"Only Franchise Headquarters with Three or More Directly Managed Stores
Can Launch New Businesses"
On June 12, Park Junghoon, a lawmaker from the People Power Party, announced the introduction of the so-called "Baek Jongwon Prevention Act" (an amendment to the Fair Transactions in Franchise Business Act), stating his intention to put a brake on unverified franchise businesses.
The amendment strengthens requirements to prevent the excessive proliferation of brands by mandating the operation of at least three directly managed stores. Under the current law, a franchise headquarters can recruit franchisees for a new franchise business with just one directly managed store.
Additionally, while the current law only requires headquarters to provide prospective franchisees with a projected sales estimate at the time of contract signing, the amendment makes it mandatory to provide this information in writing to existing franchisees every year as well.
The purpose is to enable franchisees to access information about the headquarters' business direction and sales fluctuations, thereby improving the disadvantageous structure in which they must rely solely on headquarters.
The amendment applies to all franchise headquarters that are not small and medium-sized enterprises or have 100 or more franchise locations.
Park explained, "The Baek Jongwon incident has created a social consensus on the urgent need for structural improvements to strengthen the responsibility of large domestic franchise companies toward their franchisees," adding, "I proposed this amendment to protect franchisees and enhance the substance of the franchise business."
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