Certificate of authority: Overview, definition, and example
What is a certificate of authority?
A certificate of authority is an official document issued by a government or regulatory body that grants a business the legal right to operate in a specific jurisdiction. It confirms that a company has met all necessary legal and regulatory requirements to do business within that area, such as registering with the state, obtaining necessary permits, and paying applicable fees. For businesses operating across multiple states or regions, a certificate of authority is needed to conduct business legally in each jurisdiction.
In simpler terms, a certificate of authority is like a license or permission that allows a business to operate legally in a specific location.
Why is a certificate of authority important?
A certificate of authority is important because it ensures that a business is complying with local laws and regulations, which is necessary to avoid legal issues or penalties. It’s also often required for a business to open bank accounts, enter contracts, and conduct other legal activities within a particular jurisdiction. Without it, a business could face fines, penalties, or even be prohibited from operating. It’s especially crucial for businesses that expand beyond their home state or country, as each jurisdiction may have different legal requirements.
For SMB owners, obtaining a certificate of authority is key to staying compliant with local, state, or national regulations and ensures that the business can legally operate and grow.
Understanding a certificate of authority through an example
Let’s say your business is based in California but wants to expand and offer services in New York. To legally operate in New York, you must obtain a certificate of authority from the state, showing that your business has met the necessary requirements to do business there. Once the certificate is obtained, you can legally sign contracts, hire employees, and operate your business in New York.
In this case, the certificate of authority gives your business the legal right to expand operations into a new state.
Example of a certificate of authority clause in a business agreement
Here’s an example of what a "certificate of authority" clause might look like in a business agreement:
“The Company shall obtain and maintain a valid Certificate of Authority to conduct business in each state or jurisdiction in which it operates. The Company will provide a copy of the Certificate of Authority to the other party upon request to ensure compliance with local laws and regulations.”
Conclusion
A certificate of authority is a crucial document that allows businesses to legally operate within a jurisdiction by proving they meet regulatory and legal requirements. For SMB owners, obtaining and maintaining a certificate of authority is necessary for expansion, compliance, and avoiding legal issues. By understanding and securing this certificate, businesses can confidently enter new markets, enter contracts, and ensure their operations remain legal and protected.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.