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ComplianceMay 26, 2021

M&A For Small Business – 5 Issues to Consider

Mergers and acquisitions (M&A) play an important role in the global economy. And while many people associate M&A with publicly held or large privately held companies, small businesses can be involved in these transactions too.

M&A deals are often quite complex and challenging to complete – regardless of the size of the businesses involved. Some deals fall through before completion. And those that are completed may or may not be considered a success.

While nothing can assure a successful transaction, conducting a thorough investigation during the due diligence stage can help reduce the risks of failures.  It is during this stage that a buyer will try to get to know, as clearly and comprehensively as possible, who the target company is – and vice versa.  There are many issues to be addressed and a great deal of information to gather.  This article will discuss five of those issues.

Issue 1 – Good standing

It should be determined if the companies involved in the deal are in good standing (i.e., validly or certifiably in existence) in their formation states and in the foreign states in which filings will be made. This is important because states may reject filings for companies that are not in good standing, and many deals require merger, qualification, withdrawal and other documents to be filed. Also, if a company has fallen out of good standing it may be an indication of possible problems with finances or management.

A company may fall out of good standing for a number of reasons. One common reason is the failure to file an annual report.

Good standing can be checked by contacting the state’s business entity filing office. Verbal confirmation can be obtained, or, if desired, a good standing certificate can be ordered.

Issue 2 – UCC filings

UCC Article 9 allows for the filing of a financing statement (UCC-1) to secure interests in collateral. The buyer in the proposed M&A will want to find out about any financing statements in which the target company is the debtor or secured creditor. Obtaining this information is necessary so the buyer can determine the target’s financial condition and can determine the assets and liabilities it will be acquiring if the deal is completed. This information is obtained by conducting a UCC search.

Issue 3 – Business licenses

Most businesses require one or more business licenses to operate. Licenses may be required by state, federal, and/or local government agencies. The buyer will want to determine the extent to which a target is subject to, and has complied with the licensing requirements and has obtained all the licenses and permits required to carry out the operations of the target and its subsidiaries.

In addition, in order to ensure no interruptions in conducting business after the deal is executed, the buyer will want to make sure it has obtained any licenses the target did not have, has made all required renewal or amendment filings, and canceled licenses that will not be needed.

Issue 4 – Intellectual property

Intellectual property (IP), such as trademarks, copyrights, and patents, is an important part of many mergers and acquisitions. A buyer will want to thoroughly investigate the extent and quality of a potential target’s IP assets. The buyer will then want to determine if the target has taken steps to protect its rights to those assets – such as by registering its trademarks and copyrighting its products and materials.

It is also important to determine if any of the target’s IP assets are infringing on anyone else’s rights and if anyone else is infringing on any of the target’s IP assets that the buyer may be obtaining. Resolving these disputes can be very expensive and can take years.

Issue 5 – Anti-money laundering

Many small businesses (and large ones for that matter) may not be aware that it is also important to inquire as to whether any company involved in the deal is doing business in a foreign country or with foreign nationals. Why? To make sure no anti-money laundering laws are being broken.

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions against certain foreign countries, individuals, and others engaged in activities that pose a threat to the United States. OFAC publishes a list of individuals and companies owned or controlled by targeted countries called "Specially Designated Nationals" or "SDNs." Their assets are blocked and U.S. persons are generally prohibited from dealing with them.  The OFAC list should be checked to make sure that none of the companies involved in the proposed deal are doing business with an SDN.


Mergers and acquisitions involve a significant amount of due diligence. There is a great deal of information to be discovered and potential problems to be addressed – even when the deal involves small businesses. This article has discussed just five of the issues that need to be addressed in a typical deal.

Your CT Corporation representative can assist you in dealing with many of these issues.

Sandra Feldman
Publications Attorney
Sandra (Sandy) Feldman has been with CT Corporation since 1985 and has been the Publications Attorney since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.
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