Legal & Tax Alerts

Amendments to the legal regime of franchising

On October 11th, Law no. 179/2019 regarding the amendment of Government Ordinance no. 52/1997 on the legal regime of franchising, as well as on the amendment of art. 7 par. 15 of Law no. 227/2015 on the Fiscal Code was published in the Official Journal of Romania. The normative act introduces changes to the legal regime of franchising, especially by establishing new concepts, detailed below.

1. Amendment and supplement of the definition of franchising

As per the newly introduced legal provisions, franchising is a system of marketing products and/or services and/or technologies, based on a continuous collaboration between legally and financially independent natural or legal persons, by means of which a party called franchisor grants another party called franchisee the right and imposes the obligation to exploit a business, in accordance to the franchisor’s concept.

As a novelty, it is provided that this right authorizes and obliges the franchisee, in exchange for a direct or indirect financial contribution, to use the products and/or services trademarks, other protected industrial property rights, the know-how, the copyrights, as well as other trademarks, while benefitting from a continuous contribution in commercial and/or technical assistance from the franchisor, in the framework and for the duration of the franchise agreement concluded between the parties for this purpose. Also, the term “beneficiary” used to define the franchisor’s contractual partner is replaced by the term “franchisee”.

2. Introducing the concept of “pilot-unit”

For the purpose of testing and completing the business formula that the franchisor will sell in a franchise system, Law no. 179/2019 introduces the concept of “pilot-unit”, as equivalent to a prototype to serve for designing the franchise programme and elaborating the instruction manuals and daily operations. The new regulation establishes the obligation for the franchisor to efficiently operate a business concept, until the debut of its franchise network, for a period of at least one year, in a minimum of one pilot-unit.

3. Introducing the concept of “information revealing document”

In view of standardising the procedures of informing the potential franchisees by the franchisor, the concept of “information revealing document” is introduced, which, according to the new regulation, must include specific data regarding:

  • the history and experience of the franchisor;
  • details on the identity of the franchise’s management;
  • the litigation history of the franchisor and its management;
  • the initial amount that the franchisee must invest;
  • the mutual obligations of the parties;
  • copies of the financial result of the franchisor for the last year;
  • owning information regarding the pilot-unit.

4. Establishing the national franchise registry

In 60 days from the entry into force of Law no. 179/2019 (i.e. from October 14th, 2019), the National Franchise Registry shall be established, in which the information provided by the franchisors by means of the information revealing document can be registered, on request. This document will be subject to registration in the National Franchise Registry by the franchisors free of charge.

The article can be downloaded in PDF format right from this link.

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