Best Practice Summary

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Most state laws provide for the merger of corporations, limited liability companies and other business entities to to merge with and into other business entities. State laws provide specific requirements that generally include a plan of merger in order to set forth terms and conditions of the merger including the manner of stock conversion and a statement that the company surviving the merger, known as the "surviving" corporation or entity, will assume all rights, titles, assets, debts and liabilities of the merged-out company or companies. If the parties to the agreement, known as “constituent corporations” are incorporated in more than one state, compliance with the laws of each state is necessary.

Short Form vs. Long Form Mergers

Short Form

A parent/subsidiary merger involves the merger of a parent corporation (defined by state law as a company owning more than 90% of the stock of the subsidiary corporation) and one or more of its subsidiaries. The parent may merge with and into the subsidiary or the subsidiary may merge into the parent. This type of merger is also known as a "short form merger" because stockholder approval is not usually necessary. Review of the state laws of the state(s) of incorporation of each party to the merger, known as the “constituent corporations” is necessary to determine exact steps to be taken.

NOTE: Stockholder approval is typically required when merger is being done so that the corporation will be reorganized under the laws of a different jurisdiction or when the merger results in a change of corporate structure that will affect stockholder interests.

Long Form

A long form merger involves companies that are not parent/subsidiary companies. It is considered a long form because stockholder consents are typically required by state laws. The "long form" process applies even when the companies are both subsidiaries of the same parent company.

Domestic/Domestic Merger

A domestic/domestic merger is the merger of two or more companies (corporations, limited liability companies, limited partnerships or any other business entity) incorporated or otherwise formed, under the laws of the same state. This type of merger is less complicated because only one set of state laws is applicable. If the companies are not related as parent/subsidiaries (where one company owns more than 90% of the stock of a subsidiary), the merger is said to be a "long form merger".

Foreign/Domestic Merger

A foreign/domestic merger is the merger of two or more companies (corporations, limited liability companies, limited partnerships or any other business entity) incorporated under the laws of different states. Foreign/domestic mergers are complicated by the requirement to follow the applicable state laws of all states involved.

Leveraged Buy Out

A leveraged buyout (LBO) is the acquisition of a company using borrowed funds. The assets of the company to be acquired may be used to secure the funds. An LBO transaction will have three parties; the buyer, seller and lender.

Antitrust: Merger and Acquisitions

Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) requires that parties to certain mergers and acquisitions valued over $50 million file premerger notification with the Federal Trade Commission (FTC) and Department of Justice (DOJ). The premerger notification filing provides information for the antitrust enforcement agencies to determine whether or not the proposed merger or acquisition violates antitrust laws. Whether or not a company is required to file a Premerger Notification form is a matter of careful legal analysis.

For more information see LeapLaw's Premerger Notification Best Practice Summary.

Running The Transaction

Constituent Companies

Director and Stockholder Consents. Constituent companies must take appropriate directors and stockholders resolutions in order to authorize the merger agreement and all ancillary documents.

Best Practice Tip: Pursuant to the laws of the states of incorporation of each constituent company, resolutions are required in order to adopt a plan of merger and related actions. Generally, director resolutions are required that adopt the plan of merger, ancillary actions and deem it advisable for stockholder approval. A majority of vote of stockholders is required unless the merger will not adversely affect the value of the stock held by stockholders, for instance, in a parent/subsidiary merger. Resolutions may be taken at a meeting of stockholders and/or directors or, if provided by the bylaws, by written consent of a majority of directors and stockholders of record. Only one original signature copy of the consent and/or minutes to the meeting is required for the minute book. Copies of the resolutions will suffice for closing documents.

Note: Separate signature pages from consents. Insert a page break and insert the notation "The remainder of this page has been intentionally left blank. Signature page follows." This allows room for insertion of additional resolutions if needed.

Merger Vehicle

Typically a merger vehicle will be formed early in the transaction. This company will be formed in the target state of jurisdiction for the surviving entity. It is often a "vanilla" company, meaning that it is formed with bare basics required by the state. The merger certificate is used to define the specifics of the surviving entity.

You will need to form the new company by:

  • Consent of incorporator (if applicable under state law)
  • Articles or certificate of formation
  • Bylaws
  • Organizational consent of directors
  • Director and/or stockholder consents for merger

For more information regarding basic incorporation process, see LeapLaw's Incorporation Best Practice Summary.

Government Approvals

Hart-Scott-Rodino Premerger Filing, if applicable.

