Succession Planning for Dealerships
Many, if not most, dealerships are family run businesses. In most cases, dealerships are also the greatest part of family assets. At some point, all dealers need to review their assets and plan for what to do in the case of retirement, incapacity or death. Will the dealership be passed on to designated family members or sold to provide a nest egg for retirement or family support?
All dealers need to plan for contingencies. Franchise dealers need to be concerned as well about requirements and restrictions regarding qualifications and approval of potential successors by their franchisors. To begin planning it is important that a dealers take some basic steps.
- Review franchise/dealership agreements as to transfer and successorship rights.
- Talk to family members about goals and expectations.
- Bring potential successors into the business to gain experience and qualifications.
- Determine whether potential successors will have the financial capabilities to meet factory requirements for working capital, etc., and how financial needs can be met.
- Prepare written succession plans, including plans for submission to franchisors.
- Formulate estate planning documents to accomplish succession plans.
Franchised automobile dealers should also be aware of specific Wisconsin statutes relating to succession:
- Sec. 218.0131 sets forth rights of a designated family member to succeed a deceased or incapacitated dealer.
- Requires notice to franchisor within 120 days after death or incapacitation of designated dealer.
- Franchisor has right to object for “good cause.”
- Right to hearing if successorship rejected by franchisor.
- Franchisor bears burden of establishing good cause.
- Sec. 218.0134 sets forth manner in which dealers may request Dealership Changes if franchisor approval is required under agreement.
- Includes changes of ownership, changes of executive management, and sale of assets.
- Statute governs timing and process of change request and franchisor determination.
- Right to hearing to contest “good cause” for franchisor denial of request.
Dealerships are substantial assets, and dealers planning for what happens next need experienced counsel to assist them in making their plans. The process of preparing a succession plan and obtaining franchisor approval may take several years. No matter the dealer’s age, planning for the next step is important.
The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.