Rhode Island

Registration or Filing Required? Yes, Registration
Business Opportunity Laws? Yes

Rhode Island is a franchise registration state. So, you must register your FDD with the Securities Division of the Rhode Island Department of Business Regulation prior to offering or selling franchises in the state. Rhode Island charges a $600 fee for the initial registration application and a $300 fee for renewal applications, which must be done annually. More information can be found on the Department of Business Regulation Website.

What Qualifies as a Franchise in Rhode Island?

Rhode Island’s Franchise Investment Act defines a franchise as an agreement that grants the buyer the right to distribute goods or provide services under a marketing plan prescribed by the seller, where the buyer pays a fee greater than $500, and the buyer’s business is substantially associated with the seller’s trademark or other commercial symbol.

When Does a Franchise Need to Register?

Franchises are subject to Rhode Island’s Franchise Investment Act, and its registration requirements whenever an offer for the sale of a franchise is made in, directed to, or accepted in Rhode Island. It also applies to sales made outside of the state where the franchisee is a resident of Rhode Island and the franchised business will be located in Rhode Island.

How to Register Your Franchise

In Rhode Island, franchisors must submit their documents on a flash drive or CD-ROM to the Securities Division at 1511 Pontiac Avenue, Building 69-2, Cranston, RI 02920. Alternatively, they can directly upload documents using the state’s online e-Licensing portal, or through NASAA’s Electronic Filing Depository for an additional fee. In addition to submitting your Franchise Disclosure Document (“FDD”), you must also submit a Rhode Island Franchise Application, which the state has conveniently consolidated into a single document including all the required information, such as a certification, costs and source of funds, seller disclosure form and consent to service of process. You must also pay the $600 initial registration fee, which can be paid online or by a check made out to the General Treasurer of RI.

Registrations become effective on the 13th business day after the application (or last amendment to the application) was submitted, if no additional information is required. If the state needs additional information from the franchisor, they will inform them in writing, and the registration will become effective on the 15th business day after the franchisor has provided the missing information.

When do I Have to Renew My Registration?

A franchisor’s registration expires 120 days after the end of the franchisor’s fiscal year following the application date. Franchisors must submit their renewal applications within 30 days of the expiration of their current registration, or otherwise risk having to file a new initial application. Renewals can be filed using the same Application form used for initial filings. The fee for filing a renewal application is $300.

Do I Need to File Amendments When My FDD Changes?

Yes, Rhode Island requires franchisors to “promptly” amend their registrations to reflect material changes to their FDD, but does not provide examples of what it considers to be a “material change”. Amendments can be submitted using the same Application used for initial filings, and the fee for filing an amendment application is $120.

Are There Financial Assurance Requirements?

Yes, if a state examiner determines that you don’t have the financial ability to fulfill your obligations to your franchisees, your registration may be premised on you following certain financial assurance requirements. The typical requirement is escrowing initial franchise fees, but the Division may allow you use alternative methods at their own discretion.

Are There Any Exemptions From Registration?

Rhode Island does have several exemptions where franchises will otherwise not have to register their franchise with the state (note they will still need to comply with the other provisions of the Franchise Investment Act). The first exemption is for franchisors who have a net worth of at least $10 million (or are at least 80% owned by a company with a net worth of $10+ million), and have at least 25 franchisees that have been operating for the past 5 years. These franchisors must still submit an Application for Exemption from Registration with the state and pay the $360 application fee.

Additional situations in which a franchise is exempt from registration, but does not need to file an exemption application, include:

1. A sale by a franchisee, who is not related to the franchisor, of their franchised business.
2. The sale of a franchise to a person who has been an officer, director, partner or affiliate of the franchisor for at least 2 years.
3. A sale to a franchisee who has a net worth of at least $1 million or has income in excess of $200,000 in the last 2 years and has enough financial and business experience to capably evaluate the merits and risks of the franchise.
4. The sale of a franchise to an existing franchisee who has been operating for at least 2 years.
5. A renewal, extension, amendment or modification to an existing franchise.
6. The offer or sale of a franchise by an executor, administrator, sheriff, marshal, receiver, trustee, trustee in bankruptcy, guardian, or conservator.
7. Sales made while registration is pending, provided the other disclosure requirements are followed.
8. The sale of rights to sell goods or services as a department or division of a retail establishment.

Additionally, sales made to franchisees who are not residents of Rhode Island and will operate their franchise in a different state are exempt from registration, and other portions of the Franchise Investment Act, including record keeping, jurisdiction selection, franchisee associations and waivers.

Does Rhode Island Have Additional Regulations on Franchises?

Rhode Island places additional regulations, requirements, and restrictions on franchisors. Among other things, franchisors are:

1. Required to keep copies of advertising materials for at least 5 years.
2. Required to keep documents related to the offer and sales of franchises (including correspondences) for at least 5 years and provide them to the Department of Business Regulation if requested.
3. Not allowed to choose a jurisdiction or forum outside the state for claims enforceable under the Act.
4. Not allowed to require franchisees to waive rights granted under the Act.
5. Prohibited from restricting franchisees from associating with other franchisees.

Additionally, franchises are subject to Rhode Island’s Fair Dealership Act, which prohibits franchisors from terminating or not renewing the franchise agreement without good cause. It also requires franchisors to provide franchisees with 60 days’ notice of non-renewal or termination, with 30 days for the franchisee to cure the default. There are some more extreme situations where the notice and cure requirements do not apply and allow franchisors to more quickly terminate the agreement.

Fun Fact: Something that will make all our mouths water, Providence has more donut shops per capita than anywhere else in the world!