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

What is a business charter document?

“Charter document”, also known as a “formation document” is a term used to describe the document filed with the Secretary of State or similar office to create a legal entity – such as a corporation’s Articles of Incorporation or a limited liability company’s Articles of Organization.

Why would you need a copy of the charter document?

A company’s charter document may be needed by the company itself or by a third party. 

There are a number of reasons why a company would need a copy of its own charter document. For example, a company may be required to provide a copy in order to be registered in a foreign state or obtain a business license. Or a financial institution or potential business partner may ask the company to provide a copy of its charter document as proof that the company was legally formed and authorized to operate. 

There are also several reasons why someone would want a copy of another company’s charter document. One of the main reasons is to make sure they know the company legal’s name. 

A corporation, LLC, or other entity’s legal name is the name set forth on its current charter document. And in some circumstances it is vital to know the exact legal name of the company. And one of the most important is when naming a debtor organization on a UCC-1 financing statement, because of the serious consequences of not setting forth the name exactly as it appears on the charter document.

Although charter documents can be ordered as a “plain copy”, in some cases a certified copy is required or preferred. A plain copy is generally a photocopy of the filed document. A certified copy will generally include a stamp or extra page with the signature of the filing office certifying that this is a true copy of the filed document. 

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 "debtor's name" refers to the legal name of an individual, company, or entity that owes money or is in debt to another party, often referred to as the creditor. In financial and legal contexts, the debtor's name is crucial for identifying and tracking the individual or entity responsible for repaying the debt.

Knowing the debtor's name is essential for establishing a contractual relationship, pursuing debt collection, maintaining accurate financial records, and addressing any legal matters related to the debt.

In the context of a UCC (Uniform Commercial Code) filing, the "debtor" refers to the individual or entity that owes a debt or has an obligation secured by a security interest in personal property. UCC filings are commonly used in commercial transactions and serve to provide notice of a legal claim or security interest in specific assets owned by the debtor.

A lender files a UCC-1 financing statement in order to perfect its security interest in the debtor’s collateral. By perfecting its interest, the lender becomes a secured party and has priority over later filed claims to the collateral.

The exact legal name of a debtor organization must be used on a UCC filing — meaning, as the name appears on the debtor’s charter document. A failure to comply with this rule jeopardizes the filing, can render the lender an unsecured creditor, and can lead to a loss of priority.

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.

The best way to be sure you know the debtor’s legal name is to obtain a copy of its charter document. Be sure you’ve obtained the most recent charter document on file with the state filing office where the corporation or LLC was formed.

Note: You cannot 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 UCC 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 that may have been provided or ordered 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. Obtain a copy of the charter document to be sure.

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.