Overview
During our audit, we identified 1 out of the 60 Articles of Organization in our sample where the Secretary of the Commonwealth of Massachusetts (SOC) did not ensure that the Articles of Organization contained all the information required to be included by the incorporator. This Articles of Organization was filed online with SOC. The authorized signature did not include the incorporator’s name, their role in the corporation, and the date they signed the Articles of Organization.
Without a complete signature, including the incorporator’s name, their role in the corporation, and the date they signed the Articles of Organization, SOC cannot know who is responsible for the corporation. The signature requirement ensures that all organizations complete the form consistently, providing a level of accountability and transparency.
Authoritative Guidance
According to Section 113.06(4) of Title 950 of the Code of Massachusetts Regulations,
[Articles of Organization] shall be signed by an authorized person, and further, unless submitted by authorized electronic or facsimile transmission, such signature must be original. The authorized person must state beneath or opposite his signature his name, the capacity [their role in the corporation] in which he signs and the date.
Reasons for Noncompliance
SOC did not create policies and procedures to review authorized signatures, nor did it provide staff attorneys or compliance managers with internal policies as to what an authorized signature should include.
Recommendation
SOC should create policies and procedures to ensure that all Articles of Organization filed with it are signed by an authorized person and include their role in the corporation and date they signed.
Auditee’s Response
The [draft audit report] found that the SOC did not ensure that all Articles of Organization were properly signed and recommended that the SOC create policies and procedures to ensure that all Articles of Organization filed with the SOC are signed by an authorized person and include their role in the corporation and date they signed. The SOC believes we have complied with state law and regulations relative to processing Articles of Incorporation and argue that the finding makes several errors in its assessment that the SOC “did not ensure that all Articles of Organization were properly signed.”
Section 2.01 of chapter 156D of the Massachusetts General Laws provides that “one or more persons may act as the incorporator or incorporators of a corporation by signing articles of organization and delivering them to the secretary of state for filing.” While section 1.20 of chapter 156D of the General Laws provides that the person executing the document must state their name and capacity, this is not applicable to the Articles of Organization. The person signing the Articles of Organization’s role is defined by section 2.01 of chapter 156D as the incorporator. The sole function of the incorporator is to sign the articles of organization and deliver them or cause them to be delivered to this office. Upon the creation of the entity, the incorporator holds no official position in the corporation. Therefore, the articles of organization in question, complied with law and this office had no authority at the time of its presentment to reject the articles of organization. We are unable to create policies and procedures as suggested in the [draft audit report] as they would be contrary to law. . . .
Additionally, listing this as a “significant finding” completely disregards the fact that even if the articles of organization did not comply with law, which they, in fact did, one out of sixty reviewed documents is not significant. The error rate in this instance would be .01%, rendering this statistically insignificant. With only this one so-called error, it is clear that the SOC has policies and procedures in place to ensure that the Articles of Organization are filed in compliance with law.
Auditor’s Reply
As stated above, SOC did not ensure that the Articles of Organization contained all the information required to be included by the incorporator. SOC’s assertion that the incorporator holds no role is inaccurate. Section 1.20(g) of Chapter 156D of the Massachusetts General Laws states, “The person executing the document shall sign it and state beneath or opposite his signature his name and the capacity in which he signs.”
The incorporator is an official position, especially in instances before the formation of a corporation where the incorporator has a very specific role to execute documents such as Articles of Organization. The General Laws make no provision to relieve the incorporator of their duty to sign their name and include the capacity in which they sign. We believe that the signature requirement ensures that all organizations complete the form consistently.
In response to SOC’s comment about the significance of the finding, our audit testing was designed with the expectation of not finding any exceptions in our sample of 60 instances. Therefore, even one exception identified is considered significant based on the design of our testing.
The Office of the State Auditor reiterates its recommendation that SOC should create policies and procedures to ensure that all Articles of Organization filed with it are signed by an authorized person and include their role in the corporation and date they signed.
| Date published: | January 13, 2023 |
|---|