Seoul City Accepts Franchise Headquarters' Regular Amendment Applications for 'Information Disclosure Documents' Until May 2...Fines for Non-Compliance

Seoul-Registered Franchise Headquarters Account for 37.6% of 7,342 Nationwide with 2,761
Over 30 Change Information Items Registered Including Financial Statements and Sales by Franchise
Cancellation of Registration and Fines up to 10 Million KRW for Non-Registration, Late Registration, or False Information

[Asia Economy Reporter Lim Cheol-young] As of the end of last year, all franchise headquarters registered in Seoul must complete the application for ‘Regular Change Registration of the Disclosure Document’ regarding their business details by May 2.

According to Seoul City on the 3rd, as of the end of last year, there were 2,761 franchise headquarters registered in Seoul, accounting for 37.6% of the nationwide total of 7,342 franchise headquarters. The Franchise Business Act requires franchise headquarters to submit updated information such as financial statements, the number of operating franchise stores, and sales figures to the mayor of the special city or provincial governor according to the location of the registered main office within 120 days after the end of each business year.

The application for the regular change registration of the franchise business disclosure document can be done directly online by the franchise headquarters through the Franchise Business Information Provision System, or by mail or in person. If the franchise headquarters fails to register the changed contents of the disclosure document, misses the registration deadline, or makes incorrect changes, the franchise business registration may be canceled and a fine of up to 10 million KRW may be imposed.

Since Seoul City began direct registration work in 2019, it has canceled 147 disclosure documents of franchise businesses operated by franchise headquarters due to non-registration or delayed registration, and imposed fines totaling 231,664,000 KRW on 220 franchise headquarters. If a franchise headquarters’ disclosure document is canceled, it can no longer recruit new franchise stores or proceed with contracts, effectively halting the franchise business.

Starting this year, due to amendments to the Franchise Business Act in November last year, additional registration items include ‘online and offline sales revenue of the franchise headquarters’ that may directly or indirectly affect franchise store sales, the ‘proportion of online and offline exclusive products,’ and ‘specific information related to direct store operation experience.’ Failure to include these items may result in cancellation of registration.

Meanwhile, Seoul City held an online (ZOOM) briefing session for franchise headquarters on March 24 to provide guidance on how to register the disclosure document, and plans to hold an additional session on the 5th to facilitate registration. Furthermore, the city will continuously monitor the disclosure documents registered by franchise headquarters while encouraging regular change registration, creating an environment where prospective entrepreneurs can start businesses stably. Seoul City also announced that it will continue to propose improvements such as the ‘disclosure document public announcement system’ to the Fair Trade Commission to improve the current disclosure document registration system, which is difficult to process within the legal deadline.

According to the Franchise Business Act, the disclosure documents submitted by franchise headquarters applying for regular change registration must be reviewed for authenticity within ‘20 days’ and registered accordingly. However, since registration work is concentrated at the time when franchise headquarters finalize their financial statements and the review items number in the dozens, it is judged difficult to process within the legal deadline. Therefore, Seoul City stated it will continue to propose improvements such as the ‘disclosure document public announcement system’ to the Fair Trade Commission.

Lee Byung-wook, Seoul City’s Fair Economy Officer, said, “Despite the impact of COVID-19, the number of newly registered franchise headquarters increased by about 36% last year. Due to the market’s easy entry characteristics, incorrect information provided by franchise headquarters directly harms prospective franchisees and can cause disputes between franchise headquarters and franchisees. Therefore, franchise headquarters applying for regular change registration must strictly observe the deadline and submit disclosure documents accurately prepared in accordance with the revised Franchise Business Act.”