-Potential franchise buyers

· Master Licensees

· Small & Medium Enterprises (SME’s)

· Owners looking for expansion/diversification

· Analysts – Business & Industry

· Business Development Managers

· Corporate Management, Directors and General Managers

· Entrepreneurs

· Experts in Retail, Foreign Trade, Marketing and Brand Management

· Investment Consultants & Venture Capitalists

· Media

Franchising regulations in Romania are much the same as in other countries, basically granting the franchisee the right to operate or develop a business, product, technology or service. A company’s contract or franchise agreement should protect the franchisor’s intellectual property rights, brand, and reputation as well as define clearly the obligations of all of the parties: franchisor and franchisee. Additionally, the agreement must contain the following elements: object of the contract, rights and obligations of the parties involved, financial clauses, contract duration, and clauses related to modifying, prolongation, and canceling of the agreement. The growing number of franchises testifies to the potential of this business model. In 2008 there were 330 operational franchise chains, with local chains representing 50% if this total.

American Franchises in Romania

American franchises hold strong market share and represent leading brands in Romania. At the end of 2008, American franchises accounted for 22% of all the international brands on the Romanian market, with the share of European franchises rising in comparison to previous years. In 2008, European concepts prevailed in retail franchises, whereas the Americans brought in major fast food concepts, such as: Quiznos and Burger King.

Among the U.S. companies with franchises in Romania are well-known brands such as e McDonald’s, Burger King, Pizza Hut, and KFC (Kentucky Fried Chicken). Some of the other American franchises present in the Romanian market include hotels and various services:

                        Hertz

                        Budget

                        Howard Johnson

                        Four Star Pizza

                        Daylight Donuts

                        Ruby Tuesday’s

                        Pizza Inn

                        Candy Bouquet

                        Gloria Jean’s

                        Computer Troubleshooters

                        Fastrackids

                        Ramada

                        Quiznos

                        Starbucks

                        

Romania offers attractive opportunities for investment, acquisition, and business partnerships ranging from joint ventures and licensing agreements to distributorships and franchises. However, with these new opportunities come new risks. There are few activities more important in Romania than conducting due diligence on potential investments or business partners.

Romania became a member of the European Union on January 1, 2007. The country has worked assiduously to create a legal framework consistent with a market economy and investment promotion, and has largely concluded its efforts to enact EU-compatible legislation. At the same time, implementation of these regulations sometimes lags. The U.S. Department of Commerce recognized Romania as a market economy for anti-dumping investigation purposes beginning in March 2003.

Romania's legal framework for foreign investment is encompassed within a substantial body of law, largely enacted in the late 1990s and subject to frequent revision since. Investors are strongly encouraged to engage local counsel to navigate through the various laws, decrees, and regulations.

This body of legislation and regulation provides national treatment for foreign investors, guarantees free access to domestic markets, and allows foreign investors to participate in privatizations. There is no limit on foreign participation in commercial enterprises. Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical) and to convert and repatriate 100 % of after-tax profits. Foreign firms are allowed to participate in the management and administration of the investment, as well as to assign their contractual obligations and rights to other Romanian or foreign investors.

Foreign investors may engage in business activities in Romania by any of the following methods:

Setting up new commercial companies, subsidiaries or branches, either wholly owned or in partnership with Romanian natural or legal persons;

Participating in the increase of capital of an existing company or the acquisition of shares, bonds, or other securities of such companies;

Acquiring concessions, leases or agreements to manage economic activities, public services, or the production of subsidiaries belonging to commercial companies or state-owned public corporations;

Acquiring ownership rights over non-residential real estate improvements, including land, via establishment of a Romanian company;

Acquiring industrial or other intellectual property rights;

Concluding exploration and production-sharing agreements related to the development of natural resources.

Foreign investor participation can take the form of: foreign capital, equipment, means of transport, spare parts and other goods, services, intellectual property rights, technical know-how and management expertise, or proceeds and profits from other businesses carried out in Romania. Foreign investment must comply with environmental protection, national security, defense, public order, and public health interests and regulations.

There have been few hostile take-over attempts reported in Romania, and as a result Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms' free association with foreign investors.

Romanian legislation does not restrict the conversion or transfer of funds associated with direct investment. All profits made by foreign investors in Romania may be converted into another currency and transferred abroad at the market exchange rate after payment of taxes.

Romania's national currency, the Leu, is freely convertible on current-account transactions, in accordance with the International Monetary Fund's (IMF) Article VII. Proceeds from the sale of shares, bonds, or other securities, as well as from the conclusion of an investment, can also be repatriated. There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property, or imported inputs.

In 1997, the Romanian government implemented new regulations that liberalized foreign exchange markets. The inter-bank electronic settlement system became fully operational in 2006, eliminating past procedural delays in processing capital outflows. Commission fees for real-time electronic banking settlements have gradually been reduced.

Capital inflows are free from restraint. Previous restrictions on the opening of Leu deposits by non-residents have been lifted. Romania concluded capital account liberalization in September 2006 with the decision to permit non-residents and residents abroad to purchase derivatives, treasury bills and other monetary instruments.

