What are the penalties for violating the franchisor’s duty to register and provide the information disclosure statement?

 

International Trade & Distribution

What are the penalties for violating the franchisor’s duty to register and provide the information disclosure statement?


Franchise Information Disclosure Statement, Fair Trade Team, Franchise Attorney | Dowoo Hwasan Attorneys & Counselors |

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The Franchise Information Disclosure Statement is today’s topic. It is a crucial tool for promotion in the franchise business and is a disclosure statement that contains the opportunity to promote the company. Rather than preparing the statement without legal knowledge or based on superficial knowledge, the franchisor intending to conduct franchise business must prepare the documents with experts in the franchise industry and update them every year. Any violation thereof can result in penalties under the Franchise Business Act. 

Franchise Information Disclosure Statements

Must be Provided by 14 Days Prior to the Signing of the Franchise Agreement with the Potential Franchisee


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Article 6-2 (Registration of Franchise Disclosure Documents)

(1) Each franchiser shall register a franchise disclosure document 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 on Aug. 13, 2013; Jan. 16, 2018>

(2) Where a franchiser intends to alter matters prescribed by Presidential Decree among matters included in a franchise disclosure document 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 on Aug. 13, 2013; Jan. 16, 2018>

​When Changing the Registration of Information Disclosure Statement

For Change Registration of Information Disclosure Statement, submit via the Change Registration Application Form with the changed Information Disclosure Statement and documents proving the changes. When changing the recorded items, the Information Disclosure Statement Registration Certificate should also be attached for submission.

· The required period for change registration varies by the matters to be changed from the information disclosure statement (Article 4(1) of the Enforcement Decree of the Franchise Business Act and Attached Table 1, Article 5-3(2) of the Enforcement Decree of the Franchise Business Act, Attached Table 1-2)

- 30 days from the date when the cause of change occurred: For 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 (balance sheet and income statement by year, sales amount related to the franchise business by year, etc.)

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​Punishments for failure to provide or register the changes of information disclosure statements?

(1) When the franchise fails to provide the information disclosure statement or enters into a franchise agreement or receives franchise fees before the 14 days elapse (receiving franchise fees or entering into a franchise agreement in violation of Article 7(2) of the Franchise Business Act)

- Cause for the cancelation of franchise agreement and return of franchise fees (Article 10(1)-1 of the Franchise Business Act)

- Corrective order, corrective recommendation, fines (less than 2% of the sales amount) (Articles 33, 34, 35(1) of the Franchise Business Act)

- Criminal punishment: Imprisonment for up to 2 years or a fine of up to 50 million won (Article 41(3)-2 of the Franchise Business Act)

 

​(2) When change of the information disclosure statement is not registered (in violation of Article 6-2(2), failure to register the change within the period or falsely registering the change)

- Fine of up to 10 million won (Article 43(6)-1 of the Franchise Business Act)

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 Contact

Samyoung Building, Suite 701

437 Teheran-ro, Gangnam-gu

Seoul, Republic of Korea 06158

T. +82.2.6207.1114

F. +82.2.6207.1124


 

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