What is a Certificate of Incumbency?

In the world of commercial loans, there are many documents and terms that individuals may find challenging to navigate. One term that often arises is the “Certificate of Incumbency.”

A Certificate of Incumbency is a formal document verifying the identities of key individuals in a company – particularly those who are participating in a given transaction. Think of this certificate as an ‘ID card’ for a company, showcasing who is authorized to act and make decisions on the company's behalf.

A Certificate of Incumbency may be focused on “incumbency” of authorized individuals or it may also be a catch-all for various underlying authorization matters; in such cases, the incumbency certificate can be referred to, as well, as a Manager’s, Secretary’s or Officer’s Certificate and will include additional certificates and documentation (such as the resolutions, charter/qualification documents and good standings noted below) in addition to the incumbency certification.

Key Components of the Certificate:

1. Names and Positions: It lists key personnel in the company, such as the CEO, CFO, and other relevant officers.

2. Signatures: The document often includes the signatures of these officers or a company secretary to validate authenticity of the signatures.

3. Issuance Date: This confirms when the certificate was generated, ensuring its relevance at the time of the loan application.

4. Resolutions. The certificate often includes resolutions of the business entity – in the form of a written consent or meeting minutes – describing the transaction, its documentation and the specific authority granted to individual participants and certifying that required entity-level decisions actually occurred.

5. State Charter or Qualification Documents. In many transactions, the certificate will attach the subject business’ charter documents as certified by the applicable secretary of state where the entity was formed (or, in some cases, qualification in the jurisdiction in which the transaction is occurring), verifying that the entity currently exists and is the entity being discussed in the transaction.

6. State Good Standings. In some transactions, a “good standing” is required and this state certificate provides further evidence of registration and certifies that the entity is up to date on registration fees and required document filings, and is legally permitted to engage in business activities.

Why is it Used in a Commercial Loan Transaction?

1. Validation of Authority: Lenders want to be certain they’re dealing with individuals who are legally allowed to borrow money on behalf of the business. This certificate ensures they are speaking to the right person and they have been “duly authorized” by the business entity.

2. Risk Management: Receiving such a Certificate of Incumbency minimizes the risk for lenders by eliminating the chances of fraudulent loan requests, a lack of authority to complete a transaction or misunderstandings about who can commit the company to a debt.

Takeaway:

A Certificate of Incumbency serves as a reasonably clear indicator of who holds significant positions and authority within a company. The certificate plays a key role in giving lenders the confidence to proceed with a given transaction, ensuring they’re interacting with the right representatives of the business.

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