According to the Uniform Commercial Code, a UCC Financing Statement is only effective if it properly identifies the debtor. A UCC filings that fails get the debtor name right will not perfect the underlying security interest and will not provide the secured party a priority position to collect should the debtor file for bankruptcy.
With the passage of the 2010 Amendments to Revised Article 9, which took effect in 2013 in most states, UCC filers received some much-needed clarification on how to properly list debtor names on UCC Financing Statements. If the debtor is a registered business (Corporation, LP, LLC, etc.), the code instructs UCC filers to list the name as it is indicated on the public organic record, another way of saying their organizing paperwork (i.e. Articles of Incorporation or equivalent document), taking into account any amendment or merger document filed thereafter which affects the business name.
With this clear guidance, UCC filers are having a much easier time identifying business debtors on their UCC Filings. That said, subtle errors in business names still occur and even the smallest mistake can cause big problems for a secured party down the road.
What follows is a list of three subtle business name errors that frequently occur on UCC filings - are you committing any of these on filings that you prepare?
1. Use of Abbreviations
A business debtor name must be entered exactly as it appears in the public organic record. If a word is not abbreviated in the entity’s legal name, it should not be abbreviated on a UCC Financing Statement. Even using common abbreviations such as Nat’l for National or Mfg. for Manufacturing can cause a filing to be deemed seriously misleading and result in a loss of priority.
2. Improper Use of Punctuation
Punctuation matters. When inputting a business name into a UCC Financing Statement form, the punctuation must also match also exactly: ABC Excavating Incorporated is not considered the same as A.B.C. Excavating Incorporated. A punctuation error could make the record difficult (if not impossible) to uncover later as part of an official UCC search effort, an important test for the sufficiency of a debtor name.
3. Incorrect or Omitted Corporate Endings
Nearly every state requires that a business's name include ending words that indicate its business structure. For example, a corporation would need to end its name with Corporation, Incorporated, or an approved abbreviation. Remember that these corporate endings are a part of a business’s legal name and must be included on any UCC Financing Statement naming the business as a debtor. In the event of a competing claim, a UCC filing that omits the corporate ending or mislabels an entity as a corporation when it is really an LLC could be failing to sufficiently identify the debtor.
How to Avoid Subtle Business Name Errors on UCC Financing Statements
To avoid these subtle errors, learn the UCC requirements for properly naming debtors and follow those guidelines on every single filing you prepare. For an added level of security, work with a service provider you trust who will review all of your filings prior to submission to check for any potential errors.
Did you know CLAS Information Services takes it one step further? Every filing that is submitted through our online UCC filing and portfolio management system, UCC eZFILE®, undergoes a rigorous human eye review to check for filing mistakes - business debtor names are even verified against the state’s database free of charge!
To learn more, schedule a UCC eZFILE® demo today!
For informational purposes only; content does not constitute legal advice.