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  3. What is a Certificate of Incumbency?

What is a Certificate of Incumbency?

by
Kruze Consulting Kruze Consulting

Kruze Consulting

Last updated: September 13, 2024
Published: June 30, 2024

What is a Certificate of Incumbency?

A Certificate of Incumbency, also known as an Incumbency Certificate, is an official document issued by a corporation, typically signed by the company’s secretary. This certificate lists the current officers and directors of the company, verifying their identities and positions within the organization. This document verifies the identities and positions of the company’s current directors, officers, and sometimes key shareholders, confirming their authority to act on behalf of the organization. While not used very often in the US, a Certificate of Incumbency is something that founders operating internationally may be asked to produce. So if your startup is opening a bank account in Hong Kong, for example, you may be asked to produce this document.

Key Features of a Certificate of Incumbency:

  • Identification of Officers and Directors: It includes the names, titles, and sometimes signatures of the key officials of the company, and it may also include key shareholders.
  • Corporate Authentication: It is usually accompanied by the company seal, adding an extra layer of authenticity.
  • Signatures: In many cases it requires signatures of the people / investors listed, which can take time - and is best left to your law firm to organize.
  • Verification: The certificate can be notarized or apostilled, making it a recognized legal document in various jurisdictions.

Importance of a Certificate of Incumbency for Startups

While not frequently required for day-to-day operations in the United States, a Certificate of Incumbency can be a crucial document for startup founders, especially when dealing with international business activities.

If your startup is asked to produce one, we recommend asking / confirming that it’s really something that you need. Most US-based companies aren’t going to have to deal with this, so it’s very possible that the institution requesting it has another type of document that you can produce more easily.

Why Startups Need a Certificate of Incumbency

  1. International Transactions: For startups expanding or operating internationally, many foreign banks and regulatory bodies require a Certificate of Incumbency to verify the authority of individuals representing the company. This helps ensure that the people they are dealing with have the legal right to bind the company.
  2. Opening Bank Accounts: Some international banks request a Certificate of Incumbency as part of their due diligence process when a startup attempts to open a new account. It helps verify the individuals who can manage the account and authorize transactions.
  3. Legal and Compliance Requirements: Certain jurisdictions require a Certificate of Incumbency for compliance purposes. This is especially true in countries with stringent anti-money laundering regulations and corporate governance standards.
  4. Business Contracts: When entering into contracts with international partners or clients, a Certificate of Incumbency can serve as proof that the signatories have the authority to commit the company to the terms of the agreement.

How to Obtain a Certificate of Incumbency

At Kruze Consulting, we do not provide Certificates of Incumbency directly. Instead, we recommend that startup founders reach out to their registered agent or legal counsel to obtain this document. Pretty much all VC-backed US startups are going to be registered in Delaware by an agent, so this could/should be the first provider to ask if your startup is recently incorporated. And, this is yet another reason that your cap table should be organized and up to date!! Here’s a quick guide on the process:

  1. Make Sure Your Cap Table and Corporate Directors and Officers are Up to Date: Since this is the basis of producing a certificate, make sure this is kept fresh!
  2. Contact Your Registered Agent: Many startups use a registered agent service for compliance and legal correspondence. These agents can often provide or assist in preparing a Certificate of Incumbency.
  3. Consult Your Law Firm: Law firms that specialize in corporate law can draft a Certificate of Incumbency tailored to your startup’s needs. They ensure that all necessary details and formalities are included, making the certificate valid for legal and business purposes.
  4. Internal Preparation: In some cases, the startup’s corporate secretary can prepare the certificate. Ensure it includes accurate and up-to-date information about the company’s officers and directors.

Conclusion

A Certificate of Incumbency is generally not a daily necessity for startups operating solely within the United States. However, for those expanding globally or engaging in international transactions, it becomes a critical document. Ensuring that you have an accurate and properly authenticated Certificate of Incumbency can facilitate smoother international operations, compliance, and business relationships. At Kruze Consulting, we advise startups to leverage the expertise of their registered agent or legal counsel to obtain this essential document. However, we are experts at advising startups on their Delaware franchise taxes, so keep us in mind for that!

By understanding the importance and the process of obtaining a Certificate of Incumbency, startups can better navigate the complexities of international business and ensure they are well-prepared for any legal or financial requirements that come their way.


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