Provision of Information Disclosure Statement
Obligation to provide an information disclosure statement by franchiser, etc.
- A franchiser (including cases where a master franchisee or a franchise broker finds franchisees) shall provide its prospective franchisees with an information disclosure statement which was registered or the modification of which was registered by methods, such as content-certified mail, etc. by which the point in time at which the information disclosure statement was provided may be objectively confirmed (Article 7(1) of the 「Fair Transactions in Franchise Business Act」 and Article 6(1) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· Where a franchiser delivers an information disclosure statement to a prospective franchisee in person or by mail
※ In this case, a document that states all of the following matters (items ① through ③ shown below shall be prepared by the prospective franchisee in his/her own handwriting) shall be prepared and delivered to the prospective franchisee.
① The fact that the prospective franchisee has received the information disclosure statement, the date and time, and the place of receipt of the information disclosure statement
② Name, address and telephone number of the prospective franchisee
③ Signature or signature and seal of the prospective franchisee
④ Signature or signature and seal of the franchiser
· Providing the franchise disclosure statement to the prospective franchisee by content-certified mail that may confirm the timing of the provision of the information disclosure statement
· Posting a notice of the details of the franchise disclosure statement using an information and communications network and informing a prospective franchisee of the fact of posting a notice (in this case, a franchiser shall prepare a system through which a specific prospective franchisee and the franchiser may confirm the time such prospective franchisee has read the details of the franchise disclosure statement)
· Sending an electronic file that includes the details of the franchise disclosure statement to the email address of a prospective franchisee (in this case, the franchiser shall use a method that enables the sending time and receipt time of the email to be confirmed)
※ Where a prospective franchisee receives an information disclosure statement through the method specified in ③ and ④, a franchiser shall take measures to ensure that the franchise disclosure statement can be printed or output in the form of a document (Proviso to Article 6(1) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
- When a franchiser deems it necessary for a prospective franchisee's convenience, the franchiser may prepare a separate document concerning any part of the disclosed information and provide such document to the prospective franchisee. In this case, a table of contents of the disclosed information mentioned in the document shall be contained in the franchise disclosure statement (Article 6(2) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
- Provision of the document stating the current status of neighboring franchisees
· Where a franchiser provides a prospective franchisee with an information disclosure statement, it shall provide the information disclosure statement along with a document stating the 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 area 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, all franchisees in the relevant metropolitan local area) (Main body of Article 7(2) of the 「Fair Transactions in Franchise Business Act」).
※ However, if the planned location for the future store has not been determined when the franchiser provides the prospective franchisee with the information disclosure statement, it shall provide the information disclosure statement as soon as the prospective franchisee determines the place planned for the future store (Proviso to Article 7(2) of the 「Fair Transactions in Franchise Business Act」).
Provision regarding modified important matters
- Where an important matter is modified after a franchiser has provided an information disclosure statement but before entering into a franchise agreement, the franchiser shall notify without delay the prospective franchisee of the modified matters through the methods used to provide an information disclosure statement, such as in person, by mail, transmission as an electronic file, etc. (Article 6(3) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
Prohibited activities, such as failure to provide an information disclosure statement, etc.
Prohibited activities, such as failure to provide an information disclosure statement, etc.
- Where a franchiser has failed to provide a registered information disclosure document and a document stating the current status of neighboring franchisees, or 14 days (7 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 passed from the date it provided the information disclosure statement, it shall not engage in acts to receive franchise fees from a prospective franchisee or conclude a franchise agreement. (Article 7(3) of the 「Fair Transactions in Franchise Business Act」).
※ In this case, if a prospective franchisee has deposited his/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 (Article 7(3)1 of the 「Fair Transactions in Franchise Business Act」).
Sanctions imposed for violations
- If a franchiser receives franchise fees or enters into a franchise agreement in violation of any of the matters stated above, it shall be punished with corrective action and penalty surcharge through imprisonment with labor for no more than two years or by the imposition of a fine not exceeding 50 million KRW (Article 33(1), Article 35 and Subparagraph 2 of Article 41(3) of the 「Fair Transactions in Franchise Business Act」).
Prohibition on Providing False or Exaggerated Information, etc.
Prohibition on Providing False or Exaggerated Information, etc.
