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ComplianceNovember 17, 2021

Why you need a charter document for the exact debtor legal name

What is a business charter document?

“Charter document” is a term used to describe a company’s formation document, such as a corporation’s Articles of Incorporation or a limited liability company’s Articles of Organization.

Why would you need a copy of a charter document?

Charter documents must be obtained in several circumstances, such as when you file a Uniform Commercial Code (UCC-1) on behalf of a lender and need to be sure you are using the debtor’s correct legal name.

Although these documents can be ordered as a “plain copy”, in most cases a certified copy is required or preferred. When a state issues a certified copy of charter documents, you will receive the exact copy of the documents on file with that state.

Note: Because a charter is a formation document, it is held on file by the domestic state, not the foreign state.

The importance of using the debtor’s exact legal name on a UCC filing

The exact legal name of the debtor must be used on a UCC filing — meaning, as it appears on the debtor’s charter document. A failure to comply with this rule jeopardizes the filing and can lead to loss of priority. You must also be cognizant of the power of each state’s search logic since standards can vary by state.

Finding the correct debtor name

Determining the correct name of a party was once one of the most common problems with UCC filings. However, a 2010 amendment to the UCC altered and simplified the process for determining the correct debtor’s name.

Now, UCC law says that a UCC-1 sufficiently provides a debtor company’s name only if it provides the name as set forth in its “public organic record”. And in the case of a corporation or LLC, that public organic record is its charter document — which may be called Articles of Incorporation, Articles of Organization, or another name, depending upon the state of formation. Now, you can use the charter document to find the exact legal name of the debtor. You must obtain the most recent charter document on file with the state filing office where the corporation or LLC was formed.

Note: You can no longer rely on the Certificate of Good Standing for the correct debtor name. This information is deemed “compiled data”. I.e., it has been manually entered into a system and may have been entered incorrectly.

Charter document best practices

To keep the law on your side if there is an issue with a lien, consider the following best practices:

  • Assume versions have changed: Don’t rely on the debtor’s original charter documents provided during due diligence. These are often not the most recent version.
  • Request a copy from the state: Get the most recent copy of the charter documents from the Secretary of State’s office. Don’t just hit “print screen”.
  • When to request a certified copy: A certified copy of the charter documents is not necessary and can incur additional cost. However, if the matter concerns an important transaction, or you perceive issues with the parties, it may be judicious to request a certified copy.
  • Trust, but verify: As counsel, you may draft the UCCs and send them to the debtor’s counsel or the debtor for review and confirmation. However, just because the other side has reviewed the content, it doesn’t mean the debtor’s name is the correct one on file.

In summary

The process of filing and managing UCC statements is anything but uniform. From loans to a single debtor to multi-billion-dollar transactions involving large banks, it’s a landscape fraught with risk from even the slightest misstep.

A common pitfall is not using the correct name of the debtor. You can avoid this mishap by obtaining a copy of the charter document from the state of formation and making sure that the UCC statement lists the exact name that appears on the charter document.

Learn how CT Corporation can become your partner for the most accurate UCC filing services. Contact a CT Corporation representative or call 855.316.8948 (toll-free US).

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