Business Entities’ Organization

What is business entities' organization?

The term “business entities' organization” means an association or a federation that is organized by two or more business entities to increase their common interests, regardless of its form (Article 2 (2) of the Monopoly Regulation and Fair Trade Act). Although some organizations consist of business entities in the same business area (ex. The Federation of Korean Industries), others are comprised of business entities in different business areas pursuing their common interests. Organizations created merely for social, religious, or academic purposes do not fall under the business entities' organization.

Why should business entities' organizations be regulated?

Business entities' organizations can promote the interests of or strengthen cooperation between the members of the organization, but they are often involved in anti-competitive behavior or acts that restrict business activities of their members. Therefore, such behavior or acts of business entities' organizations must be prohibited.

Prohibited Acts of Business Entities' Organization

Illegal Cartel Conduct of Business Entities' Organization (Article 51 (1) 1 of the Monopoly Regulation and Fair Trade Act)

Under Article 51 of the MRFTA, no business entities' organization shall unfairly restrict competition by doing any of the acts provided for in the subparagraphs of Article 40 (1) of the MRFTA.

• Determining, maintaining, or changing prices
• Determining terms and conditions for the transactions of goods or services, or for payments thereof
• Imposing limitations on production, delivery, transportation, or transaction of goods or limiting transaction of services
• Imposing limitations on the area in which it can make transactions or transaction partners
• Hindering or imposing limitations on the establishment or extension of facilities or the installation of equipment necessary to produce goods or to provide services
• Imposing limitations on kinds of, and standards for, goods or services to be produced or traded
• Jointly conducting and managing substantial business activities or establishing a company, etc. to jointly conduct and manage such substantial business activities
• Substantially restricting competition in a particular business area by means of hindering or imposing limitations on the business activities or business of other business entities

Restricting the number of business entities in a particular business area (Article 51 (1) 2 of the Monopoly Regulation and Fair Trade Act)

Excluding non-members of the business entities' organization in transactions, restricting new businesses' entry into or participation in a particular business area, or unfairly restricting new businesses' admission to the organization.

Unfairly restricting business activities of member business entities (Article 51 (1) 3 of the Monopoly Regulation and Fair Trade Act)

Unfairly restricting advertisement campaigns; business days and hours; business types, activities, and methods; establishment or relocation of branches and offices; and purchase and distribution of raw materials.

Promoting unfair trade practices (Article 51 (1) 4 of the Monopoly Regulation and Fair Trade Act)

• Requiring or assisting a business entity to engage in any of the unfair trade practices or the practice of resale price maintenance
• Implementing resale price maintenance practice, which is an act whereby a business entity forces the other party to a transaction to sell goods or to provide services at a price specified by the first-mentioned business entity; or to make a transaction under an agreement or binding terms and conditions thereon for such purpose in the transaction of such goods or services

Sanctions against violations

Administrative sanctions (corrective measures and penalty surcharges)

Where a business entities' organization violates Article 51 of the Monopoly Regulation and Fair Trade Act, the KFTC may order the business entities' organization (including its member business entities, if necessary) to stop engaging in the violation, to publish the fact that it is ordered to take corrective measures, or to take other measures necessary to correct such violation. Where a business entities' organization commits any violations, the KFTC may impose on the business entity a penalty surcharge not exceeding 4 billion won. The KFTC may impose on a business entity involved in a prohibited act of business entities' organization a penalty surcharge not exceeding 20% of the sales. Provided, That the KFTC may impose a penalty surcharge not exceeding 4 billion won in the event that no sales have been made.

Criminal sanctions

Any business entities' organization that does a prohibited act in violation of Article 51 (1) 1 of the Monopoly Regulation and Fair Trade Act shall be punished by imprisonment for not more than three years or by a fine not exceeding 200 million won. Also, Any business entities' organization that does a prohibited act in violation of Article 51 (1) 2 or Article 51 (1) 5 of the MRFTA shall be punished by imprisonment for not more than two years or by a fine not exceeding 150 million won.