Post-merger risk management

The surviving entity: What must be done post-merger depends on what changed

Many of the business decisions made post-merger will impact the compliance steps you need to adhere to for the surviving entity. Let’s look at the regulatory requirements associated with common post-merger scenarios:

• Doing business in new states – Will your newly merged entity be doing business in new states? If so, it must qualify in these new foreign states. You will also need to obtain the necessary business licenses. Doing business without authority or the right licenses can lead to monetary penalties, loss of access to the courts and, in some cases, personal liability for debts incurred during the period of non-compliance.
• Name change – Many mergers result in a change in name for the new entity. If this is the case, the previous business name listed on the public record must be updated. This is often required by statute and a failure to do so could result in penalties.
• Ceasing business in certain states – If the surviving entity stops doing business in certain states where it was previously qualified you must withdraw that foreign qualification. If you miss this step the entity will remain on the records and will be liable for annual reports and taxes, with penalties for non-compliance. It will also stand out as a vulnerable target for business identity theft.
• Expanded product line – Will the newly merged entity offer an expanded product line? If so, it may need to obtain new business licenses.
• Selling products in new states – If you plan to sell products in new states (whether remotely or through a physical location) or employ people living or working in new states, you must register with that state’s tax department, collect and remit sales tax, and/or withhold income taxes, FICA, and more.
• Change of location – Will you move the principal place of business? If so, you must update the entity’s address where it is listed on the public record. This will ensure that important notices are sent to the correct address.
• Change of registered agent or office – If there is a change of registered agent or office in the home or foreign state, you must update the public record or face administrative dissolution or revocation of authority. A failure to do so can also lead to default judgments should the company be sued and the registered agent not be located.
• Change of entity type or jurisdiction of formation – A merger can result in a change in the entity type, such as an LLC to a corporation, and the formation jurisdiction. If so, the public records where it is listed as the original entity type or as being formed in the original jurisdiction must be updated. Again, depending on the governing statute, a failure to do so could result in penalties.
• New DBA name – If the merged entity will do business as a new assumed or “doing business as” (DBA) name, that name must be registered or the company risks monetary penalties, loss of access to the courts, and personal liability.

Note: If the acquisition occurred through triangular mergers, with the target surviving, the public records where the target is on file must be updated to reflect the changes to it. In these cases, there are likely fewer changes that impact the acquirer.

Staying compliant post-merger

As you can see, after the long cycle of completing a merger there is still so much to do once the transaction is complete. Oftentimes, the compliance requirements associated with the surviving and non-surviving entities are the last items to make the list — if at all. Most companies, of all sizes, aren't fully aware of what's needed beyond receipt of the merger evidence. It is a critical series of activities and not completing the steps poses short- and long-term risks.

Failing to plan is planning to fail. To ensure nothing falls through the cracks, gather your complete pre-and post-merger corporate structure from outside counsel, create a project plan, and define roles and responsibilities.

Use these essential steps to develop a strategy for your organization’s specific needs:

• Gather and review final pre- and post-corporate structure.
• Audit all surviving and non-surviving entities in all jurisdictions for registrations, DBAs, licensing and permits, and global status.
• Identify merger effective dates to coordinate next steps, such as merger notifications and survivor filings.
• Create post-merger project plans—based on structure changes, merger effective dates, and audit results.
• Leverage technology to streamline processes for e-signature, online notarization, entity management, and compliance filing.
• Complete survivor filings — all qualifications, name filings, address and officer and director changes, required reinstatements and annual reports.
• Coordinate and complete all non-survivor jurisdictional tax clearances and jurisdictional cancellations.
• Research and update business licenses and permits as needed.
• Update UCC filings for surviving and non-surviving entities.
• Update internal company records system and affected persons and teams.

Learn more

Learn how to manage your post-merger activity and make sure all steps are taken in a timely and effective manner. Contact a CT Corporation representative at (844) 878-1800 (toll-free US).