Seoul City Expands Fine Imposition Duties on Franchise Headquarters for '5 Major Mandatory Violations'

Protecting Franchise Owners' Rights... Actively Promoting Transfer of Investigation Authority Related to Franchise Business to Minimize Franchise Business Damage

[Asia Economy Reporter Lim Cheol-young] On the 19th, Seoul City announced that it will expand the imposition of fines for five mandatory violations, including franchise headquarters not providing prospective franchisees with an estimated sales statement of the franchise store, in accordance with the amendment of the Franchise Business Act.

As of the end of last year, there are 2,739 franchise headquarters registered in Seoul, accounting for 37.3% of the 7,342 franchise headquarters nationwide. The number of brands is 4,534, which is 40.4% of the 11,218 nationwide.

Since 2019, Seoul City has been performing the registration work of the ‘Franchise Business Disclosure Document’ containing startup information by brand to provide accurate startup information to prospective entrepreneurs. Since the start of the registration work, fines totaling about 230 million KRW have been imposed on 220 franchise headquarters that violated the obligation to register the disclosure document until last year.

With the enforcement of the revised law, Seoul City can now additionally impose fines not only for violations of the obligation to register the disclosure document but also for five violations of the Franchise Business Act, such as franchise headquarters not providing prospective franchisees with an estimated sales statement or failing to keep franchise contracts.

Seoul City expects that the expanded enforcement of fines for violations of the law by franchise headquarters located in Seoul will help protect the rights and interests of prospective entrepreneurs and franchisees. However, there are challenges to be addressed. Currently, local governments do not have the authority to directly verify and take action on suspected violations of the Franchise Business Act in advance, so despite the expansion of the fine imposition duties, there is a concern that the authority to impose sanctions may become ineffective.

Currently, the city conducts annual post-monitoring of disclosure documents to provide accurate startup information to prospective entrepreneurs, but it lacks investigative authority over franchise headquarters, resulting in limited investigations. Even if suspected violations are found, it is difficult to immediately sanction violating franchise headquarters because additional submission of related materials and on-site investigations are not possible.

Lee Byung-wook, Seoul City’s Fair Economy Officer, said, “It is essential for local governments to have investigative authority over regional franchise headquarters to ensure transparent and fair franchise business transactions,” and added, “We plan to actively propose that investigative authority be transferred to local governments while faithfully executing the newly expanded fine imposition duties.”