Fair Trade Commission Announces Legislative Notice for Amendment to the Enforcement Decree of the Franchise Business Act
Specification of Exceptions to the Obligation to Operate Directly Managed Stores
Online and Offline Sales Ratio Must Also Be Disclosed
Authority to Impose Fines Related to Estimated Sales Transferred to Mayors of Seoul, Gyeonggi, Incheon, and Busan
[Sejong=Asia Economy Reporter Joo Sang-don] Franchise headquarters with more than one year of business operation experience in the same industry domestically or internationally are exempt from the obligation to operate directly managed stores.
On the 28th, the Fair Trade Commission announced that it has prepared a revision of the Enforcement Decree of the Act on the Fair Transactions in Franchise Business, which includes this content, and will announce it for legislative notice until August 9.
The revised Franchise Business Act, scheduled to take effect on November 19 this year, mandates that when registering a new disclosure document, the franchise headquarters must include information related to their experience operating directly managed stores in the disclosure document. If the franchise headquarters do not have direct store operation experience (at least one store for more than one year) per business brand (trademark), registration of the disclosure document may be refused. If the business model is recognized as already verified, the obligation to operate directly managed stores is exempted, and the period operated by executives will also be recognized as direct store operation experience, which will be specified in the enforcement decree.
Accordingly, through the amendment of the enforcement decree, exceptions to the obligation to operate directly managed stores include ▲ cases where permission or license is obtained under other laws ▲ cases where there is more than one year of business operation experience in the same industry domestically or internationally ▲ and other equivalent cases. Whether it belongs to the "same industry" will be judged using the current industry classification standards for franchise business registration used in disclosure documents.
The recognition of the period operated by executives as direct store operation period is limited to cases where the executive who operated the store is still an executive of the franchise headquarters as of the disclosure document registration application date. The Fair Trade Commission explained, "This is the minimum measure to recognize the know-how of store operation possessed by executives as the franchise headquarters' direct store operation experience."
In addition, the disclosure document now includes the proportion of sales by channel of the franchise headquarters' domestic sales, divided into online (own online mall and other online) and offline (franchise stores and other offline). This is due to the rapid increase in online sales by franchise headquarters as the non-face-to-face era has begun with the spread of COVID-19. The disclosure document also requires the proportion of franchise store-exclusive products and online-exclusive products among all handled products to be stated.
Some authority to impose fines has been transferred to certain metropolitan city and provincial governors. This is intended for prompt and efficient law enforcement on the ground. The authority to impose fines for five acts?▲ obligation to provide estimated sales in writing ▲ obligation to keep and allow inspection of the basis for estimated sales calculation ▲ obligation to provide estimated sales calculation documents ▲ obligation to keep estimated sales calculation documents ▲ obligation to keep franchise contracts?has been transferred to the four metropolitan city and provincial governors of Seoul, Gyeonggi, Busan, and Incheon, who currently perform disclosure document registration review duties.
The Fair Trade Commission plans to fully collect opinions from stakeholders and related ministries during the legislative notice period and promptly complete the revision through related legislative procedures. The amendment to the enforcement decree is scheduled to be implemented simultaneously with the revised Franchise Business Act from November 19. The provisions on imposing fines will be enforced after a preparation period of six months has passed.
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