Let us find out about the difference between an independent startup and a franchise startup.
Types of coffee shops
- A coffee shop may be operated either as ① an independent business or as ② a franchise.
Significance of an independent startup
- The “independent startup” refers to a business type where a business owner is given all of the rights and responsibilities as to its business, ranging from investment to operation.
- An independent startup may be achieved by independently establishing a business based on the founder’s own know-how and business model, by starting a business through training provided by startup experts or with the help of acquaintances with relevant experience, or by acquiring an existing business.
Significance of a franchise startup
- The term "franchise business" refers to a continuous business relationship in which a franchiser allows its franchisees to use its own trademarks, service marks, trade names, signs, or any other business marks (hereinafter referred to as "business marks" and hereinafter the same shall apply) in selling goods (including raw materials and auxiliary materials) or services in compliance with certain quality standards or business methods, and supports, trains, and controls its franchisees in regard to their management, business activities, etc., and in which franchisees pay franchise fees to their franchiser in return for the use of business marks and the support and training provided for their management, business activities, etc. (Subparagraph 1 of Article 2 of the 「Fair Transactions in Franchise Business Act」).
If you have decided to start a franchise business, review the following matters.
Preliminary inquiries into the business type of your interest
- Conduct preliminary inquiries into the business type of your interest through consultation with franchise operators with experience, attending startup fairs, and the website for the franchise business transactions under the Fair Trade Commission.
Selection of appropriate franchise headquarters based on the collected information
- Based on the information collected through various channels, review the following items and select 2 or 3 franchisers as appropriate candidate franchisers.
- Visit the candidate franchisers for detailed consultation and request relevant details. In particular, make sure to receive the information disclosure statement, promotional materials, expected revenue, profit margin, and information on expenses in writing.
- Where a franchiser provides an information disclosure statement, it must provide the information disclosure statement along with a document stating trade names, locations and telephone numbers of ten franchisees most adjacent to the place planned for a future store of a prospective franchisee (where the number of franchisees conducting business in a metropolitan local government to which the place planned for the future store of the prospective franchisee belongs is less than ten at the time the franchisor provides the information disclosure statement, referring to all franchisees in the relevant metropolitan local government) (Article 7(2) of the 「Fair Transactions in Franchise Business Act」).
Review of franchise agreement
- Review each provision, including the terms and conditions of business activities of the franchise, the demarcation of business territory, the term of the agreement, and matters on the termination of the agreement as set forth in the agreement, and compare them with the terms and conditions contained in the standard franchise agreement.
- Review whether the franchise agreement contains mandatory entry information required under the statutes (Article 11(2) of the 「Fair Transactions in Franchise Business Act」 and Article 12 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· Matters concerning the grant of a license for the use of business marks
· Matters concerning the terms and conditions of business activities of the franchisee
· Matters concerning the education, training, and business guidance for the franchisee
· Matters concerning the payment of franchise fees, etc.
· Matters concerning the demarcation of business territory
· Matters concerning the term of the agreement
· Matters concerning the transfer of business
· Matters concerning the grounds for termination of the agreement
· The fact that a franchise deposit will be deposited in the depository for 2 months from the date the prospective franchisee or franchisee enters into the franchise agreement (or until the date of commencement of the franchise business, where the franchisee commences the franchise business before the expiration of the 2 months) (if a franchiser enters into an indemnity insurance contract, etc., for its franchisees, matters concerning the insurance policy)
· Information on the prospective franchisee if he/she has consulted an attorney or a franchise trader
· Matters concerning the obligation to compensate the franchisee for damages caused by illegal acts of the franchiser or the executives of the franchiser or their actions against social norms, such as damaging the reputation or credibility of the franchise business
· Other matters pertaining to the rights and obligations of the parties to the franchise business as provided below
√ Matters concerning the conditions of return of money, such as the franchise fee.
√ Matters concerning the installation of operational equipment, fixtures, etc. for business of a franchisee and the maintenance and repair thereof and the bearing of such expenses
√ Matters concerning measures to be taken according to the expiration and termination of a franchise agreement
√ Matters concerning good cause by which a franchiser may refuse to renew a franchise agreement
√ Matters concerning the trade secret of a franchiser
√ Matters concerning compensations for loss due to violation of a franchise agreement
√ Matters concerning procedures for the resolution of a dispute between a franchiser and a franchisee
√ Where a franchiser transfers a franchise to another franchisee, matters concerning a franchise agreement with the former franchisee
√ Matters concerning measures to be taken upon expiration of the period of validity of a franchiser’s intellectual property rights
- Review the terms and conditions of the agreement and conclude the agreement by signing it if no issues arise after comparing them with the details specified in the information disclosure statement or promotional materials.
Postponement of contract conclusion in case any issues arise during the process
- In the event that the terms and conditions of the franchise agreement differ from those provided in the information disclosure statement or that substantive issues such as the agreement not reflecting the matters previously promised by the franchiser are discovered, the applicable ground rule in such situation is to ascertain matters of fact and modify the corresponding parts of the agreement.
· If the franchiser does not modify the corresponding part of the agreement, its conclusion must be deferred.
· If 14 days have not elapsed from the date a franchiser provides its prospective franchisees with the franchise agreement to help the prospective franchisees understand in advance the details of the franchise agreement, the franchiser shall not engage in any of the following acts (Article 11(1) of the 「Fair Transactions in Franchise Business Act」).
1. Receiving a franchise fee from a prospective franchisee. In such a case, if a prospective franchisee has deposited his/her franchise deposit in the depository institution, it will be deemed that he/she has received such franchise deposit on the date the first deposit is made (or the date a prospective franchisee agrees with the franchiser to make the first deposit of a franchise fee if the agreement on such a date exists)
2. Entering into the franchise agreement with a prospective franchisee
- If a franchiser has failed to provide an information disclosure statement or 14 days (where a prospective franchisee has been given advice and suggestions by an attorney-at-law or franchise trader on an information disclosure statement) have not elapsed from the date it provided the information disclosure statement, etc., a franchise agreement cannot be signed with the prospective franchisee (Article 7(3) of the 「Fair Transactions in Franchise Business Act」).
Measures for resolving issues which may arise
- Withholding the payment of franchise deposit and requesting its return
· If any issues arise as to the franchise business before the business commencement after the conclusion of an agreement, promptly ① apply for mediation to the Dispute Mediation Committee, ② report to the Fair Trade Commission, or ③ file a lawsuit, etc. before requesting the depository institution to withhold the payment of franchise deposit.
· If a franchiser fails to provide an information disclosure statement, offer false or exaggerated information on important matters regarding the franchiser, or unilaterally suspends the franchise business, a franchisee may request the return of the franchise deposit.