South Korea

Franchise regulation

Fair Transactions in Franchise Business Act (“Franchising Act”)

Pre-contractual disclosure requirements

There exists a strict disclosure requirement which provides that the franchise disclosure document must be based on the template form (65 pages) published by the Korea Fair Trade Commission (“‘KFTC”). The disclosure document includes information on the franchisor and its company owned and franchised operations, the franchisee’s obligations and restrictions on the franchisee, the procedure for commencing the franchise business and support and training provided by the franchisor. The franchisor must also provide information on projected sales revenues and the supporting materials for its projections. The disclosure document must also be registered with the KFTC as well as served on the franchisee

Registration

Registration of both the franchise agreement and the franchise disclosure document is required. Both documents must be translated into Korean for the purposes of registration. In registering the disclosure document with the KFTC, the franchisor must provide a number of documents including a certificate of good standing (or equivalent) and financial statements for the last 3 years.

Other issues

The Franchising Act is mandatory and prevails over any contractual provisions where these are incompatible with the Act.

The Act imposes a number of mandatory clauses that must be included in all franchise agreements as well prohibiting certain clauses. As a result, many franchisors adhere to the standard franchise agreement published by the KFTC – though this is not mandatory.

There is a new “1+1” rule which means that a franchisor can’t franchise in South Korea unless it has operated at least one business of the same kind as the franchise business for at least 1 year (either in South Korea or internationally).

Difficulty Rating/Comments

Generally, Korea has one of the strictest regimes with regard to franchising.