A Presidential Decree is expected to be issued shortly to provide further guidance regarding South Korea's amendment to the Fair Transactions in Franchise Business Act (South Korea's franchise legislation). The amendments will be effective from February 2014.
Generally speaking, the amendments address franchise relationship issues and require increased disclosure.
Key aspects of the amendments are:
- franchisors must share remodelling costs in some circumstances
- reducing business hours under certain circumstances (eg permitting franchisees not to operate the franchised business during night hours where the cost of operating the business exceeds the profits generated by that operation or other unavoidable circumstances exist)
- protection of a franchisee's territory (effective from August 2014)
- large franchisors to provide additional information to franchisees including information regarding projected sales revenue and the calculation methods for those projections
- increased penalties and fines against franchisor who provide false, exaggerated or misleading information (up to approximately US$285,300)
- additional protection for franchisees (by permitting franchisees to form trade associations or similar organisations to protect their rights by allowing them to consult and negotiate with the franchisor on a collective basis)
- refunds to franchisees of franchise fees in certain circumstances
- increased oversight for violation of the laws.
South Korea's franchise legislation has not been amended since 2010 (after becoming law in 2002 and being amended in 2008). The amendments are a substantial shift in South Korea's legislation towards protecting franchisees and should be considered when seeking to open a franchise system in South Korea or in any existing operation of a franchise system in South Korea.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.