What this is: Preparing to merge 2 companies requires a great deal of effort and activity before and after the acquisition, negotiation, due diligence, filing the merger documents, post-merger re-organization, etc. With everything going on, the important step of “post-merger cleanup” (that is, ensuring that the merger is properly reflected in every state where the acquired company was registered to do business) is sometimes forgotten.
What this means: Neglecting post-merger cleanup can lead to problems for the company at a later date. This article highlights the importance of updating the public record, as well as methods for doing so.
“If insanity is doing the same thing over and over again and expecting different results, then I guess I should stop cleaning my house!”
While I don’t hate cleaning, I can’t say it’s at the top of my list of fun things to do, and I think that’s true of most of us. But, just as it’s important for health reasons to ensure your house has at least a certain level of cleanliness, it’s important for companies to ensure they are “cleaning up” the public record after a merger filing is completed.
Why is Updating the Public Record So Important?
It is Legally Required
Most states have statutes that require foreign companies registered to do business in their state to update the public record when they undergo a change due to amendment, conversion or merger. For example, Section 372(c) of Delaware’s General Corporation Law states: “Whenever a foreign corporation authorized to transact business in this State ceases to exist because of a statutory merger or consolidation, it shall comply with §381 of this title.” Section 381 outlines the procedures for withdrawal for foreign corporations.
State Tax and Reporting Obligations Still Apply
Even if a company ceases to exist and files a final return with the IRS, they are not released from their state obligations, such as franchise tax payments and annual report filings, until they properly update the public record in that state by filing a Certificate of Withdrawal, Surrender of Authority or otherwise terminate the entity’s foreign registration. The state can impose liens or penalties if these taxes are not paid.
Missing This Step Causes Confusion
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.
Our team provides top-notch handling and coordination of your merger and conversion filings. To learn more, visit our page on Mergers & Conversions.
Updating the Public Record Post-Merger for a Company That Has Merged out of Existence
Each state varies, but there are 3 main ways of updating the public record for a company that has merged out of existence:
- File a Certificate That Withdraws the Entity (often called a Certificate of Withdrawal or Certificate of Surrender). If the survivor will be doing business in the state, an Application for Authority to do business should also be filed.
- File Evidence of the Merger. Many states require that a certified copy or certificate evidencing the merger from the domestic state is filed. In some cases, the certificate can be filed on its own to terminate the existence of the non-survivor. In other cases, it should accompany the Certificate of Withdrawal or Surrender.
- File an Amendment. In Texas, for example, if the survivor of the merger will also be registered to do business, the entity can simply amend its registration to show that the survivor is taking over the foreign registration from the non-survivor.
File New or Updated BOI Reports as Applicable to Comply With the CTA
In addition to updating the public record post-merger, both the survivor and the non-survivor may need to update their Beneficial Ownership Information (BOI) report with FinCEN under the new federal Corporate Transparency Act (CTA). The CTA applies to all non-exempt “reporting companies” (as defined in the CTA and its reporting regulations). After a non-exempt reporting company files its initial BOI report, it is required to file an updated BOI report within 30 days of any change to certain information in the BOI report. Since the information contained in the BOI report may change post-merger, an updated BOI report may be required. Additionally, some entities that were exempt from reporting under the CTA may no longer be exempt due to the new entity structure post-merger and vice versa. Although BOI reports are not public record, the new BOI reporting requirement under the CTA is an important consideration for business entities both at the time of formation as well as after any changes to the entity itself or its BOI, including changes that may occur as a result of a merger. The CTA carries penalties for non-compliance. Additionally, some states (such as New York) have passed BOI reporting legislation similar to the federal CTA, and state-level BOI reporting may also need to be updated post-merger.
Ensuring the public record is accurate by conducting post-merger cleanup may not be on the top of anyone’s “fun-things-to-do” list, but it is often a legal requirement and can help prevent problems, confusion and unnecessary costs for the company. Still, it can be tedious to determine and comply with all the differing requirements, especially during a time when there are so many other things to think about.
If you don’t want to do the cleanup yourself, consider hiring a “maid,” or better yet, an experienced service company that can manage all of this for you.
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This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
