Franchise Deposit
Deposit of franchise fees
- Of the franchise fees, a prospective franchisee or a franchisee shall deposit the consideration that falls under any of the following under the pretext of a franchise deposit in a depository (Article 6-5(1) of the 「Fair Transactions in Franchise Business Act」).
· Consideration that a franchisee pays to a franchiser in order to obtain a franchise license or to receive support for and training in his/her business activities (including cases in which a franchisee pays franchise fees before entering into an agreement)
· Consideration that a franchisee pays to a franchiser as a security for the payment of obligations or damages incurred in connection with the purchase price for commodities, etc. supplied by the franchiser (including cases where a franchisee pays franchise fees before entering into an agreement)
Depository of franchise fees
- A depository in which franchise fees can be deposited can be any of the following institutions (Article 5-7 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」)
· A bank under the Banking Act
· A postal service office under the Postal Savings and Insurance Act
· An insurance company under the Insurance Business Act
· A trust business entity under the 「Financial Investment Services and Capital Markets Act」
Deposit, etc. of Franchise Fees
Submission of application for deposit of franchise fees
- A franchisee or prospective franchisee shall receive an application for deposit of franchise fees and deposit franchisee fees with bank, etc. that a franchiser designates (Main body of Article 6-5(1) of the 「Fair Transactions in Franchise Business Act」 and Article 5-8(1) and (2) and Attached Form No. 5 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
Notification of holding of franchise deposit
- Where a franchiser issues an application for the deposit of franchise fees to a prospective franchisee or a franchisee, the franchiser shall notify the prospective franchisee or the franchisee of the fact that a franchise deposit will be vested in the franchiser in any of the following situations (Article 6-5(3) of the 「Fair Transactions in Franchise Business Act」 and Article 5-8(3) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· When a franchisee commences its business
· When two months have passed since the date of execution of a franchise agreement
Receipt of Certificate of Deposit of Franchise Fees
Certificate of deposit of franchise fees
- If a franchisee or prospective franchisee deposits a franchise deposit, the franchisee or prospective franchisee shall be issued a certificate of deposit of franchise fees (Article 5-8(5) and Attached Form No. 6 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
Sanctions against violation
- If a franchiser receives a franchise deposit directly from a franchisee or prospective franchisee, it will be punished through imprisonment with labor for not more than two years or by the imposition of a fine not exceeding fifty million won (Subparagraph 1 of Article 41(3) of the 「Fair Transactions in Franchise Business Act」)
- Where a representative of a corporation; an agent, employee or other worker of a corporation; or a private individual commits any of the offenses cited above in connection with a business of the corporation or private individual, not only shall the offender be punished, but also the corporation or private individual shall be punished through the imposition of a fine not exceeding 50 million KRW. However, this shall not apply to cases where the corporation or private individual paid considerable attention or diligently supervised the business concerned to prevent such offense (Article 42 of the 「Fair Transactions in Franchise Business Act」).