SEC filings Form S-4 and Form 8-K

  • Proxy statement/prospectus
  • Proxy cards

Closing Agenda and/or Checklist

The closing agenda is drafted from the merger agreement. Reading through the merger agreement will provide various agreements that have become part of the deal, closing certificates required, third party approvals, SEC and premerger notification requirements or approvals. Though deal specifics differ, there will nearly always be certain similar documents required for a merger closing.

Sample Closing Agenda

Disclosure Schedules and Exhibits

Exhibits provide sample forms for ancillary documents may be an escrow agreement, employment agreement, stockholders' agreement, registration rights or other deal specific agreement.

Disclosure schedules provide documentation that supports the non-compliance of certain claims contained in the merger agreement. For instance, a provision of an agreement may claim that the company to be acquired has no pending litigation other than "set forth in Schedule [A]." Disclosure schedule [A] will then list all material pending litigation. Disclosure schedules will be listed on the closing agenda and/or checklist.

Ancillary Documents

Ancillary agreements are those agreements that are incidental to the transaction. The merger agreement may be the driving agreement. However, an escrow agreement and certain employment agreements may also be required under the merger agreement and therefore, are ancillary agreements.

Conversion of Stock

A merger transaction requires that stock or other beneficial ownership of the merged out company be accounted for by either converting it into some ratio of stock or beneficial ownership in the surviving entity or declaring that the stock will be canceled and not converted. Certain steps are taken to assure that stock ownership is properly tracked and converted:

  • Stock certificates to be canceled together with transfer powers.
  • New stock certificates issued for the surviving company.
  • Option certificates to be canceled, if any.
  • Warrant certificates to be canceled, if any.
  • Promissory notes to be canceled, if any.
  • Receipts or cross receipts.
  • IRS Form W-9 (pdf) for each seller.
  • Certificate of Seller of non-foreign status, IRC Section 1445(b)(2).

Closing Certificates

Closing certificates are required under primary transaction documents as part of the closing process and will be listed on the closing agenda. The most commonly seen form of closing certificate is a secretary's (or clerk's) Certificate whereby the secretary or clerk of a corporation certifies to certain matters as explained further below. If a limited liability company has officers, it may also issue a secretary's certificate, or may instead issue a certificate of the managing member. A limited partnership will issue a certificate of the general partner that will certify to matters and documents specific to a limited partnership, similar to a secretary's certificate. For more information regarding closing certificates see LeapLaw's Closing Certificate Best Practice Summary.

Secretary of State and other Public Search Documents

Certified Charter Documents
For transaction purposes, a certified copy of the charter is ordered to reflect the current structure of the corporation (or formation documents in the case of a limited liability company). When ordering certified copies of the charter for transactional purposes, the charter and amendments will suffice, as opposed to "everything on file" which would include all changes (i.e. resident agent) and annual reports. Changes and annual reports do not affect the structure of the corporation and, therefore, are typically not necessary for closing purposes.

"Is restated forward okay?" is a common question asked by the service companies. Typically for transaction purposes, restated forward will suffice, however you should check with your responsible attorney. Restated forward essentially means the service company will retrieve all documents on file from the date of the restated certificate of incorporation (or equivalent) forward to the date of the order.

Certified copies may be obtained using public records researchers, your preferred service company or by visiting your secretary of state's office for local certified copies.

Some secretaries of state are offering plain copies (sometimes for free) or the ability to order certified copies online. Colorado, Massachusetts, North Carolina and Rhode Island already offer online images of some filings and/or the ability to order certified copies online. Check LeapLaw's Corporate Connection for quick access to secretaries of state web site developments.

Best Practice Tip: Certified copies are generally good for 30 days and may be costly. Be sure to order them within a certain timetable of the closing date.

Good Standing Certificates
Good Standing certificates are typically required from each state where the company and its subsidiaries are incorporated and qualified to do business.

Best Practice Tip: Check on the good standing in all states where the company and/or subsidiaries are qualified or incorporated as soon as practicable. Good standing certificates are generally only good for no more than 30 days. Ordering the certificates should not be ordered too early. However, verifying good standing ahead of time can provide important lead-time. Good standing status may be checked either online at LeapLaw's Corporate Connection or through your preferred service company.

A long form will provide a list of all documents on file, thereby providing verification that all certified charter documents have been provided.

Tax Good Standing Certificates
Some states include tax good standing in good standing certificates issued by the Secretary of State (i.e. Delaware). Other states issue tax good standing certificates through the Department of Revenue (or equivalent) which require a letter from an officer of the company requesting such a certificate. See LeapLaw's Tax Good Standing Best Practice Summary for more information.

Best Practice Tip: Tax Good Standing Certificates may take months to obtain. Verifying how long it will take provides a heads up that the tax good standing certificate may become a post-closing matter.

