Gyeonggi-do Uncovers Franchise Headquarters A Hiding Franchise Information... Imposes Fine

Gyeonggi Provincial Government

Gyeonggi Province imposed a fine on Franchise Headquarters A (franchise headquarters) for concealing hundreds of millions of won in profits (difference franchise fees) earned through the supply of essential items to franchise stores and falsely stating this in the disclosure document. The disclosure document is a document containing necessary information for the franchise business, such as startup costs and difference franchise fees.

On the 24th, Gyeonggi Province announced that Franchise Headquarters A, which owns 70 franchise stores nationwide, falsely stated in the disclosure document that the profit of about 1.5 billion won earned through the supply of essential items to franchise stores in 2021 was 860 million won, and then recruited franchise stores. This means that the difference franchise fee burdened by one franchise store for one year was concealed as 12 million won instead of 21 million won, hiding 43% of the difference franchise fee that would be an economic burden for prospective franchisees.

The current Fair Transactions in Franchise Business Act (Franchise Business Act) stipulates that the difference franchise fee burdened by franchise stores must be specified in the disclosure document and prohibits false registration.

Concealing or underreporting important facts about the economic burden of franchise stores in the disclosure document is a false registration act subject to a fine of up to 10 million won.

Earlier, the Fair Trade Commission conducted an investigation following a report from a franchise store owner of Franchise Headquarters A, and conveyed the violation of the Franchise Business Act related to the disclosure document to Gyeonggi Province. Gyeonggi Province confirmed this false information registration act after directly investigating the investigation details received from the Fair Trade Commission and the related personnel of Franchise Headquarters A.

During the investigation, Gyeonggi Province also additionally detected multiple illegal facts such as ▲ failure to state whether difference franchise fees were collected for some essential items ▲ failure to state the status of directly operated stores run by the franchise headquarters ▲ failure to state the status of online sales by the franchise headquarters.

Accordingly, Gyeonggi Province imposed a fine on the franchise headquarters for false registration and failure to state important matters in the disclosure document, considering the franchise headquarters’ past violations of the law.

The Fair Trade Commission is also investigating Franchise Headquarters A for violations including failure to provide the disclosure document, providing false or exaggerated information, failure to provide the franchise contract, and unfair trade practices.

Separately, Gyeonggi Province also imposed a fine on Franchise Headquarters B, which failed to state matters related to three confirmed court losses in civil lawsuits related to violations of the Franchise Business Act in the disclosure document, and took measures to ensure that the franchise headquarters correctly state facts related to legal violations.

Heo Seong-cheol, head of the Fair Economy Division of Gyeonggi Province, pointed out, "When franchise headquarters falsely register the disclosure document, the scale of damage suffered by franchise store owners and prospective franchisees due to hindered rational decision-making when choosing a franchise business is significant."

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