A Legal Study on the Franchise Rule Exemptions – Exemptions Under FTC Franchise Rules –

Abstract

Franchising business has been widening market share in Korea. It accounted for 6.9% of the Korea’s gross domestic product(GDP) and 4.5% of labor in 2017. To regulate unfair trade practices in the franchise business, the Koresa Fair Trade Commission(hereinafter “the KFTC”) enacted the Fair Transactions in Franchise Business Act (hereinafter “the Franchise Business Act”) in 2002 and has tightened up its monitoring, superintendence and restriction on franchise business through several law revisions. Despite all that, considering the current situation in which conflicts and disputes is present progressive. The Franchise Business Act does not apply for every franchise businesses if the total franchise fee that a franchisee pays to a franchisor during the period of up to six months from the date of the initial payment of the franchise fee does not exceed an amount prescribed by Presidential Decree not exceeding one million won or if annual sales of a franchiser are less than a certain size prescribed by Presidential Decree not exceeding 200 million won(article 3). Therefore, franchise contracts with small-scale franchisor are outside the current Act and thus it is needed to discuss amendment the act. The FTC Franchise Rule prescribes various exemptions in Franchise Disclosure Document (FDD) to be protect the prospective franchisee. For instance, minimum payment, two Years of Experience in the Same Line of Business, less than 20% of total sales, Large Franchise Investment and so on. Furthermore the fourteen states have their own franchise disclosure or registration laws prescribe exemption on the process of FDD disclosure. The exemption codes are distributed across a variety of layers between federal and state. Franchising is a newly worldwide system of business marketing, which stand on the basis of mutual collaboration between Franchisor and Franchisees. For the mutually complementary and balanced co-prosperity of franchisor and franchisee, a range of application and exemption the Franchise Rules, is needed to revise more flexible approach in The Korea Franchise Business Act.