Franchising in South Korea

Economy

South Korea is the 15th largest economy in the world.

Legislation

The Fairness in Franchise Transactions in Franchise Business Act 2002 (Franchise Act) most recently amended on 3 August 2007 along with its Decree and primary statutes govern franchising in South Korea. In addition the Monopoly Regulation and Fair Trade Act (MRFTA) and regulations promulgated by the Korea Fair Trade Commission (KFTC) are generally applicable to the franchise relationship.

Franchise Market

The franchise market in South Korea has grown rapidly in the last three (3) years. The food industry including both fast food services and family restaurants account for approximately fifty (50) percent of the franchising market. The retail sector contributes thirty five (35) percent to the South Korean franchise industry. Franchise services such as, education, real estate, cleaning services, and mailing services, account for 11.8 percent of the South Korean franchise market.

Franchise Legislation

• A franchisor must register a disclosure document with the KTFC. Once registered the franchisor must then provide the registered disclosure document to the prospective franchisee.
• In theory the registration process can be complete within seven (7) days, in practice this can take over forty five (45) days.
• Acceptance of a franchise fee or execution of a franchise agreement is prohibited unless the franchisor provides the franchisee with the registered disclosure document and fourteen (14) days have elapsed from the date of registration.
• A franchisor must provide a disclosure document to the prospective franchisee even if the franchisee does not specifically request it in writing.

Conclusion

The heavily regulated nature of the South Korean franchising industry suggests that franchisors seeking to enter the Korean franchising market should seek specialist legal advice, to ensure both compliance with the relevant South Korean laws and the enforceability of their franchise agreements.