A corporation (or other entity) typically merges into 1 or more other corporations (or other entity) to:
- combine the businesses and assets, or
- change the place of organization, e.g., move from being a California corporation to being a Missouri corporation.
In the latter case, a new corporation is formed in the desired state and the existing corporation is merged into it. In either case, the surviving entity continues to exist and the non-surviving entity's separate existence ceases.
The accountants will need to assist in figures for the exchange ratio, combining the books of the entities and preparing tax returns and the statements to be attached.
Employer identification number (EIN)
If 2 existing entities merge, the employer identification number (EIN) of the surviving entity is used. If the merger is a change of place of organization the original entity EIN is used and the new corporation does not obtain a new number.
Tax free reorganization
If corporate assets are taken out of the corporate format tax is normally triggered. A corporate merger can qualify as a tax free reorganization under Internal Revenue Code § 368. A merger is also generally tax free for partnerships and limited liability companies (that are taxed as partnerships). There may be tax ramifications from merging a corporation with e.g., a limited liability company.
Shareholder and director approval
Shareholders and Directors need to approve the merger and authorize the officers to sign such documents and take such actions as necessary to accomplish the merger, either by actual meeting and vote or by action by unanimous consent.
Agreement of Merger
An Agreement of Merger must be prepared and signed on behalf of each entity setting forth the terms of the merger, e.g.:
- ratio for exchange of interest in the non-surviving entity for interest in the surviving entity
- number and identity of officers and directors of the surviving entity and
- any amendment(s) of the surviving entity Articles of Incorporation and or By-laws (including name change, e.g., to the name previously used by the non-surviving entity).
Articles of Merger
Articles of Merger must be prepared and signed on behalf of each corporation, and filed with the Secretary of State. If the entities are formed in different states, filings will be required is all states. There is a summary form available in Missouri that only requires minimal information.
Statements to attach to returns
A Statement of Merger is prepared to attached to each entity tax return, and a 2nd statement to attach to the terminating shareholders' tax returns.
There may be a number of other details to consider, e.g., review of contracts and leases (and possible assignment), updating filings with other governmental entities, financing arrangements (e.g., updating UCC financing statements), and re-titling real property, vehicles, etc. (ownership transfers with merger but official records should still be updated).