Corporate Transaction Policy

① Building a compliance framework for the Monopoly Regulation and Fair Trade Act, the Fair Transactions in Subcontracting Act, and others
By clearly setting the obligations under fair trade legislation at each stage, including contracts, transactions, payment, management of technical data, and dispute resolution within the company, the company can block in advance the risk of unlawful conduct by its officers and employees.

② Prevention of unfair intra-group transactions and acts of private benefit-seeking
By placing a prior screening framework and an approval process when internal transactions with specially related persons, affiliates, and others occur, the company can prevent violations of the Monopoly Regulation and Fair Trade Act, such as unfair support, pass-through fees, and volume concentration.

③ Maintaining a relationship of trust with external counterparties
A transparent and fair transaction policy is also essential to long-term stabilization of transaction relationships and to the realization of ESG management, through building trust with partner companies and subcontractors.

④ Use of exemptions from and incentives for ex officio investigations by the Fair Trade Commission
By using legal systems such as fair trade agreements and the technical data escrow system, the company can reduce the risk of investigation and may also expect benefits such as additional points in public bids and government evaluations.

The first point a company should consider is the transaction contract conclusion stage.

As a rule, every transaction contract should use a standard form contract, and the contract conditions should clearly state the timing of payment, the delivery deadline, the standards for payment adjustment, and the method of payment adjustment in the event of a design change.

In addition, the company should deliver the contract and related documents to the counterparty without fail and retain them for the retention period prescribed by law.

If the issuance of a document is omitted or an unfair special clause is included, a risk of penalty surcharges, demerit points, and criminal punishment may arise for violation of the Monopoly Regulation and Fair Trade Act and the Fair Transactions in Subcontracting Act.

At the payment and settlement stage, observing the payment due date for subcontracting payments, the price of goods, and service fees is the basic principle.

In particular, for subcontracting transactions, when a design change or an increase in raw material costs occurs, the company should enter into a subcontracting payment indexation contract to reflect it, and unfair reduction of payment, returns, and cancellation of consignment are strictly prohibited.

Because such conduct may lead to punitive damages, penalty surcharges, and even a complaint under the Fair Transactions in Subcontracting Act, training of staff should be conducted in parallel.

With respect to the management of technical data, when a company requests or receives technical data from a small or medium-sized enterprise, it should review in advance whether the legal requirements are satisfied.

In particular, by using the technical data escrow system to safely store technical data with a third-party institution and to allow access only where agreed in advance, the company can prevent legal disputes.

If a company unfairly demands or misappropriates technical data, punitive damages, penalty surcharges, and criminal punishment are imposed concurrently for violation of the Monopoly Regulation and Fair Trade Act and the Fair Transactions in Subcontracting Act.

Control of internal transactions is also very important.

When transacting with affiliates and specially related persons, the company should thoroughly review, through a prior screening system, the necessity of the transaction, the appropriateness of the transaction conditions, and a comparison of the price and conditions with those of other businesses.

Through this, the company can prevent unfair financial, asset, or personnel support, pass-through transactions, volume concentration, and the like.

It is necessary to keep objective supporting documents (such as proposal forms, deliberation and resolution documents, and contracts) for every transaction in order to block acts of private benefit-seeking at the source.

In the management of subcontracting transactions, when a design change occurs or raw material costs or labor costs rise, the company should conduct a consultation on adjusting the subcontracting payment without fail and reflect the actual cost increase through an indexation contract.

In addition, unfair trade practices such as reduction of subcontracting payment, unfair returns, and unfair cancellation of consignment should be prohibited, and staff should be trained on this content so that it is thoroughly observed.

Also, every contract should be issued in advance, and when additional consignment arises during contract performance, a separate contract should be issued in order to avoid violations of the law.

Finally, the company must build a dispute mediation response system.

When a dispute arises between a principal contractor and a subcontractor, the company should enable it to be resolved amicably through voluntary mediation before a report is made to the Fair Trade Commission.

In addition, by establishing a voluntary dispute mediation committee within the company and putting in place a system that promptly handles disputes related to contracts, payment, technical data, and termination of transactions, the company can minimize its legal risk.

