Alerts

Top 5 UCC Filing Mistakes

5. Not checking the appropriate real estate boxes on fixture filings.
This is especially problematic in the jurisdictions of Louisiana, Georgia, Oklahoma, and D.C. where UCC filings commingle with fixture filings. If you don’t have the appropriate boxes checked and legal descriptions attached, your fixture filings may be indexed as UCC financing statements related to personal property.

4. Missing jurisdiction-specific requirements.
A handful of states require that you include specific language related to collateral or tax requirements and the national UCC form doesn’t prompt you to include this information. Omission, however, can lead to rejection by the filing office.

3. Using outdated forms.
The current national forms revised in 2011 are accepted in all jurisdictions with the exception of New York, while the previous forms are widely rejected. Some states have created their own jurisdiction-specific forms.

2. Filing in the wrong jurisdiction.
For the UCC novice, it’s easy to assume that the jurisdiction for filing is the central filing office in the state indicated in the debtor’s mailing address. The appropriate index for filing with respect to personal property, however, is the central filing office (or index) in the state where the debtor is located. A debtor who is an individual is ‘located’ where they reside while a debtor that is a registered entity is located in the state of organization.

1. Specifying a debtor name that includes additional information or a DBA name.
Additional verbiage beyond the legal name of the entity is liable to cause a hidden lien that would be deemed ineffective. Capitol Services, Inc., a Texas Corporation, would be an inappropriate presentation of a debtor name. Capitol Services, Inc. D/B/A Capitol Corporate Services would also be inappropriate. Keep box 1a limited to the legal name of the entity: Capitol Services, Inc.

Delaware Franchise Taxes

Delaware taxes on domestic corporations can increase more quickly than you expect! What can you do to both lower your liability this year and prevent next year’s taxes from being excessive?

The default method by which the Delaware Secretary of State’s office calculates franchise tax on domestic profit corporations is called the “authorized shares” method – and it is just what it sounds like. If the corporation’s shares have a par value, the tax is calculated based on the number of shares authorized. If the company has 5,000 shares or less, then the company pays the minimum tax of $175. If they have authorized between 5,001 and 10,000 shares, the tax goes up to $250. Thereafter, the tax increases by $75 for each additional 10,000 shares or portion thereof (with a maximum tax of $180,000).

Because a company’s tax is based on the number of shares authorized, the quickest and easiest way to lower your future liability is to amend the Certificate of Incorporation to decrease the number of authorized shares. Companies are often formed with a huge number of shares, when, in reality, they don’t need such a large number.

In order to reduce your liability for the current year, you can try recalculating your taxes using the State’s alternative tax calculation, the “assumed par value capital” method. This calculation takes into account the number of shares issued by the corporation, as well as the gross assets of the company. Because this calculation requires information that the Secretary of State’s office does not have, this can only be done if the company initiates this calculation themselves. If the company has authorized stock with no par value, this calculation will always result in a lower tax balance than the authorized shares method. Note that the minimum tax for the assumed par value capital method is $350.

The Delaware Secretary of State’s office offers a franchise tax calculator that you can use to calculate your taxes using either method at: https://corp.delaware.gov/taxcalc/
For further information, please contact the experts in our Delaware office at 800-316-6660.

LPs and PAs Required to File Public Information Report with Comptroller

Effective January 1, 2016, limited partnerships (LPs) and professional associations (PAs) on which a franchise tax is imposed are required to file a public information report with the Texas Comptroller along with their annual franchise tax returns. This amendment by HB 2891 brings LPs and PAs in line with the requirements for corporations and limited liability companies (LLCs) under the Tax Code. It also removes the secretary of state’s annual statement filing requirement for PAs and periodic report requirement for LPs that are subject to franchise taxes.

Be Careful of Corporate Scams

It looks official, but it’s not. Fraudulent operators are sending out official looking notices that can fool companies into filing non-required forms or trick them into changing their registered agent. Many are offering non-existent or unnecessary corporate secretarial services for a hefty fee. Some are even filing documents fraudulently modifying corporate registration records with Secretary of States (SOS).  Attorneys General (AG) are “trying to crack down” on such deceptive practices. Know how to spot phonies and only file authentic documents by following these helpful tips:

  • Check with state AG and SOS offices for scams circulating in areas where you do business
  • Do not reply to emails from unverified sources (or open links/attachments)
  • Read the fine print, look for statements like: “This is not a governmental agency”
  • Be suspicious of prepopulated forms that may change your agent
  • Be especially vigilant when receiving correspondence from:
    •     Annual Business Services
    •     Business Filing Services
    •     Corporate Records Service
    •     Division of Corporate Services
    •     Trademark Compliance Center International Catalogue of Trademarks, TM Edition

As your registered agent, we watch for this stuff so you don’t have to. No matter the department, our knowledgeable staff knows how to identify scammers. So when in doubt, give Capitol a call or shoot us a copy of the questionable form. We’ll help you chunk that junk and get on with your day!

Judgment and Judgment Liens

Do you know the difference between a judgment and a judgment lien? Are you familiar with the different ways that judgment liens are created? These questions are important to keep in mind when conducting a public records search.

A judgment is an official decision made by a court resolving a legal dispute and setting forth the rights and responsibilities of the parties involved. A judgment lien is a type of lien that attaches to a defendant’s property as a result of a judgment and is used to collect on that judgment.

In many states, a judgment doesn’t become a lien on the defendant’s property until the plaintiff makes an additional filing and records the judgment in the county where the property is located. However, in other states, a judgment entered by the court automatically becomes a lien on the property of the defendant located within the county. In these states, the plaintiff is not required to separately record the judgment to create a lien on the defendant’s property, as long as the property is located in the same county that the judgment is entered.

States often have different rules depending on the type of property involved. Most, if not all, states allow a judgment lien to attach to a defendant’s real property. Some states allow for a judgment lien to attach to a defendant’s personal property. In the states that allow a judgment lien to attach to both real and personal property, the method by which the lien is created may differ based upon the type of property.

Litigation Searching

Searching for civil cases by party name as long been part of a comprehensive public records search, along with state and county lien searches. When determining the correct jurisdiction to search, the Uniform Commercial Code and IRS Code have offered significant guidance as to the proper place to record liens against entities and individuals. In contrast, lawsuits may be filed in numerous jurisdictions, making it much more cumbersome to identify which courts should be searched in order to uncover lawsuits.

Even when the proper court is searched, court indices are not straightforward and litigation can be difficult to locate solely by party name. For example, many courts will index only the first named Defendant and Plaintiff; additional parties not included in the title case are nearly impossible to discover.

Limiting the scope of the search to open cases can be perilous. Searching only open litigation may preclude the searcher from uncovering all judgments. It is a common misconception that all judgments rendered in court are simultaneously recorded as a lien. This is not a requirement in all states. Even when judgments are recorded, there is often a significant gap in the time between the case closing in the court, and the final judgment appearing in the judgment index or real property records. In addition to missing judgment liens, failing to review closed cases may leave the searcher unaware that a closed case has moved forward in the appeals process and is now an open case at the appeals court.

Unfortunately, some court search issues, such as incomplete indexing of party names, are out of the control of the searcher. However, when considering best practices for litigation searching, the searcher may increase the success of his due diligence by widening the jurisdictional scope of the search to include a review of closed-case dockets.