Franchise Attorney: Franchisors’ Duty to Register and Provide Information Disclosure Statements

 

International Distribution, Franchise and Dealership

Franchise Attorney: Franchisors’ Duty to Register and Provide Information Disclosure Statements

 

Franchise Business Act, Fair Trade Team, Distribution Attorney, Franchise Attorney in South Korea | Dowoo Hwasan Attorneys & Counselors |

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Today, we will look into the registration of the Information Disclosure Statement. Information Disclosure Statement is a disclosure statement is a crucial tool for franchise business, containing the opportunity to promote the company. Information Disclosure Statement must be prepared by experts in franchise business rather than by a person with superficial and non-legal knowledge. Also, franchisors are required to update it every year. In practice, even when registering Information Disclosure Statement or receiving franchise fee-like money by distributing similar documents without registering Information Disclosure Statement, many often fail to do change registration afterward. Dowoo Hwasan Attorneys & Counselors prides to be the best team in Asia in the field of national and international franchise business. Please refer to https://dowoolaw.com/ for detailed expertise and experience of each attorney of our firm. 

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Do Korean Franchisors Have the Duty to Register and Provide Information Disclosure Statements?

 

Fair Transactions in Franchise Business Act

Article 6-2 (Registration of Information Disclosure Statements)    

① Each franchiser shall register an information disclosure statement to be provided to prospective franchisees with the Korea Fair Trade Commission or with the competent Special Metropolitan City Mayor, Metropolitan City Mayor, Special Self-Governing City Mayor, Do Governor, Special Self-Governing Province Governor (hereinafter referred to as "Mayor/Do Governor"), as prescribed by Presidential Decree. <Amended by Act No. 12094, Aug. 13, 2013; Act No. 15360, Jan. 16, 2018>

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Article 7 (Duty to Provide Information Disclosure Statements)      

① Each franchiser (including cases where a master franchisee or a franchise broker finds franchisees; hereinafter the same shall apply) shall provide its prospective franchisees with an information disclosure statement which was registered or the alteration of which was registered pursuant to Article 6-2 (1) and (2) by methods prescribed by Presidential Decree, such as certified mail, by which the point in time of providing the information disclosure statement may be objectively confirmed. <Amended by Act No. 8630, Aug. 3, 2007; Act No. 12094, Aug. 13, 2013>

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③ Unless a franchiser has provided an information disclosure document registered and a document stating the current status of neighboring franchisees (hereinafter referred to as "information disclosure statement, etc.") by method referred to in paragraph (1) or 14 days (where a prospective franchisee has been given advice and suggestions by an attorney-at-law or franchise trader under Article 27 on an information disclosure statement) have passed from the date it provides the information disclosure statement, etc., it shall not engage in any of the following acts: <Newly Inserted by Act No. 8630, Aug. 3, 2007; Act No. 12094, Aug. 13, 2013>

1. Receiving franchise fees from a prospective franchisee. In such cases, if a prospective franchisee has deposited his or her franchise deposit in the depository, it is deemed to have received such franchise deposit on the day when the initial deposit is made (or the date agreed by a franchiser and a prospective franchisee to make the first deposit of a franchise fee);

2. Entering into a franchise agreement with a prospective franchisee.

 

 

What if Information Disclosure Statement is Not Provided or Change Registration is Not Made?

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· In the case of failure to provide an Information Disclosure Statement or entering a franchise agreement or receiving a franchise fee before passing of the 14-day period?

- This is a cause for canceling the franchise agreement and refund of franchise fees.

- Corrective orders, a recommendation of correction, and the imposition of fines (within 2% of sales)

- Criminal punishment: Imprisonment for up to 2 years, fine of up to 50 million won

 

· For failing to change the registration of the Information Disclosure Statement? The imposition of fines up to 10 million won

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What are Alteration of Included Matters in Disclosure Document and Notification of Information Disclosure Document?

 

Fair Transactions in Franchise Business Act

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Article 6-2 (Registration of Information Disclosure Statements)    

② Where a franchiser intends to alter matters prescribed by Presidential Decree among matters included in an information disclosure statement registered pursuant to paragraph (1), it shall register an alteration of included matters with the Korea Fair Trade Commission or with the competent Mayor/Do Governor within a period prescribed by Presidential Decree: Provided, That where it intends to alter insignificant matters prescribed by Presidential Decree, it shall report the alteration thereof. <Newly Inserted by Act No. 12094, Aug. 13, 2013; Act No. 15360, Jan. 16, 2018>​

→ Alteration of Included Matters in disclosure Document can be applied on the Korea Fair Trade Mediation Agency (www.kofair.or.kr), the organization entrusted by the Korean FTC.

 

· Alteration of Included Matters in the Disclosure Document is submitted via the Alteration of the Registration Form with the changed Information Disclosure Statement and documents proving the changes. When changing the recorded items, the Registration Certificate should also be attached for submission.

 

· The required period for change registration varies by the matters of information disclosure (Enforcement Decree Article 5-3(1))

- 30 days from the date the cause of change occurs: In the case of changes in the business name of the franchisor, main office location, and the representative’s name

- 30 days after the end of the quarter in which the cause of change occurred: When the minimum time for education/training provided to franchisees is changed

- 120 days after the end of each fiscal year: The following information on the financial status of the 3 fiscal years immediately before the information disclosure by the franchisor, in addition to the balance sheet and income statement by year, upon the change of sales amount related to the franchise business by year

· When a changed Information Disclosure Document is registered, franchisees must be notified of the changed registration and details within 15 days (Enforcement Decree Article 5-3(9)).

 

 

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