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A Guide to Franchising in the Nations of East and Central Europe

East & Central Europe: Country Overviews
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The flag of MoldovaMoldova

Capital City: Chisinau
Population (Millions): 4

ECONOMIC OVERVIEW

GDP Per Capita: US$ 2,300
GDP per Sector:
Agriculture - 16.0%
Industry - 19.9%
Services - 64.1%
Currency: Moldovan leu (MDL)
Ex.Rates: Moldovan lei (MDL) per US dollar - 11.105
Big Cities (>100,000): Bielce, Cahul
Urban Population: 0.42
Languages: Moldovan (official, virtually the same as the Romanian language), Russian, Gagauz (a Turkish dialect)

Background:

Part of Romania during the interwar period, Moldova was incorporated into the Soviet Union at the close of World War II. Although the country has been independent from the USSR since 1991, Russian forces have remained on Moldovan territory east of the Dniester River supporting the Slavic majority population, mostly Ukrainians and Russians, who have proclaimed a "Transnistria" republic. One of the poorest nations in Europe, Moldova became the first former Soviet state to elect a Communist, Vladimir VORONIN, as its president in 2001. VORONIN served as Moldova's president until he resigned in September 2009, following the opposition's gain of a narrow majority in July parliamentary elections and the Communist Party's (PCRM) subsequent inability to attract the three-fifths of parliamentary votes required to elect a president. Moldova's four opposition parties formed a new coalition, the Alliance for European Integration (AEI), which will act as Moldova's governing coalition until new parliamentary elections can be held, possibly in summer 2010. Moldova experienced significant political uncertainty in 2009, holding two general elections (in April and July) and four presidential ballots in parliament, all of which failed to secure a president.

LEGAL OVERVIEW

The Republic of Moldova has two instruments regulating franchising: “The Law of the Republic of Moldova on Franchising” No. 1335 of 1 January 1997, and Chapter XXI of the 2003 Civil Code . This brief summary will treat the two separately, starting with the Civil Code which is more general.

Civil Code

Chapter XXI of the 2003 Civil Code contains eight articles (1171 – 1178):

Article 1171 contains a definition of the franchise contract as an instalment contract by which “independent enterprises (franchisee and franchisor) agree to contribute reciprocally to distribute the goods and services each provides the other with”.

Article 1172 deals with the form and conditions of the contract. While the requirement that the franchise contract be concluded in writing is not surprising, the requirement of the second paragraph, that the franchise contract must contain a full description of the procedure for the transfer of the franchise in addition to the reciprocal obligations of the parties, the term of the contract, a provision regarding the termination and extension of the contract “and other important elements” is more unusual in the way it is couched.

Article 1173 specifies the obligations of the franchisor in a general manner: according to paragraph (1) the franchisor “is obliged to transfer to the franchisee the totality of the relevant intellectual property rights, trade marks, models, elements [parts] of equipment, trade dress, concepts of delivery, supply, organisation and other information necessary to the organisation on the work of the franchise”. Paragraph (2) indicates that in addition “the franchisor has the obligation to protect the common franchise programme from the intervention of third parties, to update the programme continuously and to support the franchisee in his activity by way of training, and information”.

Article 1174 specifies the obligations of the franchisee, which include the payment of royalties, the observance of the business format and the obligation, if the contract so requires, to buy the goods and services required from the franchisor or a person indicated by the franchisor.

Article 1175 provides that both parties have an obligation to keep commercial secrets confidential, and that each of the parties must inform the other of “all circumstances related to the franchise in question”.

Article 1176 specifies that the term of the contract is determined by the parties (paragraph (1)), and indicates the conditions of termination of long-term or indefinite contracts (paragraph (2)).

Article 1177 provides for an obligation of fair competition for both parties, and

Article 1178 returns to the obligations of the franchisor by stating that the franchisor is responsible for all the rights it grants, i.e. it must have registered the trademarks, etc. It also provides for a right of the franchisee to reduce the amount of money to be paid to the franchisor if the rights do not exist or if the franchisor does not perform its obligations.

Law of the Republic of Moldova on Franchising No. 1335 of 1 January 1997

The Law of the Republic of Moldova on Franchising No. 1335 of 1 January 1997 is more detailed. It comprises nineteen articles divided into five Chapters: Chapter I: General Provisions (Articles 1 – 7), Chapter II: The Franchise Agreement (Articles 8 – 12), Chapter III: Rights and Obligations of the Parties (Articles 13 – 15), Chapter IV: Guarantees and the Protection of the Rights of Participants in the Franchise (Articles 16 – 17), and Chapter V: Final Provisions (Articles 18 - 19).

Chapter I: General Provisions (Articles 1 – 7) provides a definition of franchising, of the franchisor and of franchisees, lists the legislation that applies to franchising. Also Chapter I considers the field of application and the purpose of the franchise, and the different forms of franchising, i.e. corporate or commercial. These are defined as: “In the corporate form of franchising the franchisees participate in all stages of production of the franchisor. The characteristics of the corporate form are:

- a close relationship between franchisor and franchisee;
- the regular sharing of information;
- a detailed regulation of the activity and a high level of responsibility of the franchisee.

The commercial form of franchising provides for the distribution of goods or the providing of services. The characteristics of the commercial form are:

- a narrow specialisation of the franchisee by the distribution of one type of product or the providing of one type of service;
- the receipt by the franchisor of a fixed part of the revenue;
- the franchisee bearing the risk for products sold or services provided;
- the franchisee’s obligations not being precisely regulated.”

In general terms it is provided that the legal forms permitted are those admitted by the legislation in the place of residence of the parties.

Chapter II: The Franchise Agreement (Articles 8 – 12) deals with the preparation of the franchise proposal, which can be made by either party. The Law specifies that “The proposal must contain a business-plan with specifications for the production and/or distribution of the product, the providing of the service, the volume of the production, the salary levels of the employees, the prospective income, the volume and directions of the supplementary investments, and other conditions required by the franchisee or the franchisor”.

 

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