California Auto Dealer – Buy/Sells: Avoiding the Pitfalls

December 2022

Over 30 Years of Handling Buy/Sells for New Car Dealers

Please note, Gray•Duffy’s Encino office has moved to:

21700 Oxnard Street, Suite 1950 Woodland Hills, CA 91367.

Phone number remains the same: 818-907-4071

Buy/Sells: Avoiding the Pitfalls

There is a lot to know when you are buying or selling a dealership. What you don’t know, can hurt you. Read more to learn a few things you need to know if you are buying or selling a dealership.

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New Laws for 2023

Almost 1,000 new laws were passed in 2022. Continue reading to learn more.

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Year End Corporate/LLC Maintenance

There is always so much to do at year end that corporate maintenance is often overlooked. Here are a few things to keep in mind when making sure your house is in order.

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Family Matters

Family businesses often unintentionally violate rules designed to protect shareholders and creditors. This can be a costly mistake. For example, when stock is transferred to children, the majority shareholder(s) has or have a fiduciary duty to the minority shareholder(s). This means, for example, that distributions cannot be made to the majority shareholder without making proportionate distributions to the minority shareholders. Distributions are different than compensation. However, even compensation must not vary too much from industry standards. Similar responsibilities exist to creditors, which generally don’t become an issue unless the business begins to have financial problems or is sued and someone wants to pierce the corporate veil. 

Proportionate distributions mean that if one shareholder is paid, for example, $10,000 as a distribution, as opposed to as compensation, and that shareholder owns 50% of the corporation, the other shareholders must also be paid $10,000 divided among them in proportion to their ownership interests. If there were two other shareholders who each owned 25% of the stock, they would each be entitled to $5000. Limited liability companies do not need to make proportionate distributions unless their Operating Agreement requires it. Violation of the law can result in large tax penalties. 

If you have been violating this rule, get legal or accounting advice about how to address the situation. Keep in mind, even payments by the corporation on behalf of a shareholder, for example, for life insurance, may be considered a distribution. If it is not treated as a distribution, proceeds may be taxable.


Erin K. Tenner is a partner with Gray·Duffy, LLP and has been legal counsel representing auto dealers in buying and selling auto dealerships for more than 30 years. She can be reached at 818-907-4071 or [email protected].


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Gray·Duffy, LLP

Southern California

21700 Oxnard Street

Suite 1950

Woodland Hills, CA 91367

(818) 907-4000 

Northern California

555 Twin Dolphin Drive

Suite 300

Redwood City, CA 94065

(650) 365-7343 

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Please Note: 

These articles are necessarily general in nature and do not substitute for legal advice with respect to any particular matter. Readers should consult with an attorney before taking any action affecting their interests.

California Auto Dealer is a registered trademark of Erin K. Tenner. The content of this newsletter may not be duplicated without permission. If you know someone who would like to receive this newsletter, have them email Erin Tenner: [email protected]

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.