By Bruce Leeds, Senior Counsel, Braumiller Law Group
Let’s say you work in Customs Compliance at Shark Company. You learn that your company is purchasing Shrimp Company. Do you have any concerns? Will there be work to do? Yes, and yes!
Buying Another Company
When one company buys another there are typically two ways the purchased company will be treated: (1) It will be incorporated into the parent company and will no longer exist as a separate entity. (2) It will become a separately incorporated subsidiary of the parent company and retain its IRS number.
Does Shrimp Company have any imports? If not, there is only one thing to do unless this situation changes. If Shark Company is a participant in the C-TPAT Trade Compliance Program as a Trusted Trader, you will need to advise Customs of the acquisition in the annual C-TPAT Trade Compliance report.
If Shrimp Company does have imports, you will have several things to do. First find out their volume of imports – is it a handful or a lot? Are they routine imports – or are they subject to antidumping, licenses, etc.? Most importantly has Shrimp Company committed customs violations? If so, there are circumstances under which the acquiring company could be held liable for violations of the company they acquired. Better check that out!
Incorporation into Shark Company
Some other things you may have to do if Shrimp Company is incorporated into Shark Company:
- If Shrimp Company had significant imports and duty payments, you may need to increase the limit of liability on Shark’s customs bond.
- If the former Shrimp Company becomes a new business unit of Shark Company, establish a new suffix for this business unit, file a CBP form 5106 with the new suffix and add them to Shark’s bond as an unincorporated division.
- Advise your customs broker of the new addition and any changes in the nature or volume of imports.
- Complete a right to make entry documents signed by a Shrimp Company executive (while they are still around) that shipments addressed to Shrimp Company are to be cleared in the name of Shark Company
- Revoke all powers of attorney executed by Shrimp Company and any contracts with customs brokers.
- Close Shrimp Company’s ACE account (if any) – although you may want to keep it open for a while to see if there are any imports in the name of Shrimp Company after it ceased to exist.
- Does Shark Company participate in Customs programs such as C-TPAT or C-TPAT Trade Compliance? You will need to assess the new acquisition to determine if it qualifies to be added to one or both of these programs. What about the other way around? If the acquired company is a member of C-TPAT and Shark isn’t: Does Shark qualify? Does it want to join?
Are you having fun yet?
There may also be a personnel issue. Does the acquired company have an import person or staff? If so, consider making them part of your organization. More resources and a chance to share best practices are always a good thing.
Preservation as a separately incorporated subsidiary
What if Shrimp Company will become a separately incorporated subsidiary of Shark Company? Many of the above suggestions and actions will still apply – and it may get more difficult.
First issue: Who is handling what? Does Shark Company’s Customs compliance function take care of the new subsidiary? If the subsidiary doesn’t have a Customs compliance function that may be a very good idea. Beware of overstretching your resources and violating the “customs business” rule. If the new subsidiary already has a Customs compliance function what will be Shark’s relationship with them? Will Shark Company have oversight? Will Shark Company be a partner or a nuisance? You may need to tread carefully and diplomatically.
Does Shrimp Company have customs brokers? If Shrimp Company is not thrilled with their brokers, it is a good opportunity to switch them to Shark Company’s brokers. This will require new powers of attorney signed by an officer of the Shrimp Company subsidiary. If Shrimp Company likes their existing customs brokers, it may be difficult to change them to Shark Company’s customs brokers. If Shrimp Company retains its name and IRS number, it may not be necessary to issue new powers of attorney for its existing brokers.
As a separate corporation Shrimp Company can be added to Shark Company’s bond as a co-principal. Another way is to execute a new bond in the name of Shark Company and have a separate attachment listing the details of Shrimp Company and have it separately signed and sealed by an officer of Shrimp Company. If neither of these is feasible the subsidiary can apply for its own separate bond.
Other variations on this theme
There are other things that could happen in the field of mergers-acquisitions-divestitures.
- Shark Company and Shrimp Company could merge to form a new corporation.
- Shrimp Company could acquire Shark Company
- A third party could acquire both Shark Company and Shrimp Company
- Shark Company could fail in its acquisition of Shrimp Company, forcing Shrimp Company to go out of business.
There are probably some others, but this is a start. Each variation will have its impact on what the Customs compliance people have to do.
Has MAD driven you mad yet? As you can see there are plenty of things to do – but this is a good start.
