Explanation

This risk was not identified as Lee&K is a new franchisor with no operating franchises in the U.S. Therefore, the Item 20 tables show no history of franchisee terminations, non-renewals, or other departures. High turnover is a critical red flag in established systems, often indicating franchisee dissatisfaction or unprofitability, so this data will be important to analyze in future FDDs.

Potential Mitigations

• As the first franchisee, it is critical to maintain open communication with subsequent franchisees to monitor system health and satisfaction.
• Consulting with your business advisor to establish performance metrics can help you track your own success against your projections.
• Your franchise attorney can advise on the importance of monitoring Item 20 data in future disclosure documents.

Explanation

This risk was not identified in the FDD package. As a new franchisor with no outlets, there is currently no history of rapid growth. However, new systems that sell franchises quickly can sometimes outpace their ability to provide adequate support. You should monitor the pace of growth and the quality of support if you choose to invest.

Potential Mitigations

• A business advisor can help you assess if the franchisor's plans for scaling its support infrastructure seem credible and adequate for its growth targets.
• Engaging with the franchisor about their controlled growth strategy and support staffing plans is a key due diligence step.
• Your attorney can explain the support obligations outlined in the Franchise Agreement to ensure they are clearly defined.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a majority-owned subsidiary of a South Korean corporation, LeeNK International Co., Ltd., and partly owned by individuals. There is no mention of ownership by a private equity firm, so risks associated with that specific ownership model are not present.

Potential Mitigations

• It is good practice to ask your attorney to verify the corporate structure and ownership of the franchisor entity.
• A business advisor can help you understand the implications of different ownership structures, such as a foreign parent company.
• Reviewing Item 1 of the FDD with your attorney will confirm the identity of any parent companies or affiliates.

Explanation

This risk was not identified in the FDD package. The franchisor appropriately discloses its parent company, LeeNK International Co., Ltd., in Item 1. Therefore, there is no failure to disclose a parent company. The separate risk related to the franchisor's own financial weakness is analyzed under 'Disclosure of Franchisor's Financial Instability'.

Potential Mitigations

• Your accountant should review the provided financials for the U.S. entity and note the absence of financial statements for the foreign parent.
• It is prudent to discuss with your attorney whether a parental guarantee of the U.S. entity's obligations should be requested.
• Understanding the relationship and financial dependence between a parent and subsidiary is a key due diligence point for your business advisor.

Explanation

This risk was not identified in the FDD package. Item 1 discloses that the parent company acquired assets from a predecessor, Vine International Co., Ltd., which operated in Korea. No negative history, such as litigation or bankruptcy associated with this predecessor, is disclosed. The primary risk is the limited relevance of Korean operational history to U.S. success.

Potential Mitigations

• Consulting with your attorney to review all predecessor and affiliate disclosures in the FDD is a crucial step.
• A business advisor can help you investigate the history and reputation of any predecessor company, if possible.
• It is wise to ask the franchisor about the transition from the predecessor and what lessons were learned.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This indicates that neither the franchisor nor its management has been involved in the types of legal disputes that the Federal Trade Commission deems material for disclosure. This is a positive finding, although expected for a brand-new company.

Potential Mitigations

• Your attorney can perform an independent public records search to confirm the absence of litigation history.
• Monitoring Item 3 in future FDDs is a key task for staying informed about the health of the franchise system.
• A business advisor can help you understand that a clean litigation history is a positive but not singular indicator of a healthy franchise.