Romania recognizes the importance of arbitration in the settlement of commercial disputes. Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration. Romania is a signatory to the New York Convention of 1958 regarding the recognition and execution of foreign arbitration awards. Romania is also a party to the European convention on international commercial arbitration concluded in Geneva in 1961 and is a member of the International Center for the Settlement of Investment Disputes (ICSID).

Romanian law and practice recognize applications to other internationally-known arbitration institutions, such as the ICC Paris Court of Arbitration and the Vienna United Nations Commission on International Trade Law (UNCITRAL). Romania also has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other Western countries, although legal proceedings can be protracted.

Mediation as a tool to resolve disputes is becoming more common in Romania. Mediation became a legal profession in 2006 when the Romanian Parliament passed legislation recognizing it and establishing a certifying body, The Mediation Council, to set standards and practices. The professional association, The Union of Mediation Centers in Romanian, is the umbrella organization for mediators throughout the county. There are recognized mediation centers in every county capital where court-sanctioned and private mediation is available.

There is no court-ordered mediation but judges can encourage litigants to use mediation to resolve their cases. If litigants opt for mediation, upon completion of the mediation process, they must present their proposed resolution to the judge who must approve the agreement.

The Union of Mediation Centers is a member of the European Mediation Network Initiative and is recognized by the European Union and other regional bodies.

Romania's bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards. These laws usually emphasize enterprise restructuring and job preservation. Legal and economic education and the training of judges and lawyers lag behind law-making, which often results in inconsistent outcomes. To mitigate the time and financial costs of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy. However, investors and creditors have complained that the liquidators sometimes lack the incentive to expedite liquidation proceedings, and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.

Currently, customs and tax incentives are available for investors in six free trade zones and 36 regions of the country designated as economically disadvantaged. State aid is available for investments in free trade zones under EU regional development assistance rules. Large companies may receive aid equivalent to up to 50 % of their eligible costs (limited to 40 % in Bucharest and surrounding Ilfov county), while small- and medium-sized enterprises (SMEs) may receive assistance with up to 65 % of their eligible costs. Prospective investors are advised to investigate thoroughly the current status of fiscal incentives.

In 2007 Romania adopted European Union regulations on regional investment aid and instituted state aid schemes for large investments. To benefit from state aid under these schemes, the applicant must secure financing for at least 25 % of the eligible costs, either through its own resources or by external financing, in a form which is free of any public support. The applicant must document this financing in strict accordance with Ministry of Finance guidelines. In practice, unfortunately, GOR budget constraints and a less than fully transparent application process have limited access to these forms of state aid.

To reduce initial startup costs, a system of industrial parks and technological parks is being created. Tax incentives are available under the law for the industrial park operator, while companies that establish themselves in the park benefit from access to utility hookups and infrastructure, and to potential local tax rebates under regional development aid schemes. According to the Agency for Foreign Investment, there were 54 industrial parks throughout Romania as of December 2008.

As a member of the European Union, Romania must receive European Commission approval for any state aid it grants which is not covered by the EU's block exemption regulations. The Romanian Competition Council acts as a clearinghouse for the exchange of information between the Romanian authorities and the European Commission. Specifically, the Council screens the state aid notifications and provides an initial opinion to the state aid grantor as to whether the request is consistent with EU directives, allowing for an opportunity to revise or withdraw a request before it is submitted to the Commission. Even after submission, the Council retains jurisdiction over competition and antitrust matters. The failure of state aid grantors to notify the Commission properly on aid associated with privatizations has resulted in the Commission launching formal investigations into several privatizations. Investors should ensure that government entities with which they work fully understand and fulfill their duty to notify competition authorities. Investors may wish to consult with EU and Romanian competition authorities in advance to ensure a proper understanding of notification requirements.

Since 1999, Romania has revised its tax system to bring it closer both to EU models and to the recommendations of the World Bank and IMF. In 2004, Romania adopted a flat tax of 16 % on personal income and corporate profits, and simplified the tax code. The government has also reformed the tax code to encourage economic growth and foreign investment. It reduced employers' payroll taxes by two percent in 2007 and by an additional six percent in three stages in 2008. However, after these cuts, the new GOR increased again the payroll taxes by 3.3% beginning January 2009, so Romania's aggregate payroll tax remains a burden. Romania has a 19 % value added tax (VAT). Investors should be aware that, due to budget constraints, the GOR has occasionally withheld VAT reimbursements due to foreign companies for extended periods. The country is fully integrated into EU customs and excise tax systems, and is scheduled to be fully integrated into EU VAT transfer systems by 2009. The new coalition government, which took office in late December 2008, has announced that it will keep the flat tax unchanged.

Upon EU accession, Romania implemented the EU Common Customs Tariff, the Generalized Preference Scheme, EU commercial safeguards, preference agreements and cooperation agreements concluded by the EU with third countries, as well as other EU commercial commitments with the WTO.