Franchise Headquarters Mandate Direct Operation of Company-Owned Stores Before Recruiting Franchisees

Amendment to the Franchise Business Act Passed in National Assembly Plenary Session... Strengthening Protection of Rights for 260,000 Franchise Stores

[Sejong=Asia Economy Reporter Kwon Haeyoung] From now on, only franchisors that have verified their business model through operating directly managed stores will be able to recruit franchisees.

The Fair Trade Commission announced on the 30th that the amendment to the 'Act on the Fairness of Franchise Business Transactions' (hereinafter referred to as the Franchise Business Act), which includes provisions such as the operation of directly managed stores by franchisors and the expansion of legal application to small-scale franchisors, was passed at the National Assembly plenary session on the 29th.

According to the revised Franchise Business Act, franchisors who wish to start a new franchise business must operate at least one directly managed store for more than one year before recruiting franchisees. In addition, they must record their experience of operating directly managed stores in the disclosure document and provide related information to prospective franchisees.

Furthermore, obligations to register and provide disclosure documents and to deposit franchise fees, which had been excluded from application to small-scale franchisors, will also newly apply.

A Fair Trade Commission official stated, "Once the amendment to the Franchise Business Act is implemented, only franchisors who have verified their business model through operating directly managed stores will be able to recruit franchisees," and added, "It is expected to greatly contribute to protecting the rights and interests of franchisees by preventing damages to prospective franchisees caused by small-scale franchisors."

The amended law is scheduled to be promulgated after procedures such as government transmission and the State Council meeting, and will come into effect six months after promulgation.

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