choosing a SaaS-based model or a software licence-based model depends on the specific needs of an organisation.
SaaS, or software-as-a-service, is a different approach from traditional software licensing. Here are some important differences between software subscriptions and other licence models:
- An ongoing subscription rather than a one-time purchase
- Available online as a service rather than installed locally
- Users may share data with the SaaS service provider
- Data can be stored in the cloud
- Error corrections and maintenance are delivered to all users simultaneously
- Upgrades made available seamlessly to all relevant users via the cloud
The main difference is that a software licence gives you a product, while SaaS is a service. SaaS is usually delivered over the internet. As more people work remotely, SaaS has become much more popular.
Types of software licences
Most software licences fall into three broad categories: proprietary, open-source, and free software.
Within those categories, you'll also find different licensing models that determine how software is purchased and assigned to users.
Licence category | What it allows | Common subtypes | Examples |
|---|---|---|---|
Proprietary licences | Software is owned by the vendor. Users can use it under the vendor's terms, but cannot modify or redistribute the source code. | • Perpetual licence | • Microsoft Windows |
Open-source licences | Users can access, modify, and distribute the source code. Rights and obligations depend on the licence. | • Permissive licences (MIT, Apache, BSD) | • Linux |
Open source licences | Software is available at no cost, either permanently or as a trial, but the source code is usually closed. | • Freeware (free to use indefinitely) | • Adobe Acrobat Reader |
1. Proprietary Licences
A proprietary licence gives you the right to use software under terms set by the vendor. The source code remains private, and users cannot modify or redistribute the software unless the licence explicitly allows it.
Most commercial software, including business SaaS platforms and desktop applications, uses proprietary licences.
- Perpetual Licence
A perpetual licence is purchased once and can be used indefinitely. However, updates, maintenance, and major new versions often require additional payments.
This model was common for traditional desktop software but is becoming less popular as subscription pricing grows.
- Subscription Licence
A subscription licence is the dominant licensing model for SaaS products like Najar. It gives access to software for a recurring monthly or annual fee and usually includes updates, security patches, and customer support.
Vendors may also apply different licensing rules to proprietary software, such as:
- Per-user licence: assigned to a named user.
- Concurrent licence: a fixed number of users can access the software at the same time.
- Site licence: covers all users or devices at a specific location.
- Metered licence (pay-as-you-go): charges based on usage, such as storage, API calls, or transactions.
2. Open-Source Licences
Open-source licences allow users to view, modify, and distribute the source code. However, the exact rights and obligations depend on the licence.
- Permissive Licences
Permissive licences place very few restrictions on how software can be used or redistributed. Developers can often include the code in proprietary software without releasing their own source code.
- Copyleft Licences
Copyleft licences require that modified versions of the software remain open source when they are distributed. This ensures future improvements stay available to the community.
There are different types of copyleft licences, each with a different level of strictness:
- GNU GPL (General Public License): The standard copyleft licence. If you distribute modified software, you must also release the source code under the GPL. GNU LGPL (Lesser General Public License): A more flexible version of the GPL that allows proprietary applications to use LGPL libraries without having to open-source the entire application. Only changes to the LGPL library itself must be shared. GNU AGPL (Affero General Public License): The strongest form of copyleft. In addition to the GPL requirements, it also requires source code to be shared when modified software is provided as a service over a network, making it common for web applications and SaaS.
- Public Domain
Public domain software has no copyright restrictions. Anyone can use, modify, distribute, or sell it without needing permission.
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The GNU Lesser General Public Licence (LGPL) is a lighter form of copyleft. It allows developers to use LGPL libraries inside proprietary applications without having to release their own source code.
3. Open Source Licences
These licences grant users the right to use, study, modify, and distribute the software and its source code for any purpose. However, they come with certain obligations. There are many variations, but they broadly fall into two categories:
- Freeware
This software is available for use at no monetary cost. However, it is still proprietary, and the user cannot typically modify or redistribute it. The source code is not usually available.
- Shareware
This software is distributed on a trial basis with the understanding that the user may need to pay for continued use after the trial period. It allows users to test the software before committing to a purchase.
How to choose the right software licence
To choose the right software licence, match the licensing model to how your business actually uses the software. The best choice depends on your budget, plans for growth, compliance needs, and how much flexibility you want.
A licence that seems affordable now could become costly or hard to manage as your team grows.
When you compare licences, consider the total cost over time, not just the starting price. Ongoing fees for subscriptions, renewals, maintenance, and extra users or higher usage can add up and affect your overall investment.
You should also think about how well the licence can grow with your business. If your team size or software use changes often, a flexible licence can help you avoid paying for seats you don’t use or rushing to buy more when needed.
Compliance and security matter too. Check that the software meets your regulatory needs, like GDPR or SOC 2, and know what kind of vendor support, updates, and maintenance you’ll get.
Finally, consider how much work it takes to manage the licences. If it’s easy to track them, reassign unused seats, and keep up with renewals, your IT and procurement teams will save time and you’ll lower the risk of extra costs or compliance problems.
Take control of your software licences with Najar
Najar helps IT, procurement, and finance teams manage all their software licences in one place. It tracks each licence, how it’s used, and when it needs to be renewed.
You’ll receive renewal reminders before contracts end, see real-time data on which licences are actually being used, and easily reclaim any unused seats with just a few clicks.
If you don’t keep track of your licences, you might end up paying for renewals and seats that no one uses, which wastes your budget.
As your software portfolio grows, the difference between what you pay for and what you actually use often gets bigger, and your risk of compliance issues increases too.
With Najar, you’ll have the data you need for every renewal, be ready for audits at any time, and know exactly what you’re paying for.
Reduce software costs with better licence management
