The success or failure of any merger hinges on post-merger integration.
However, an often overlooked component of this stage is corporate legal compliance. There are many critical post-merger steps that your organization must address to comply with global, state, and local compliance regulations. Any missteps can create serious issues for your company, including fines, penalties, and the potential loss of status with the state, courts, and more.
At its core, post-merger risk management centers on ensuring that public records reflect what happened to the surviving and non-surviving entity (or entities) of the merger.
In this article, we cover what you should prepare for after the merger is filed and how to ensure a smooth, post-merger risk management process.
Post-merger risks
Filing your merger is an exciting moment, but it’s just the tip of the iceberg. Lurking under the surface are myriad hazards in the form of post-merger compliance steps. If unaddressed, these could create problems for your company that may include the following scenarios.
- Unable to use the course system – Non-compliance and subsequent loss of good standing may preclude your business from bringing a lawsuit in the state in which it operates until good standing is restored.
- Unmet statutory requirements – After a merger, global and local authorities will continue to enforce requirements for both surviving and non-surviving entities. For instance, failing to qualify a business, withdraw a company, update business licenses, or notify regulatory bodies of change can lead to repercussions.
- Fines and penalties – These pose a real danger to businesses because they accrue over time and can result in personal liability for officers and directors, tax liens, and costly future transactions.
- Inability to conduct business – Oversights can even lead to administrative dissolution and loss of authority to do business. They can also put transactions, financing, name rights, and more at risk – not to mention potential work-site closures, revenue loss, public relations issues, and other risks.
The non-surviving entity: What needs to be completed post-merger
First and foremost, the non-surviving entity must be removed from the records of the state where it was qualified to do business. Depending on the state and whether the survivor was formed or qualified in that foreign state, this may be done by filing a withdrawal document or a certified copy of the merger filing.
Some business entity statutes will have a provision stating that a foreign entity must make a filing upon its being dissolved or merged out of existence. A failure to do so is considered a violation of that statute and can result in a state-enforced penalty. Even in the absence of a specific statutory provision, removing the non-survivor from foreign states should be part of the merger process. If this is overlooked, the entity may continue to be required to file annual reports and pay taxes — for which the survivor can then be liable.
Finally, leaving an inactive business entity on the records of the state makes it vulnerable to business identity thieves.