New Measures Aim to Curb Risky Franchise Start-Ups
SEOUL, Jan. 28 (Korea Bizwire) — South Korea’s antitrust regulator is moving to tighten disclosure rules for franchise operators, requiring them to provide prospective store owners with clearer and more detailed information about business risks before contracts are signed.
The Fair Trade Commission said Wednesday that it has begun the legislative and administrative process to revise enforcement decrees under the Franchise Business Act, along with standardized disclosure forms, in an effort to curb overly optimistic start-up decisions by individual entrepreneurs.
Under the proposed changes, franchise headquarters would be required to disclose long-term survival data for their outlets — information that was previously not mandatory. This would include the number of franchise stores that closed over the past one and three years, the average operating period of outlets, and survival rates over time, allowing would-be franchisees to better assess business stability.
The revisions would also require franchisors to present average penalty amounts for early contract termination, broken down by remaining contract period. While contracts already include penalty clauses, regulators said many small business owners struggle to estimate their potential financial exposure without concrete figures.
In addition, franchisors would be obligated to disclose whether a private equity fund is the largest shareholder, the size of its stake, and when it acquired control — information intended to help entrepreneurs gauge the likelihood of ownership changes that could affect operations.
South Korea to Require Franchisors to Disclose Store Failure Risks (Image supported by ChatGPT)
When franchise headquarters provide or arrange loans for store owners, they would also need to spell out repayment terms and conditions in greater detail.
To improve accessibility, the regulator plans to require a condensed summary version of the disclosure document, which often runs dozens of pages, highlighting key information critical to start-up decisions.
The frequency of updates for major disclosure items will also increase, shifting from once a year to quarterly, so applicants have access to more current data.
The Fair Trade Commission said it will gather feedback from industry stakeholders and relevant ministries before completing legal reviews, with the revised rules expected to take effect in the first half of 2026.
Officials said the measures are designed to reduce the risk of small entrepreneurs entering franchise businesses without fully understanding potential downsides — a problem that has contributed to financial distress and closures in recent years.
M. H. Lee (mhlee@koreabizwire.com)
