Franchise law includes the various sources of state and federal law (statutes, rules, regulations, contracts) that govern the registration, offer, and sale of franchises, and the relationship between franchisors and franchisees—including any personal guarantee of the franchisee’s obligations.

At the federal level, the Federal Trade Commission (FTC) regulates franchising under the FTC Franchise Rule—which (1) requires certain disclosures to potential franchisees before signing a franchise agreement or contract and (2) prohibits unfair and deceptive trade practices. And at the state level, some states have passed franchise laws that impose state registration obligations, regulate the offer and sale of franchises, and prohibit certain franchise agreement provisions.

Under the FTC Franchise Rule, a business or licensing arrangement will be regulated as a franchise if it has three elements: (1) the franchisor grants the franchisee a right to use the franchisor's trademark; (2) the franchisor exerts or has the authority to exert a significant degree of control or assistance over the franchisee's method of operation; and (3) the franchisee pays the franchisor a fee of at least $570. Even if the parties to a contract call it a licensing agreement, a distribution agreement, or explicitly state that it is not a franchise arrangement, if these three elements are present, the FTC Franchise Rule and other federal laws, regulations, and FTC rules will apply.

The FTC Business Opportunity Rule and state statutes governing the marketing of business opportunities and the related sale or lease of products, equipment, supplies, or services may also apply to franchises and the relationship between franchisors and franchisees.

In Rhode Island, franchise law is governed by both federal and state regulations. Federally, the FTC Franchise Rule requires franchisors to provide potential franchisees with specific disclosures before a franchise agreement is signed and prohibits unfair and deceptive practices. This rule applies if the business arrangement includes the right to use the franchisor's trademark, significant franchisor control or assistance, and a fee paid by the franchisee. Additionally, the FTC Business Opportunity Rule may apply to franchises. Rhode Island does not have specific franchise registration laws like some other states, but general state laws regarding business practices, consumer protection, and contracts will still apply to franchising relationships within the state. Franchisors and franchisees in Rhode Island must comply with these federal rules and applicable state laws when engaging in franchise operations.