Indemnity insurance contract, etc., for franchisees
Conclusion of indemnity insurance contract, etc., for franchisees- To compensate losses sustained by franchisees, a franchiser may enter into any of the following contracts (hereinafter referred to as "indemnity insurance contract, etc., for franchisees") (Article 15-2(1) of the 「Fair Transactions in Franchise Business Act」).
· An insurance contract
· A debt guarantee contract with an institution to secure the payment of indemnity for franchisees
· A mutual aid contract with a mutual aid association
- A franchiser that intends to enter into an indemnity insurance contract, etc., for franchisees shall not submit false data on sales and other relevant facts in order to enter into an indemnity insurance contract, etc., for franchisees (Article 15-2(3) of the 「Fair Transactions in Franchise Business Act」).
- A franchiser shall ensure that an indemnity insurance contract, etc., for franchisees, which it intends to enter into, shall be at a level sufficient to cover losses sustained by franchisees (Article 15-2(4) of the 「Fair Transactions in Franchise Business Act」).
Requirements of indemnity insurance contract, etc., for franchisees- The indemnity insurance contract, etc., for franchisees that a franchiser enters into shall satisfy the following requirements (Article 15-2(7) of the Fair Transactions in Franchise Business Act and Article 16-2 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· The indemnity insurance contract, etc. shall provide for compensation of losses sustained by a franchisee due to a franchiser's breach of duty to return the franchise fees, etc.
· The insured, creditor, or beneficiary shall be a franchisee who enters into, or plans to enter into, a franchise agreement with the relevant franchiser, or a person designated by the franchisee.
· The contract amount shall be more than the deposited franchise fee
· The indemnity insurance contract, etc. shall not limit the means by which the franchisee may express its intention, or impose the burden of proof on the franchisee without good cause.
· The indemnity insurance contract, etc. shall not limit the compensation for losses or the responsibility of an insurer, guarantor, mutual aid association, or franchiser without good cause.
· The term of the contract shall exceed two months, and the indemnity insurance contract, etc. shall be able to be easily terminated, without good cause, at no disadvantage to the franchisee.
· There shall be no stipulations in the indemnity insurance contract, etc. which may cause unpredictable danger or loss to the franchisee or be unreasonably unfavorable to him/her.
· It shall be stipulated in the indemnity insurance contract, etc. that a franchisee who enters into, or plans to enter into, a franchise agreement with the relevant franchiser or a person designated by the franchisee may directly receive insurance, earnest money, or mutual aid funds.
Use of mark indicating an indemnity insurance contract, etc., for franchisees- Any franchiser that has entered into an indemnity insurance contract, etc., for franchisees may use a mark to indicate such fact (Article 15-2(5) of the 「Fair Transactions in Franchise Business Act」).
- Any franchiser that fails to enter into an indemnity insurance contract, etc., for franchisees shall neither use the mark indicating the conclusion of the indemnity insurance contract, etc., for franchisees nor produce or use any similar mark (Article 15-2(6) of the 「Fair Transactions in Franchise Business Act」).
※ Where a franchiser that fails to enter into an indemnity insurance contract, etc., for franchisees uses the mark indicating the conclusion of the indemnity insurance contract, etc., for franchisees or produces or uses any similar mark, it shall 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 3 of Article 41(3) of the 「Fair Transactions in Franchise Business Act」).
Provision of indemnity to a franchisee- Any institution that owes an obligation to pay indemnity to a franchisee under an indemnity insurance contract, etc., for franchisees shall pay such indemnity without delay when a cause for payment occurs. If the institution delays the payment of such indemnity, it shall also pay default interest thereon (Article 15-2(2) of the 「Fair Transactions in Franchise Business Act」).
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Types of Loss incurred by Franchisee |
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1. Defect in interior and excessive charges therefor 2. Unreasonable pricing of raw and auxiliary materials 3. Failure in the analysis of a business area 4. Excessive charges for advertisement 5. Delay in supply of goods, etc. 6. Infringement on a sales area and establishment of similar franchise store 7. Poor training, inadequate development of new product, etc.
<Source: Fair Trade CommissionTransactions in Franchise Business (http://www.ftc.go.kr/)> |