In previous blog posts we have discussed in great detail the importance of listing the correct debtor name on a UCC1 Financing Statement and offered some tips for making sure you’ve gotten the name right. We encourage you to explore our older blog posts for more on this topic. To summarize, in order to perfect a security interest, a UCC filing must list the exact legal name of the debtor. For a business name that means the name on their organizing paperwork; for an individual it will generally mean their name as it appears on the driver’s license or state-issues identification card. Sounds straightforward enough, but sometimes the line between business and individual can be fuzzy – for example UCC filings on a sole proprietorship.
A sole proprietorship is a business type where the business and its owner are indistinguishable. The business has “no existence apart from its owner” (State of California Franchise Tax Board). Since the owner and the business are one and the same, many UCC filers are unsure how to structure their UCC1 Financing Statement. Should a sole proprietorship be listed as a business or an individual debtor?
In the eyes of the Uniform Commercial Code, a sole proprietorship is considered an individual, not an organization, even if operating under a trade name (dba). When preparing the Financing Statement, a sole proprietorship would be listed as an individual debtor, completing section 1b of the UCC form; a trade name may be added as an additional debtor. The prepared UCC document would be filed in the state where the debtor has their primary residence.