In subcontracting transactions, the case in which a principal contractor coerces a subcontractor not to deal with a particular business is called "coercion of exclusive dealing."

If, without normal transaction practice or a legitimate business reason, the principal contractor restricts the subcontractor's transaction counterparties or coerces it to deal only with a particular affiliate, this is recognized as unlawful conduct.

In addition, where a principal contractor demands management data, profit and loss data, customer information, a list of business contacts, or similar information that is not necessary for the subcontractor's business operation or is unrelated to the purpose of the transaction, this is regarded as an "unfair demand for management information."

In particular, conduct that, through such demands for information, unfairly changes the transaction conditions or treats the subcontractor unfavorably is subject to sanctions as a violation of the Fair Transactions in Subcontracting Act.

Conduct in which a franchisor provides a prospective franchisee with information that differs from the facts or with an exaggerated profit outlook in the disclosure document, the estimated sales data, or the course of explaining the franchise business before the franchise contract is concluded constitutes the "provision of false or exaggerated information."

This is strictly prohibited under the Fair Transactions in Franchise Business Act, and if a prospective franchisee is misled by such information and concludes a contract or proceeds with an investment, it later becomes grounds for civil and criminal damages and for termination of the contract.

Examples that frequently arise in practice include calculating estimated sales higher than the actual figures, explaining interior costs or the proportion of advertising cost borne in an understated manner, and explaining that exclusive rights to a competing area are guaranteed when they are not in fact guaranteed.

In such cases, a person is subject to imprisonment for not more than 5 years or a fine of not more than 300 million won, and the likelihood that the franchise contract can be terminated also increases, so a franchisor should have objective grounds when preparing the disclosure document and the estimated sales data and should disclose only the facts.

In agency transactions, conduct in which a supplier sets an excessive sales target for an agency and, where the agency fails to meet it, gives notice of contract termination or disadvantages, or discriminates in the transaction conditions, constitutes "coercion of sales targets."

This is conduct in violation of the Fair Agency Transactions Act and is one of the acts that frequently become an issue in practice.

In addition, conduct in which an agency is unfairly forced to purchase a particular product or service in light of normal transaction practice, or is coerced to provide economic benefits in the name of promotional costs, interior costs, renewal costs, advertising costs, or the like that exceed the ordinary level, is also clearly unlawful.

In particular, if such conduct is detected, a person may be subject to imprisonment for not more than 2 years or a fine of not more than 150 million won, and a corrective order, penalty surcharge, imposition of demerit points, and even business suspension may be imposed in parallel under the Fair Agency Transactions Act.

The agency headquarters should transparently set out the basis for the sales target, the conditions for sharing promotional costs, the purchase volume conditions, and similar matters in the transaction contract, and should consult sufficiently with the agency in advance and obtain its consent in writing, which can prevent legal disputes.

✔️Whether a document was issued and retained before the contract was concluded

✔️Whether there were any unfair special clauses, unfair determination of payment, reduction of payment, returns, demands for economic benefits, or the like

✔️When technical data was requested, whether the technical data escrow system was operated and whether a consent confirmation form was retained

✔️Whether a subcontracting payment indexation contract was concluded

✔️Whether guidance on use of the Subcontracting Dispute Mediation Council and organization of materials were provided in the event of a dispute

✔️Whether there is any possibility of false or exaggerated information in the disclosure document or estimated sales data before the franchise contract is concluded

✔️Whether sales targets are set compulsorily and whether disadvantageous conditions exist in the event of non-performance

✔️Whether economic benefits, such as promotional costs, interior costs, advertising costs, and renewal costs, are coerced

✔️Whether a written contract was concluded and whether the mandatory entries were observed

✔️Confirmation of whether there are restrictions on the transaction conditions, price, transaction counterparty, or transaction area

✔️Whether the fairness, legitimacy, and necessity of the contract content were reviewed and whether the review opinion of the legal department was obtained

✔️Whether the risk of legal violation was analyzed for each major transaction and whether the review results were recorded

✔️Whether a system was put in place to retain supporting materials, such as the transaction contract, the review opinion, and the proposal form