Every day we are surrounded by brands that we love more or less: Reserved, 5 to go, Mc Donald’s, Subway, Christian Tour, Meli Melo and many more. Have you ever considered opening a franchise and would like to know more about what it entails?
In order to get an overview, we will start from its framework regulatory, namely Romanian Government Ordinance no. 52/1997.
A franchise is a contract by which a person called a franchisor grants another person, called a franchisee, the right and imposes an obligation to operate a business, product, technology or service in accordance with the franchisor’s concept, in exchange for a fee.
What conditions should the franchisor and the franchisee fulfill?
First of all, they are professionals, i.e. people who run a business. This means that they carry out a commercial activity that is registered in the Trade Register. Secondly, they are legally and financially independent. The franchisee acts in its own name and in its own interest, not being a representative of the franchisor or, even less so, an employee of the franchisor.
This independence must be made public. To this end, the Ordinance mentions that the franchisor ensures that the franchisee, through appropriate publicity, will make known that he is a financially independent entity in relation to the franchisor or other people.
What conditions should you meet in order to be franchised?
To be franchised, you must:
- be a professional, in the legal sense explained above
- be financially and legally independent from the franchisor
- prove that you have managerial qualities and financial capacity to operate the business
What are the stages of signing the franchise agreement?
In order to get you a good head start, the franchisor will disclose certain information provided in art. 2 paragraph (3) of the Ordinance, in order to be able to participate in full knowledge of the franchise contract.
It is well known that any business requires an initial investment. The franchise, being a business itself, involves some expenses from the franchisee. Therefore, your financial capacity is an important element of selection when applying for a franchise. At the same time, knowing the exact costs of the franchise will help you decide if it is advantageous for you or not to sign that contract.
The franchisor should contribute to the development of a franchise network, which includes signing franchise agreements with several franchisees. Through this network, the brand will be promoted better and it will thrive.
The contractual stage
After the pre-contractual phase, we must make sure that the agreement includes the following clauses:
– subject of the contract
– rights and obligations of the parties
– financial conditions
– duration of the contract
– conditions for modification, extension and termination
Subject of the contract
It is represented by those intellectual and industrial property rights that characterize the franchise, such as: individual trademarks (trademark, trade and service), trade name (company and logo), geographical indications, industrial designs, patents, copyright and know-how.
The rights and obligations of the parties
These are found in art. 4 of the Ordinance:
For the franchisor:
- to own and operate a commercial activity, for a certain period, prior to the launch of the franchise network
- to be the owner of the intellectual and / or industrial property rights
- to provide its franchisees with initial training, as well as permanent commercial and / or technical assistance, throughout the existence of contractual rights
- to ensure the preservation of the identity and reputation of the franchise network
For the franchisee:
- to develop the franchise network and maintain its common identity, as well as its reputation
- to provide the franchisor with any information likely to facilitate the knowledge and analysis of the performance and the real financial situation, in order to ensure an efficient management in connection with the franchise
- not to disclose to third parties the know-how provided by the franchisor, both during the franchise contract and afterwards
- to pay the fee
The franchise agreement must include clauses on the existence and extent of the fee, the network entry fee (if any), and other fees provided by the parties.
Duration of the contract
Here the law comes to your aid: the Ordinance stipulates that the term of the contract will be set so as to allow the franchisor to recoup the specific investments of the franchise. There is no specific term for the duration of the contract, but you have a certainty that you will at least recover your investment.
Conditions for modification, extension and termination
Regarding the modification of the contract, the rule is that any change of the contract will be made by mutual agreement between the parties. Of course, at the conclusion of the contract the parties may choose to leave to one of them the initiative to amend.
Regarding the extension of the contract, the Ordinance stipulates that the franchisor will notify the franchisee sufficiently in advance of the intention to not renew the contract on the expiration date or not to sign a new contract. Regarding the termination, in general, this involves the existence of a notice. However, the parties may clearly determine at the conclusion of the contract the circumstances which may lead to termination without any notice.
What are your advantages as a franchisee?
- You will benefit from the continuous know-how necessary for the development of the franchise and from the assistance through which you can own it.
- You have the right to use the distinctive signs of the franchisor. The best known are the company, the logo and the brand. In the end, that’s why we conclude the contract: it’s about the brand, right?
- You will receive initial training as well as technical / commercial assistance throughout the contract.
- Territorial exclusivity – The franchisor may propose the signing of an exclusivity agreement, by which, in exchange for an exclusivity fee, the franchisor undertakes not to carry out the franchise in the territorial area for which he granted exclusivity or to transfer the right to operate the business as a franchise to another franchisee.
What are your obligations as a franchisee?
- To keep the secret of the know-how you received, even after the termination of the contract.
- To pay the fees provided in the contract – the fee may consist of a percentage of the beneficiary’s profit or a fixed amount.
- Obligation of non-compete with the franchisor – This can be inserted in the contract by the franchisor and is valid both during the contract and after its termination. Specifically, you cannot enter into franchise agreements with other franchisor competitors in the market.
Where can you find more details about franchise networks in Romania?
Franciza.ro is the site where you can find the franchises available in Romania depending on the category you want (for example, food and drink, clothing, investments) and the amount you are willing to invest.
Legal Intern R&R Partners Bucharest
Don’t forget to subscribe to our YouTube Channel where new and updated content is posted monthly on various current topics!
Keep up to date with our latest articles!
- Which are the rights and obligations of the spouses during the marriage?
- 5 Reasons you should do business in Romania
- The Rule of Law mechanism in the European Union
- 5 differences between litigation and arbitration