Buying an Existing Franchise in South Korea: Transfer Approval and Financial Checks Before You Sign

Buying an established franchise outlet allows you to make use of its premises, equipment and customer base. However, paying the seller for the business and obtaining the right to operate the franchise from the franchisor are separate matters. As an incoming franchisee, you need to coordinate the business transfer agreement with the seller, the franchisor’s approval, the arrangements for the franchise agreement and the settlement of existing debts. This guide focuses on securing your right to operate when taking over an existing outlet in South Korea.

1. Distinguish between acquiring assets and obtaining the right to operate the franchise

Franchise transactions in South Korea are governed by the Fair Transactions in Franchise Business Act. Article 6 sets out franchisees’ obligations, including a prohibition on transferring the right to operate a franchise without the franchisor’s consent. So even if the seller says you can start trading as soon as you take over the outlet, that assurance alone does not guarantee your right to use the brand or operate the franchise.

Start by listing exactly what you are buying. Fixtures, equipment, stock, rights relating to the lease deposit and franchise operating rights each require separate checks. The assets on site may include rented equipment or items lent by the franchisor that the seller does not own. Your inventory should record not only each item but also its owner, condition, associated contracts and whether it can be transferred.

Ask the franchisor for the transfer approval application form, assessment criteria, required documents, expected processing timetable and the period for which approval remains valid. Distinguish between a positive response from a representative and final approval from the franchisor. Ask for the approval document to identify the outlet, seller and buyer, any conditions of approval and the effective date. If additional conditions apply, agree who is responsible for meeting them.

2. Check whether you are taking over the existing agreement or signing a new one

Broadly, a takeover may involve either taking over the seller’s position under the existing franchise agreement or ending the seller’s agreement and signing a new one. The legal effect depends on the relevant contracts and the parties’ agreement. Do not assume that a document headed ‘change of name’ is merely an administrative formality.

If you are taking over the existing agreement, review the original contract, amendments, supporting documents and any individually negotiated terms. Key questions include how much of the contract term remains, whether benefits granted specifically to the existing owner will continue, and whether you will assume responsibility for past breaches. Do not sign a blanket clause stating that you assume ‘all rights and obligations’ without seeing the original agreement.

If you are signing a new agreement, compare the seller’s terms with those that will apply to you. Franchise fees, the contract term, security deposits and training obligations may differ. The seller’s old contract or disclosure document cannot substitute for checking the new terms offered to you.

Article 11 of the Act requires franchise agreements to include provisions on transferring franchise operating rights. If you are entering into a new franchise agreement, also check the requirements for advance provision of the disclosure document and contract, and the statutory review periods. If it is unclear whether the transaction is a transfer of the existing agreement or a new contract, have the full set of documents reviewed by a qualified franchise transaction specialist in South Korea or a lawyer. An approaching balance payment date is no reason to skip the contractual process.

3. Separate your fees from the existing owner’s unpaid debts

The seller’s asking price is not necessarily the total funding you will need. Check whether the franchisor requires separate payments for assessing the transfer, franchise fees under a new agreement, training fees or security deposits. These charges do not necessarily apply to every brand, nor are they always fixed amounts. For each charge, establish its contractual basis and who will receive the payment.

To make comparisons easier, record the franchisor’s charges in a table covering:

• The name of the charge and the specific basis for charging it
• Who must pay and who will actually receive the money
• Whether tax is included and when payment is due
• What happens if approval is refused or the contract does not proceed
• How the final cost will be split between the seller and buyer

Separately check for the existing owner’s unpaid royalties, supply invoices and equipment hire charges. Rather than relying solely on the seller’s account, obtain their cooperation in checking it against statements from the franchisor and relevant suppliers. Any confirmation from the franchisor should specify which items it covers and the date to which it applies. A single document issued by the franchisor does not establish that the outlet has no debts of any kind.

If the franchisor makes clearing existing arrears a condition of approval, agree who will pay and when. If you agree to pay them on the seller’s behalf, specify whether the amount will be deducted from the purchase price or paid by you as an additional cost. Simply stating that ‘existing debts are the seller’s responsibility’ without arranging to clear the actual arrears may delay approval or completion.

4. Make the balance payment conditional on approval and securing your rights

A safe takeover depends less on collecting a large volume of paperwork than on getting the payment sequence right. If you pay the full purchase price before the franchisor approves the transfer, you may have to pursue repayment from the seller separately if approval is refused. Structure the balance payment conditions around both the franchisor’s approval and securing your right to occupy the premises under the lease.

The business transfer agreement should specify who will submit the approval application, the deadline for providing documents, how approval will be verified and the final deadline for the process. It should also address who decides whether to accept any additional conditions the franchisor imposes on you, and what happens to the agreement if no consensus is reached. These are contractual terms that the parties must expressly negotiate, not an automatically guaranteed statutory right to a refund.

For example, you could agree that the balance will be paid only once written approval from the franchisor and the documents confirming the franchise agreement arrangements have been obtained. Specify whether the purchase agreement will end if approval is refused or not received by the agreed deadline, when any money already paid must be returned, and who will bear costs actually incurred. Identify the evidence needed to confirm that the conditions have been met, rather than relying on the seller’s verbal notification alone.

5. Record the handover date and any outstanding obligations

On the final handover date, the seller and buyer should complete a handover record. Check stock quantities, equipment condition, keys, whether the franchisor’s ordering account has been transferred, and any unsettled items. If the franchise agreement takes effect on a different date from the operational handover, separately agree who will be responsible for using the brand, placing orders and accounting for sales during the intervening period.

It is easy to overlook service passes and prepaid vouchers already sold to customers, outstanding refunds and bookings. Check the franchisor’s operating rules and obligations to customers, then agree who will handle these after the takeover and how the associated costs will be settled with the seller. An internal agreement between buyer and seller does not automatically remove liability towards customers or suppliers.

Keep the approval letter, contracts, settlement statements, payment receipts and handover record together, ensuring they consistently identify the same outlet and transaction timetable. For any unresolved item, record who is responsible and the deadline for resolution. The practical rule is simple: do not treat the takeover as complete until the franchisor’s approval, the arrangements for the franchise agreement and the settlement of existing debts are documented and aligned.