Incumbency certificate: Overview, definition, and example
What is an incumbency certificate?
An incumbency certificate is an official corporate document that confirms the identity and authority of a company’s officers or directors. It is typically issued by a corporation’s secretary or other authorized representative and is used to verify that certain individuals have the legal power to act on behalf of the company.
For example, in a business loan transaction, a lender may require an incumbency certificate to confirm that the person signing the loan agreement is authorized to do so. Similarly, in a merger or acquisition, the acquiring company may request an incumbency certificate to verify the authority of the target company’s executives.
Why is an incumbency certificate important?
An incumbency certificate ensures legal certainty, prevents fraud, and provides official verification of corporate authority. Without it, third parties may question whether a company's representative has the power to execute contracts or financial transactions.
For businesses, incumbency certificates help streamline corporate transactions, protect against unauthorized actions, and ensure compliance with governance requirements. They are commonly used in banking, mergers, partnerships, and financial agreements to confirm the legitimacy of signatories.
Understanding incumbency certificate through an example
Imagine a corporation applying for a line of credit from a bank. Before approving the loan, the bank requests an incumbency certificate verifying that the company’s CFO is authorized to sign the agreement. This ensures the bank is dealing with a legitimate representative.
In another scenario, a foreign investor is acquiring shares in a company and needs to verify that the CEO signing the shareholder agreement has the necessary authority. The company provides an incumbency certificate confirming the CEO’s position and legal authority.
Example of an incumbency certificate clause
Here's an example of how an incumbency certificate clause may look in an agreement:
“The Company shall provide an incumbency certificate, duly signed by the Corporate Secretary or other authorized officer, verifying the identities and authority of its directors and officers. Such certificate shall be deemed conclusive evidence of the authority of the listed individuals to act on behalf of the Company.”
Conclusion
An incumbency certificate serves as official proof of authority in corporate transactions, ensuring that only authorized individuals can act on behalf of a company. It is essential for legal, financial, and business dealings that require verified signatures and approvals.
By including an incumbency certificate clause in agreements, businesses can reduce fraud risks, protect corporate integrity, and provide legal certainty in contracts and financial transactions.
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.