Can I transfer a game license to a friend?

If you mean friend 1 transfers his licenses to friend 2's console, then friend 1 can access his games on any console and friend 2 can access friend 1's games from their console even without friend 1's account. If friend 1 then transfers his licenses to your
account, friend 2 will lose access to the content.

Keep in mind that the license transfer system is only meant to be used to transfer your own licenses in the even that you get a new console. Using it to share games can be seen as marketplace theft and can risk you being banned.

I never said outside your household, Im answering his question but However I updated my text anyways all I did was give him the steps for the Gaming-Sharing process.

Game sharing outside of your physical household, we're giving other people access your account is a violation of TOS and can lead to account and system bans

Game-Sharing is the terms known for such activities to help people have a better understanding of what I am saying, That's also the only way to Game-share is sign into the account of what you want to Transfer to other account and I agree with you a Account should not be given to anyone hence why I put a Notice at the bottom to make sure they have a full understanding of what I'm saying.

Hello Miro, this is Manuela!. I'm an Independent Advisor and community user like you, ready to assist with this.

Not a Microsoft employee

I want to let you know that is not possible to do any kind of content or license transfer between Microsoft accounts.

You have the option to gift games to your friends, please be aware that Microsoft accounts are for personal use and sharing the account can put it in risk.