Grant Corporate Officers the Authority to Make Binding Decisions
Executives and other high-ranking officers often make important binding decisions on behalf of their company. Depending on the size of the organization and its geographical footprint, it may be impractical for the CEO or president to personally sign off on these decisions themselves. But how does the other party verify that the individual making a binding company decision has such authority?
That’s where the Certificate of Incumbency comes in. Also referred to as a “register of directors” or “certificate of officers,” the Certificate of Incumbency is a signed, legal document verifying the identity of individuals authorized to act on behalf of the organization. We’ll answer some questions about this important business document.
What is a Certificate of Incumbency?
A Certificate of Incumbency is a document issued by the secretary of a corporation or limited liability company (LLC) listing the names, titles, and terms (if elected) of directors and officers. Shareholders also may be added to this document on occasion, depending on their role within the company. This list typically includes the president, chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO), and VPs or other upper-level managers.
Corporations and LLCs typically draft a Certificate of Incumbency when they incorporate, but it also must be updated as needed to account for the addition or departure of officers. The credibility of a Certificate of Incumbency may be confirmed through notarization, but the official company seal and the signature of the officer responsible for maintaining corporate records (the “secretary,” either in title or practice) are typically enough to establish legitimacy with third parties.
Given that some corporations have an international reach, and officers may sign binding agreements in different countries, it’s important to understand that the Certificate of Incumbency is governed by the laws of the state in which the company is incorporated.
When would a corporate officer need a Certificate of Incumbency?
Let’s say your newly hired CFO visits a corporate partner to review and sign off on a distribution deal that has been in the works for a while. She has business cards and identifies as your company’s new finance chief, but the other party needs reassurances. It’s a large transaction that’s important to both companies and they don’t want to take any chances.
By presenting the business partner with an updated Certificate of Incumbency, they are able to confirm her identity and authority, while also ensuring that her signatures match.
Financial institutions may request a Certificate of Incumbency prior to opening an account or approving a large transaction. Attorneys also may request this document to verify which officers are legally authorized to bind the company in a given contract. It also may be used to confirm that the contents of the company’s Meeting Minutes are valid. Generally, any party involved in a transaction or legal agreement with the company may request a Certificate of Incumbency.
What happens if a corporate officer signs a contract for the company without having a Certificate of Incumbency?
There are certain situations where another party will require a Certificate of Incumbency prior to a company officer signing and executing a transaction, including transactions with foreign banks and filing corporate taxes. However, there’s no penalty, so to speak, if you execute a transaction on behalf of your company without presenting a Certificate of Incumbency, assuming the other party didn’t mandate it.
The risk of not asking for a Certificate of Incumbency when engaging in transactions with other corporations and LLCs, though, is that your agreement may not be legally binding if it turns out the person signing wasn’t authorized to do so.
Eliminate uncertainty with a properly drafted Certificate of Incumbency
The most successful businesses understand the importance of delegation. Even if you’re the founder and CEO, you can’t be everywhere all the time and will need to count on other officers to make important decisions on behalf of the company. Make things easier on yourself with the help of a well-drafted Certificate of Incumbency, and be sure to revise it when necessary. If you have legal questions about this or other business matters, don’t hesitate to ask a lawyer.
This article contains general legal information and does not contain legal advice. Rocket Lawyer 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.