Post-merger integration risk management

The surviving entity: What must be done post-merger 

The compliance steps needed for the surviving entity will depend on the business decisions and changes made post-merger. Let’s look at the regulatory requirements associated with common post-merger scenarios:

• Doing business in new states  – Will the merger result in the survivor doing business in new states? If so, it must qualify (register) to do business 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 surviving entity. If this is the case, the previous business entity name listed on the public records must be updated. Regarding the domestic state, in many cases the name change is part of the merger document that will make the change effective. However, if not, articles of amendment or a name change document must be filed to make the name change effective. If the survivor is qualified (registered) in foreign states it must amend its certificate of authority or file a name change document in each foreign state.  These filings are required by the business entity statutes and a failure to comply 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 should 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/or 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, 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.
• Beneficial ownership information (BOI) reporting – If the surviving entity is a reporting company, it will have to file an updated BOIR with the Financial Crimes Enforcement Network upon a change in any of the information previously reported. This includes a change of legal name, change in dba names, change in principal place of business address, change in beneficial owners, change in formation state, or a change in its tax identification number. If the merger results in the survivor becoming exempt it will have to file an update.  If the merger results in an exempt company becoming a reporting company it will have to file an initial BOIR. Harsh civil and criminal penalties can be imposed for non-compliance.

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. 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. Many 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, annual reports, and any other filings required to make the public records of the survivor reflect post-merger reality.
• 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 specialist today to ensure your post-merger activities are completed efficiently and effectively.

Frequently Asked Questions

What are the four Cs of post-merger integration?

• Connection: A team is needed to mediate between leaders and stakeholders.
• Commitment: Executives with M&A experience understand the time, energy, and commitment required for success.
• Communication: Leaders and change agents need to communicate the new strategy to the entire organization.
• Culture: Understanding each partner's background is important for launching a successful culture initiative

What are the steps for post-Merger integration?

1. Gather and review final pre- and post-corporate structure: Ensure you have a complete understanding of the corporate structure before and after the merger.
2. Audit all surviving and non-surviving entities: Check registrations, DBAs, licensing and permits, and good standing status for all entities involved.
3. Identify merger effective dates: Coordinate next steps such as merger notifications and survivor filings based on these dates.
4. Create post-merger project plans: Develop plans based on structure changes, merger effective dates, and audit results.
5. Leverage technology: Use tools for e-signature, online notarization, entity management, and compliance filing to streamline processes.
6. Complete survivor filings: Ensure all qualifications, name filings, address and officer and director changes, required reinstatements, and annual reports are completed.
7. Coordinate and complete all non-survivor jurisdictional tax clearances and cancellations: Make sure all tax clearances and cancellations are handled for non-surviving entities.
8. Research and update business licenses and permits: Update any necessary licenses and permits.
9. Update UCC filings: Ensure all UCC filings for surviving and non-surviving entities are updated.
10. Update internal company records system: Make sure all internal records and affected teams are updated.

Related article: 
Cracking the code to successful post-merger integration