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ComplianceCorporate15 november, 2022|Bijgewerktnovember 08, 2024

Post-merger integration risk management

Did you know that according to some studies 70% of mergers fail due to poor post-merger integration?

Post-merger integration involves taking the assets, management, employees, properties, customers, back-office operations, business philosophies, and more of two, or sometimes more, separate companies and combining and rearranging them in a way to ensure the goals of the merger are reached. 

An often overlooked component of this stage is corporate legal compliance. All of the constituent companies, and especially statutory entities such as corporations or LLCs, have been required to file numerous documents and reports with state, local, and federal government offices. And each company has information on file with these government agencies that has to be updated post-merger to make sure the agencies are aware of the changes caused by the merger.  

And while not always considered a part of post-merger integration, ensuring that public records reflect what happened to the merger’s surviving and non-surviving entity (or entities) is definitely a part of post-merger risk management. A failure to update these records can create serious issues for your company, including fines, penalties, the potential loss of status with the state, courts, and more.

In this article, we cover what you should do after the merger goes into effect regarding the constituents’ public records filings to ensure a smooth, post-merger risk management process.

Post-merger integration risks

Filing the articles of merger that make the transaction effective 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 not addressed, these could create problems for your company that may include the following scenarios. Understanding and addressing post-merger integration risks regarding public records filings is crucial for the success of any merger.

  • Unable to use the court system – Non-compliance with certain requirements can result in a company being unable to bring a lawsuit until it complies. This can happen, for example, if the survivor fails to qualify (register) to do business in a new state in which it is doing business after the merger.  A failure of the survivor to obtain required business licenses may also leave it unable to enforce contracts made while unlicensed.
  • Unmet statutory requirements – Most states have laws that impose penalties for failing to comply with statutory requirements. This includes failures to qualify or withdraw, update registered agent information, obtain required business licenses, register assumed names, file annual reports, and others. It is important to make sure that both the surviving and non-surviving entities in the merger meet all statutory requirements.
  • 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. For example, the Corporate Transparency Act imposes a penalty of $500 for each day a violation of the act continues.  The amount is adjusted each year for inflation (and is up to $591) and has no maximum amount.
  • Inability to conduct business – Administrative dissolution in the home state and loss of authority to do business in foreign states can result from oversights. 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.
Post-merger risk management infographic

Post-merger risk management

Filing your merger is exciting, and so is completing the transaction successfully. Post-merger compliance missteps can lead to serious issues. These 10 essential steps help ensure compliance from the first filing to the last. 

The non-surviving entity: What needs to be completed post-merger

Withdrawal from foreign states

In every merger there will be at least one company that will not survive. If the non-survivor was registered to do business in one or more foreign states, a filing will have to be made in those states to notify the secretary of state (or equivalent office) that the company has been merged out of existence and should be removed from the state’s records. 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.

In some states this requires the non-survivor to withdraw. Withdrawal generally requires the filing of a document that may be called an application for withdrawal, an application for termination, an application for surrender, or another name. Other states require the filing of evidence of the merger. What must be filed may also depend upon whether the survivor was a domestic entity in the state, a registered foreign entity, or neither.

Other steps that may have to be taken include cancelling business licenses and assumed name registrations, and if the non-survivor was a reporting company under the Corporate Transparency Act that had filed its initial beneficial ownership information report with the Federal Crimes Enforcement Network, filing any required updated reports.

Avoiding business identity theft

Leaving an inactive business entity on the records of the state makes it vulnerable to business identity thieves.

Post-Merger 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

The CT Corporation staff is comprised of experts offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance.

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