Gyeonggi-do Detects 101 Illegal Franchise Recruitment Sites... Requests Fair Trade Commission Investigation

[Asia Economy (Suwon) = Reporter Lee Young-gyu] Gyeonggi Province has decided to formally request an investigation by the Fair Trade Commission into 101 franchisor brands suspected of illegally recruiting franchisees.

Gyeonggi Province disclosed the results of a fact-finding survey on the 1,805 franchisor brands in the province (as of the end of last year) by comparing their franchise business disclosure documents and company websites from August to October on the 27th.

The franchise business disclosure document is a document containing information about the status of the franchisor and the burdens on franchisees, and must be registered by the franchisor before recruiting franchisees to protect franchisees through proper information disclosure.

The province first investigated whether contracts were signed with franchisees prior to registration for 404 brands that newly registered disclosure documents from January to July this year among the total 1,805 franchisor brands. The investigation confirmed that 78 brands violated the Franchise Business Act by announcing franchise contracts on websites or blogs.

Additionally, among 581 franchisor brands that voluntarily canceled their franchise business registration or had their registration canceled ex officio due to violations of disclosure document amendment registration from January 2019 to July this year, 23 cases suspected of signing franchise contracts were detected, such as promoting startup briefings on websites after cancellation. When disclosure document registration is canceled, business can continue only with existing franchisees, and new franchise contracts are illegal.

Furthermore, franchisors are required by the Franchise Business Act to register changes when major contents in the disclosure document are amended, but many franchisors failed to comply. Violations of the obligation to register major changes in the disclosure document are subject to fines of up to 10 million KRW and cancellation of registration (ex officio cancellation).

Comparing the franchise business disclosure documents registered with the province and the franchise-related information on the headquarters’ websites for 1,805 brands, the inconsistency rates were as follows: address 14.4% (260 brands), franchise fee 13.7% (248 brands), training fee 9.8% (177 brands), deposit 7.5% (136 brands), and representative 4.8% (88 brands).

In particular, 76 franchisor brands, accounting for 4.2% of the total, were confirmed to be closed according to National Tax Service data but had not applied for cancellation of disclosure document registration.

The province will request the Fair Trade Commission, which has the relevant authority, to conduct a formal investigation into companies suspected of signing or recruiting franchisees before new disclosure document registration or after cancellation. For cases suspected of false or exaggerated information such as inconsistencies between disclosure documents and websites, the province will request franchisors to correct and provide accurate information.

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