- No franchiser shall engage in any of the following acts when it provides prospective franchisees with information (Article 9(1) and (2) of the 「Fair Transactions in Franchise Business Act」 and Article 8 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· Providing false or exaggerated information: Providing information differing from fact or exaggerated information
1. Exaggerating the estimated earnings of a franchisee without objective grounds or providing information that differs from the facts, such as by guaranteeing minimum earnings, etc.
2. Providing unconfirmed information in relation to the analysis of a business district where a franchisee's store is planned to be located
3. Claiming that a franchiser has acquired intellectual property rights which the franchiser has not acquired
4. Any act determined and publicly announced by the Fair Trade Commission, which provides information different from fact or exaggerates facts corresponding to acts stated above
· Providing deceptive information: Concealing or minimizing any fact that has significant influence on the conclusion or maintenance of a contract
1. Providing an information disclosure statement to a prospective franchisee that does not mention important matters
2. Notwithstanding the fact that money, goods, services, etc. provided to a franchisee by a franchiser are provided only where certain requirements are met, providing information as if money, goods, services, etc. are provided in all cases without presenting the relevant requirements
3. Any act determined and publicly announced by the Fair Trade Commission, which is providing information by concealing or diminishing a fact that has a significant impact on the conclusion and maintenance of a contract corresponding to an act stated above
Providing information in writing, etc.
- When a franchiser provides its franchisees or prospective franchisees with any of the following information, it shall provide such information in writing (Article 9(3) of the 「Fair Transactions in Franchise Business Act」).
· Information regarding the expected future profits of a prospective franchisee, including estimated sales, profits, gross profit, and net income
· Information regarding the past profits or expected future profits of a franchisee, including sales, profits, gross profit, and net income
- When the franchiser falls under any of the following categories, the franchiser shall provide a prospective franchisee with the range of estimated sales and the grounds for the calculation thereof in writing (hereinafter referred to as the "estimated sales calculation statement") (Article 9(5) of the 「Fair Transactions in Franchise Business Act」 and Article 9(5) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」)
· Franchiser is not a small or medium-sized enterprise
· Franchiser with which 100 or more franchisees (where the franchiser possesses multiple business marks, limited to franchisees that use the same business marks) entered into or maintained a contract as of the end of the immediately preceding business year
※ Range of estimated sales means the range defined as the lowest amount and the highest amount of sales estimated to be generated for one year from the date of commencing business at the planned location of the store of a prospective franchisee. In such case, the highest amount of sales shall not exceed 1.7 times the lowest amount of sales (Article 9(3) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
※ A franchiser shall retain such estimated sales calculation statement for five years from the date it enters into a franchise agreement (Article 9(6) of the 「Fair Transactions in Franchise Business Act」).
※ It is recommended to use the standard form for estimated sales calculation statements established by the Fair Trade Commission (Article 9(7) of the 「Fair Transactions in Franchise Business Act」)
- Where a franchiser provides the information stated above, it shall keep evidentiary materials which serve as a basis for the calculation of such information at its office (Article 9(4) of the 「Fair Transactions in Franchise Business Act」 and Article 9(1) of the Enforcement Decree of the 「Fair Transactions in Franchise Business Act」).
· Data on a realistic rationale and forecast used for the calculation of current or estimated earnings
· The following data which form the basis of the calculation of current or estimated earnings
1. The number of franchise stores (including direct retail stores and franchisee stores) which form the basis of the above
2. The number of stores corresponding to Item A compared to the total number of stores in the franchise business
3. The distance between each store corresponding to Item A and the planned store
· The number and percentage of franchisees which make profits at the same level as current or estimated earnings a franchiser or franchise broker indicates or explains during the latest given period (in such case, the start date and end date of the latest given period shall be indicated)
- A prospective franchisee or a franchisee shall allow any prospective franchisee or franchisee to inspect such materials at any time during business hours of a franchiser, upon a request by the prospective franchisee or a franchisee (Article 9(4) of the 「Fair Transactions in Franchise Business Act」).
Sanctions against violation
- If a franchiser provides a prospective franchisee with false or exaggerated information or deceptive information, it shall be punished by imprisonment with labor for no more than five years or by the imposition of a fine not exceeding 300 million KRW (Article 41(1) of the 「Fair Transactions in Franchise Business Act」).
- If a franchiser fails to provide a franchisee or a prospective franchisee information in writing, to keep evidentiary materials or to comply with a request for materials, it shall be punished by the imposition of an administrative fine not exceeding 10 million KRW (Subparagraphs 2 and 3 of Article 43(6) of the 「Fair Transactions in Franchise Business Act」).