What is a Certificate of Incumbency? When is it required?
People are often surprised by the volume of closing documents that are prepared by a lawyer in order to transfer a business. In continuing with this series of discussions regarding several important closing documents, we will discuss the closing document known as the ‘Certificate of Incumbency’.
Certificate of Incumbency
A Certificate of Incumbency is required where the seller is a corporation. This certificate is prepared by the secretary of the corporation and confirms the name of the person who occupies the positions of president and director of the corporation. It further contains a sample of the signature of the persons who occupy these positions.
This document essentially confirms the names and signatures of the persons who have signing authority on behalf of the Corporation.
In this way, the purchaser can be comforted in knowing that the individual who is signing the selling documents has the permission and the authority to sell the business.
The document eradicates the concern from many purchasers that occurs where several persons are involved in a business. This is often the case in a family business. The purchaser wants to be assured that one brother who is selling the business, has the consent to do so from the other family members, and that this person has the authority to sell the business. A certificate of incumbency thus provides comfort to the purchaser by attesting to the very persons who have the authority to sign documents on behalf of the corporation and sell the business.
The purchaser’s lawyer then compares the name of the individuals and signatures listed on the Certificate of Incumbency with those persons who signed the initial purchase agreement and the resulting bill of sale on closing. The purchaser then can take solace knowing that the business has been properly sold to him or her and that there will not be other family members who later rear their head to claim ownership of the business.
A Certificate of Incumbency is provided by the seller corporation to the purchaser on the closing date. A good lawyer acting for the purchaser will require a Certificate of Incumbency to be prepared by the Vendor as it will provide assurances as to the authorization of the transaction.
-Shira Kalfa, BA, JD, Partner and Founder
© Kalfa Law, 2018
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.