"Franchise Headquarters Forced to Purchase Goods" ... Seoul City Conducts Ongoing Monitoring of Over 2,000 Locations

Mismatch in Franchise Headquarters Address, Franchise Fees, and Interior Costs in Disclosure Documents
Fair Trade Commission Investigation Requested Upon Detection ... Deregistration for Closed Businesses

[Asia Economy Reporter Jo In-kyung] It has been revealed that a significant number of 'Franchise Headquarters Disclosure Documents,' which prospective entrepreneurs use to check franchise information, contain false information that does not match the actual franchise conditions. The practice of forcing franchisees to purchase goods only from the headquarters or designated companies also persists, prompting the Seoul Metropolitan Government to initiate continuous monitoring.

Seoul City announced on the 31st that a field survey conducted from October to December last year on 803 franchise headquarters located in Seoul with five or more franchise stores and 1,114 franchise stores found that 124 headquarters (15.4% of the total) had addresses different from those in the disclosure documents. Among these, nine had already closed down.

There were also many discrepancies in actual costs compared to the disclosure documents, with notable areas including franchise fees (10.8%, 87 cases), training fees (8.1%, 65 cases), and interior costs 1 (14.7%, 18 cases).

Among the 684 franchisees who responded to the survey (61.4% of all franchisees), 73.5% had no prior experience operating other brands, and 42% said they started their franchise based on recommendations from relatives or acquaintances, which was the most common response.

Notably, 7 out of 10 franchisees (69%) were unaware of the existence of the 'Fair Trade Commission Franchise Business Transaction Website (https://franchise.ftc.go.kr),' where the headquarters' disclosure documents are registered.

Although many documents such as the disclosure document before contract signing (77.8%), nearby status documents (70.6%), and contracts (92.3%) were received, when asked what the disclosure document actually was, 39.8% answered that they did not know, indicating that the provision was merely formal.

Regarding whether the franchise fees, pre-opening training fees, and deposits actually paid when opening a franchise store matched the disclosure document, about 79.5% responded that they were the same. Additionally, 27.8% answered that they were forced to purchase goods only from the headquarters or designated companies.

The method of paying franchise fees to the headquarters was mostly by deposit to an escrow account (72.7%), but 8.5% admitted to paying in cash, which is illegal.

Regarding the 'business area' set to protect franchisees' business rights, most answered that they were aware of it (82.3%), but disputes due to infringement of business areas still occur, indicating a need for more thorough guidance.

This year, Seoul City plans to examine the accuracy and presence of false information in the disclosure documents of about 2,000 franchise headquarters located in Seoul. For headquarters that provide information different from or incorrect to the disclosure documents, investigations will be requested from the Fair Trade Commission, and registration cancellation procedures will be initiated for companies that have closed without voluntary reporting.

The city is also proposing to receive investigative authority from the Fair Trade Commission to conduct fact-finding on important items such as mandatory or recommended products and differential franchise fees, which were introduced last year.

Seo Seong-man, Seoul City's Labor and Livelihood Policy Officer, said, "The disclosure document, which plays an important role when prospective entrepreneurs choose a franchise business, must provide the most up-to-date information. We will conduct continuous monitoring of the disclosure documents and actual franchise-related information to prevent prospective franchisees from suffering damages due to incorrect information."

This content was produced with the assistance of AI translation services.