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What happens to a franchise if a franchisee passes away? Can the franchise be transferred to a qualified successor? Or will the business automatically be terminated? Frequently, franchise agreements answer these questions. Most agreements allow the franchisee's heirs to operate for a given period of time—say four months—and then the franchise must be sold to a qualified buyer, who may be one of the heirs. But many agreements do not permit this flexibility, in which case it's important to look to whether state statutes address the question. A number of states have covered this issue.
Franchise succession in California
After the death of a franchisee in California, a surviving spouse, heir, estate, or majority shareholder may own the franchise for a reasonable period of time. During this time, the successor has two options:
1. Take steps to satisfy the requirements for becoming a franchisee
2. Transfer the franchise to a qualified purchaser
Franchise succession in Indiana
Similarly, in Indiana a surviving spouse, heir, or estate can own a franchise for a reasonable period of time following the death of a franchisee. Of course, the successor must meet the franchise qualifications.
Franchise succession in Iowa
Iowa law also permits transferring a franchise to a partner or family member, provided the successor satisfies the franchisor's criteria.
Termination following the death of a franchisee
By specifically providing for succession, these statutes help franchised businesses avoid problems that may arise upon the death of a franchisee. However, if a franchise is abandoned because the person responsible for operating it has passed away, termination is justified. In addition, death itself may be grounds for termination. Also, if the successor is not qualified, transfer by succession may violate the franchise agreement.
It's important to point out that similar statutes exist with respect to automobile dealerships.
As a franchisee, be sure to contact a franchise attorney if you have any questions about your business succession plans.