Closing certificate: Overview, definition, and example
What is a closing certificate?
A closing certificate is a formal document issued during the closing of a transaction, such as a merger, acquisition, loan, or real estate deal. It serves as a written confirmation that specific conditions, representations, and warranties outlined in the agreement have been satisfied or remain true as of the closing date. The certificate is typically signed by an authorized representative of one or more parties involved in the transaction.
Why is a closing certificate important?
A closing certificate is important because it provides a final assurance that all necessary conditions for the transaction have been met. It ensures transparency and accountability by documenting that the representations and warranties made in the agreement remain accurate.
For businesses, a closing certificate reduces the risk of disputes or misunderstandings after the transaction is finalized. It serves as evidence of compliance with the terms of the agreement and can be relied upon if issues arise post-closing.
Understanding a closing certificate through an example
Imagine a company secures a loan from a bank. Before the funds are disbursed, the company’s CEO signs a closing certificate stating that all financial covenants and conditions precedent outlined in the loan agreement have been met and that the representations made during the negotiation remain true as of the closing date.
In another example, during the acquisition of a business, the seller provides a closing certificate to the buyer, confirming that no material adverse changes have occurred since the agreement was signed and that all required regulatory approvals have been obtained.
An example of a closing certificate clause
Here’s how a closing certificate clause might appear in a contract:
“At the Closing, the Borrower shall deliver to the Lender a Closing Certificate, executed by an authorized officer of the Borrower, certifying that (i) all representations and warranties in this Agreement are true and correct as of the Closing Date, (ii) all conditions precedent to the Closing have been satisfied, and (iii) no Event of Default has occurred or is continuing.”
Conclusion
A closing certificate is a critical document in major transactions, providing final confirmation that the terms and conditions of an agreement have been fulfilled. For businesses, it ensures accountability, reduces post-closing risks, and serves as formal evidence of compliance. Including a clear requirement for a closing certificate in agreements ensures transparency and smooth execution of the transaction, protecting the interests of all parties involved.
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.