1.

Key Points

On July 28, 2026, the Korea Fair Trade Commission (the “KFTC”) announced amendments to the Enforcement Decree of the Fair Franchise Business Act (the “Franchise Act”). The amendments are intended to remedy gaps in the disclosure document regime under the Franchise Act, to strengthen prospective franchisees and franchisees’ right to information, and to establish transparency in franchise transactions. The principal elements include an overhaul of the disclosure document items, a shorter update cycle for required information, refinements to the registration and notice procedures, and stronger sanctions against franchisors that violate the Franchise Act.

The amendments apply to all franchisors, including franchisors whose largest shareholder is a private equity (“PE”) fund, as well as franchisors that have repeatedly violated the Franchise Act. Among the amendments, the provisions relating to the restructuring of the disclosure document system and its contents take effect on January 1, 2028, while the other provisions unrelated to that restructuring take effect immediately upon promulgation on August 4, 2026.
 

2.

Background

Article 7 of the current Franchise Act requires a franchisor to provide a disclosure document to prospective franchisees, while Article 6-2 of the Franchise Act sets out in detail the procedures for registering and administering the disclosure document. There has, however, been criticism that the existing disclosure document regime did not provide the core information that prospective franchisees genuinely need. In particular, the regime has been criticized for duplicative disclosure items, for including items unrelated to the start-up decision, and for an annual update cycle that left reported information out of date. Prior to the amendment, the KFTC is understood to have been reviewing these limitations.

Against this background, the amendments close the information gap between franchisors and prospective franchisees and strengthen the rights of prospective franchisees and franchisees by mandating the disclosure of penalty information upon mid-term closure.
 

3.

Key Amendments
 

(1)

Reorganization of Disclosure Document Items and a Shorter Update Cycle

The KFTC added items material to a prospective franchisee’s decision while deleting existing disclosure items that were duplicative or unrelated to the start-up decision. The newly-added items include (i) information on franchisors owned by a private equity (PE) fund, (ii) information on the long-term survival prospects of franchised stores, (iii) overseas expansion status of franchised and directly-operated stores, and (iv) information on the average business-termination penalty upon mid-term contract termination. In particular, the average business-termination penalty item requires disclosure of the amount obtained by dividing the remaining contract term of each contract terminated mid-term through the franchisee’s fault over the preceding three years into six-month units and averaging the penalty burden for each unit period.

In addition, the update cycle for the number of franchised and directly-operated stores has been shortened from once a year to once per quarter. According to the KFTC, this narrows the information gap between franchisors and franchisees.
 

(2)

Refinement of Registration and Notice Procedures

The KFTC revised the forms and procedures for the initial and amended registration of the disclosure document. It is now mandatory for a franchisor, at the time of initial registration, to submit documents evidencing that it has operated at least one directly-operated store for at least one year. The KFTC has stated that this measure is intended to deter poorly-prepared market entry by franchisors with no experience operating directly-operated stores. The KFTC also established a legal basis allowing the use of electronic documents when giving notice of matters such as a registration refusal, scheduled publication, or registration cancellation. These measures are aimed at resolving the delays in examination that arose while awaiting delivery of registered mail.

In addition, the KFTC specified in the Enforcement Decree of the Franchise Act that the procedure and administrative basis for voluntary franchise registration cancellation, under which a franchisor that closes its business may apply to cancel its registration, and it introduced a related new form so that franchisors can now request cancellation online through the franchise information system.
 

(3)

Stronger Sanctions Against Franchisors with Repeated Violations

The KFTC raised the ceiling on aggravated administrative fines imposed on franchisors that repeatedly commit violations of the Franchise Act. In connection with this, an amendment to the Notice on the Standards for Imposing Administrative Fines on Businesses in Violation of the Franchise Act is scheduled to be promulgated together on August 4, 2026. That amendment includes raising the fine range within which the KFTC may adjust an imposed fine from 50 percent to a maximum of 100 percent.
 

4.

Implications and Response Strategy

These amendments demand greater speed and precision in franchisors’ internal data management in connection with the registration and amendment of the franchise disclosure document. Franchisors will therefore need to look beyond the simple renewal of the disclosure document and review their processes to build a disclosure management system and for the frequent, on-demand amendment disclosures.
 

• Compliance with PE and governance-related disclosure: Where a franchisor’s largest shareholder is a PE fund, the franchisor should note that governance-related information now falls within the scope of disclosure, and should prepare a strategy for managing its brand image and compliance in light of the disclosure of its investment and management structure.

• Establishing a quarterly data management system: Franchisors should proactively build a company-wide process for compiling data and updating it on an ongoing basis as changes in the number of franchised and directly-operated stores must be managed and disclosed on a quarterly basis.

• Review of penalty and contract termination terms: Franchisors should review in advance whether the penalty provisions in their existing franchise agreements are excessive or unfair as the basis for calculating the average business-termination penalty upon mid-term termination will be clearly disclosed.

• Managing administrative fine risk: Franchisors should further reinforce their internal compliance self-inspection systems to preempt any potential violations of the Franchise Act as the ceiling on aggravated administrative fines for repeated violations is raised by reference to maximum sales.