Merger Certificate

A merger certificate is required to be filed in each state where constituent companies are formed. Forms may be found at your preferred service company or at LeapLaw's Corporate Connection.

Pre-clearance can be an important step in assuring that the merger certificates will be filed without a problem when the "green light" is given. All states do not provide pre-clearance services. Your preferred service company may provide some expertise and assurance in those states that do not provide pre-clearance.

Stock Conversion
Stock may be converted as a part of a merger where the stockholders of the merged out corporation receive a certain portion of stock in the surviving company as part of the merger consideration. The surviving corporation may also convert stock ownership of its current stockholders as a result of the merger agreement. The stock conversion will be contemplated in the merger agreement.

Prepare stock certificates that evidence the conversion of the stock pursuant to the merger.

Third Party Consents

Third party consents may be required in a merger transaction when the merger effectively results in a change of control of the party to the lease or other business contract. Consents may be required pursuant to licensing agreements, leases and any other business agreement. Determining what consents are necessary is a large part of the due diligence that is performed at the very beginning of the transaction process and may become a deal breaker if the lease or agreement is important enough to the day-to-day business and the third party will not provide consent on reasonable terms.

Intellectual Property

Assignment of intellectual property may be part of the merger:

Trade Secrets
Trade secrets may be any proprietary information such as client lists, internal computer programs and anything that provides great value to a business.

A search should be done for current and existing patents that may affect the most important products or services of the target company to determine the "right to use". A preliminary search may be performed online at LeapLaw's Trademark Connection with the U.S. Patent Trademark Office (USPTO). It is important to note that the USPTO grants secrecy to patent applications for the first 18 months. Therefore, although a thorough search may be performed, obtaining certain information is nearly impossible. An Assignment of Application is available through the USPTO.


Trademarks do not have to be registered with the USPTO in order for an owner to have a valid claim of ownership. Trademark registrations may also be filed at the state level. Most importantly, trademark rights arise from the use of the mark, in "common law" and not from the registration of any kind. Therefore, simply checking the USPTO listing of registered trademarks does not guarantee a trademark is free from potential infringement. The best possible search is a "full trademark search" that can be conducted using a trademark search company. The results of a full trademark search will provide a plethora of information including common law usage for legal analysis. Additional information regarding trademark and service mark issues may be found at LeapLaw's Intellectual Property Connection.

Once trademarks are determined, they may need to be transferred to the surviving company. Trademarks are assigned by filing an Assignment of Trademarks with the USPTO.

Discharge of Indebtedness

Transactions will require that indebtedness be discharged. Evidence of the discharge is provided as part of the closing process. The debt may be a mortgage, a credit agreement or other financing arrangement or a security agreement. The evidence of discharge may be a payoff letter to a lender, a satisfaction of mortgage or UCC termination statements. There will typically be a section for discharge of indebtedness on the closing agenda.

Legal Opinions

Counsel may be asked to opine as to due organization and corporate good standing, validity of stock and other issues. Diligence assists in backing up the legal opinion. In addition to diligence efforts, a certificate from a company officer may be necessary to certify certain conditions such as certification of the stock ledger and other internal matters that are difficult for counsel to verify.

Closing Procedures

A closing room is part of many closing, though not all. Some closing are accomplished via fax while other involve a multiple day production in a conference room or two where clients and members of the other party come to sign all appropriate documents.

Running a closing room is usually very stressful and is also a very important part of the closing process. The most important preparation is to be sure that you are extremely organized using many "tricks of the trade" that are provided on LeapLaw's Closing Room Best Practice Summary.

Post-Closing Matters

File all UCC financing statements and assignments of intellectual property or any other documents that must be filed following the merger. Sometimes companies will change the name post-merger. Be sure these documents don't get forgotten in the aftermath.

Closing Binder
Put original resolutions, merger certificates, signature pages to stockholder agreements or stock subscription agreements in the minute books. The original certificate of merger that was filed for the merged out company should be inserted in the front of the minute book as a tomb stone so that coworkers quickly realize the company is no longer in existence. As soon as practicable, the minute book of the merged out company should be placed in storage and out of the active minute book collection to avoid any confusion.

Copies of the documents listed above will suffice for the closing binder.

Withdrawal of the Merged Out Company
The company that was merged out of existence in its domestic state is not automatically withdrawn from the states in which it was qualified to do business. Withdrawal may be as easy as filing a certificate of merger with the foreign state or it may be a long drawn out process that includes obtaining a tax good standing certificate. Your preferred service company can assist you in this procedure.

Related Best Practice Summaries

Closing Room
Due Diligence
Public Searches
Filing Mechanics
Premerger Notification
Service Companies
Tax Good Standing Certificates

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