What this is: In Part 3 of our blog series, we take a look at the numerous post-closing tasks that need to be addressed following a merger or acquisition.
What this means: To ensure nothing is overlooked (whether it's updating internal and public records or meeting ongoing requirements), it's essential to create a post-closing checklist and assign clear responsibilities for each task.
Overview
In Part 1 of this article series about merger and acquisition (M&A) deals, we discussed the value of a closing checklist. In Part 2, we reviewed practical tips to consider when conducting public records due diligence and coordinating state filings. In the third and final installment in the series, we’ll be discussing the post-closing matters that must be addressed.
A Post-Closing Checklist is Recommended
Just like during your pre-closing phase, be clear on who is responsible for post-closing matters. In some cases, the outside counsel law firm may agree to handle certain post-closing items but expect that the legal department of the Acquirer assumes others. It is highly recommended that you develop a post-closing checklist to track the important items that need to be completed, by when and who is responsible for each. This ensures that you maintain compliance with the terms and conditions of the merger or acquisition agreement and stay in full compliance as you commence the business of your newly acquired company or integrate it into your existing business.
Make Sure Public Record Information is Accurate
Update the Name in All Existing Jurisdictions
If required, ensure that the name of the surviving company has been changed either at the time of merger, or shortly after closing, in the domestic state and in all other states where the survivor will do business.
Register or Withdraw Based on Where the Company Will Be Doing Business
In addition to your domestic state, identify all of the states/jurisdictions where the surviving company has plans to do business. These jurisdictions may not be the same as they were before the merger. If there are any changes, proceed with qualifying the survivor in new states and withdrawing them from states where the company will no longer be active. Keep in mind that the requirements and timeframes can vary greatly from state to state.
We recommend that you coordinate with your service company partner to get guidance on what is required. For example:
- Some states will require that you withdraw the “merged-out” entity and then file a new qualification for the survivor.
- Other states will allow you to submit a certification (“Certificate Re Merger”) evidencing the merger in the domestic state, thereby allowing the survivor to be recognized on the state record as the successor in that state. For example, Texas will allow you to file a “Certificate of Amendment to Disclose a Change Resulting From a Merger” for all entity types. This is a movement to simplify the process.
- Conduct State Audit: We have seen many examples where a large company is preparing for another deal and realizes that some of the above matters were not taken care of after a prior deal. This can cause delays and, in some cases, worse consequences for future deals if not done properly. Doing a jurisdiction-by-jurisdiction “double check” to ensure all bases have been covered can prevent a lot of frustration down the road.
Amend, Transfer or File New Business Licenses
Ensure that all business licenses identified pre-closing that should continue are in effect, or that actions to amend, transfer or file for a new license are taken.
Our team provides top-notch handling and coordination of your merger and conversion filings. To learn more, visit our page on Mergers & Conversions.
Identify and Track Recurring Requirements
Annual and Periodic Reports
The surviving company will be required to file annual reports and pay franchise taxes in the majority of states.
- Timeframes and the disclosure on the reports and the franchise tax fees vary greatly depending on the entity type and jurisdiction.
- Ensure you know and track the due dates each month and decide who will be responsible for filing the reports and paying the taxes.
Assumed Name or DBA Name Renewals
Timing varies greatly for these types of renewals (i.e., in some states the renewal is every 5 years; others are every other year in odd or even years depending on the year you file... fun!).
- It is important to establish a good system to keep track of these due dates to ensure you protect the alternate names that you are using to conduct business in all jurisdictions.
Business License Renewals
Okay, by now you are probably tired of the reminder of how important it is to track and renew business licenses, but this is another important recurring administrative task that shouldn’t be overlooked.
Tip: Check with your registered agent to determine if there is an online compliance calendar in your entity management system to help you track all of the above due dates and, better yet, see if they offer a service to assist you with these filings. (They often have a team of specialists who are very familiar with the differences by state.)
Books and Records
Minute Books, Stock Ledgers, Seal
Post-closing is an ideal time to review the books and records, especially if you are the Company Secretary or paralegal responsible for managing the records of your subsidiaries and affiliated companies.
- Ensure you have the full and complete charter, state registrations, business licenses and all minutes and consents related to the organization of the company and all actions taken (especially the approval of the recent M&A deal).
- Ensure the ownership (stock or membership) ledger is complete and that the appropriate share or membership certificates have been issued. (This is likely to have been done just before or at closing.)
- Prepare a company profile for each new subsidiary listing members, managers, states and dates of formation and qualification, business licenses held, etc. This will come in handy when you are asked for current information. Entry of management and owner information into your entity management system and keeping it current is a great way to run on-demand reports to review and share this information.
Conclusion
As you can see, there are many post-closing tasks that need to be completed after a merger or acquisition. By creating a post-closing checklist and assigning responsibility for each item on the list, you can ensure that nothing slips through the cracks regarding updating internal and public records along with meeting ongoing recurring requirements.
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Why is it important to draft a closing checklist?
Generally, drafting a comprehensive closing checklist is one of the first important steps to ensure a successful merger or acquisition. The closing becomes an important guide for all parties working on the deal listing the documents to be drafted, actions to be taken, responsible parties and deadlines to be managed and met in order to close the deal. The closing checklist will include conditional precedent “CPs” meaning items and actions that must be completed before the merger or acquisition deal closing on a specified date. To learn more, see our article, Tips for a Smooth M&A Closing Part 1: Closing Checklists.
What are some important things to track when obtaining a Good Standing Certificate in preparation for a closing?
- Always track the following (at all phases pre-closing):
- Due dates for annual reports and/or tax payments due between the date of the last Certificate of Good Standing and your closing date.
- Due dates vary greatly: Some are due on the anniversary date of formation, some due on April 1 of odd-numbered years, some on odd-numbered years based on the last digit of the organization ID of the company. Tracking these complex due dates will prevent unpleasant surprises prior to closing.
- Factor in the time it will take to obtain the Good Standing Certificate from the state. (Turnaround time in most states will be within 24 hours; however, some states, like California, may take up to 72 hours.)
- Due dates for annual reports and/or tax payments due between the date of the last Certificate of Good Standing and your closing date.
To learn more, read our companion article, Tips for a Smooth M&A Closing Part 2: Due Diligence and Filings.
What can happen if the public record isn’t updated during the post-merger clean-up stage?
When entities that no longer exist in their home state remain on the public record as existing entities in the states where they are authorized to do business, confusion can result. I worked with a company where this occurred. After the merger, the survivor qualified in California where the merged-out entity still existed. The survivor ended up filing the annual reports and franchise tax returns for several years for both entities, not realizing that the registration for the merged-out entity was not needed, as the company no longer existed. As California has an $800 minimum franchise tax, the company spent a fair amount simply because they hadn’t properly done post-merger cleanup. Reference our article, Updating the Public Record: The Importance of Post-Merger Cleanup.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
