One in Four Seoul Franchise Brands Had 'Public Franchise Terms' Different from Reality

Monitoring Accuracy of Disclosure Statements for 3,104 Franchise Brands in Seoul
24.9% of Registered Brands Show Disclosure Inconsistencies, Large Differences in Interior and Joining Fees
Administrative Actions Including Fines and Registration Cancellation for Violators, Investigation Requested from Fair Trade Commission

[Asia Economy Reporter Lim Cheol-young] Franchise brand A discloses in the franchise information disclosure document registered with the Seoul Metropolitan Government that a franchise store can be operated with a membership fee of 11 million KRW, training fee of 4.4 million KRW, and interior cost of 2.2 million KRW per unit area, but the actual brand homepage states the required costs as a membership fee of 50 million KRW, training fee of 2 million KRW, and interior cost of 2 million KRW per unit area, causing confusion among prospective entrepreneurs considering franchise contracts.

It was found that one out of four franchises located in Seoul has discrepancies between the actual franchise conditions and the contents disclosed in the 'Franchise Information Disclosure Document.' Cases of legal violations were also detected where franchises recruited stores before registering the disclosure document or continued recruiting new franchisees even after canceling the registration due to business suspension. Accordingly, the Seoul Metropolitan Government plans to request an investigation by the Fair Trade Commission into companies violating the law.

On the 16th, as a result of monitoring 3,104 franchise brands located in Seoul, it was found that the important franchise-related information listed in the disclosure documents of 2,406 registered franchise brands (1,618 in food service, 675 in services, and 113 in wholesale and retail) differed from that on their headquarters’ websites. This means that information for 598 brands (24.9%), about one in four, did not match.

First, among franchise brands, 387 (16.1%) had different ‘interior costs’ required immediately after signing the franchise contract. Many also had discrepancies in membership fees (317), training fees (237), addresses (84), and representative names (16). Notably, among these companies, 86 were already temporarily closed or shut down, and the franchise headquarters were so small-scale that they did not operate websites or it was impossible to find important items such as actual costs online, with some sectors exceeding 50%. The number of brands without interior cost per unit area listed on their websites was 1,695 (70.4%), and those without membership fee information numbered 1,580 (65.7%).

There were also cases where companies continued to promote startup briefing sessions or recruit new franchisees online even after suspending franchise operations or having their disclosure document registration canceled due to omission of important information. The Seoul Metropolitan Government investigated 520 brands out of 698 whose disclosure registrations were canceled, excluding 178 that were temporarily or permanently closed, and found that 106 (20.4%) were still recruiting new franchisees. When disclosure registration is canceled, business can continue with existing franchisees but recruiting new franchisees is prohibited.

The Seoul Metropolitan Government plans to request an investigation by the Fair Trade Commission into companies found to have violated the pre-registration obligation of disclosure documents, provided false or exaggerated information, or are suspected of recruiting franchisees after registration cancellation. Since the reliability of the disclosure document is crucial when signing franchise contracts, continuous monitoring will also be conducted to prevent damage to prospective entrepreneurs.

Park Ju-seon, Head of Fair Economy at the Seoul Metropolitan Government, said, “In these difficult times due to COVID-19, the disclosure document is an important standard for prospective entrepreneurs who want to start new businesses through franchise contracts,” and added, “Through continuous monitoring, we will enhance the reliability of franchise information disclosure documents and improve unfair practices so that prospective entrepreneurs can participate in the franchise market stably.”

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