Incumbency Certificate Meaning
An incumbency certificate refers to an official document containing the names of a firm’s directors, board members and other key management members. Companies or limited liability entities are required to keep an incumbency certificate.
The certificate assists in situations that demand a legally accepted document to prove the identity of an office-bearer. For instance, if a company is embroiled in a legal battle, the identity of the officer in question will be officially validated through the company’s incumbency certificate.
- An incumbency certificate is an official document drafted by a corporation or limited liability company. It lists the individuals and key personnel who are legal representatives of the company.
- It lists out the names, designation and other related details of the office-bearers.
- The company secretary drafts the document as per the local laws.
How does Incumbency Certificate work?
Oftentimes, we have to produce our identity card like a driver’s license before entering an examination centre or at the airport security check to prove our identity to the authorities. Similarly, an incumbency certificate is a document that gives official recognition to the existing key management officers within a company. For example, it will mention how Mr George is the CEO in the current financial year. It will also mention other board membersBoard MembersBoard members comprise the individuals whom the shareholders elect as their representatives. They are responsible for taking crucial corporate decisions regarding the company's policies, dividend payouts, top-level managers' recruitment or layoff and executive compensation. and corporate officers.
Aside from the officers’ names, the certificate will contain additional details on their roles and positions in the firm. It can help one understand a couple of details such as who is holding the CEO position, was the member appointed or elected, when were they appointed, etc.
The officers mentioned in the certificate can be understood as those legally representing the firm. It puts more responsibility and accountability on their shoulders, requiring them to always act in the best interest of the firm and its stakeholders. At the same time, they will be required to ensure legal compliance. If there is an incidence of malpractice or scam in the firm, these office-bearers mentioned in the certificate will be the first ones to be questioned.
The individuals who may be mentioned in the incumbency certificate are as follows:
- CFOCFOThe full form of CFO is Chief Financial Executive, and he or she is a top level executive of the firm who is responsible for the firm's overall finance functions and has the authority to make financial decisions for the organization.
- Company Secretary
- Certain shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares., in some cases
Why is Incumbency Certificate Required?
There are many occasions in which an incumbency certificate can come in handy. A bank may demand the certificate during a business account opening for a corporation. The certificate will validate the key officers who are legally qualified to represent the corporation. The certificate is also required during a mergerMergerA merger is a voluntary fusion of two existing entities equal in size, operations, and customers deciding to amalgamate to form a new entity, expand its reach into new territories, lower operational costs, increase revenues, and earn greater control over market share. or acquisition when the restructuring of the executive board is in order.
It may also be demanded during any financial and legal transaction involving the company. In such cases, the individuals specified in the certificate are held responsible for any risk associated with the company. The individuals listed in the certificate usually sign key company documents necessary for public disclosure, regulatory filings, partnerships, financial records, bank checks, etc.
Sample Incumbency Certificate
Usually, the incumbency certificate is drafted by the company secretary. For more credibility, the certificate is required to bear the company seal. Some local laws also mandate that the document gets notarized. Many local laws hold different rules for drafting such a certificate, as such a lawyer’s expertise is required to ensure legal compliance.
The content is written in simple words without much use of legal jargons.
- In most cases, it starts with an introduction of the company and the status of its registration. It also lists down the region, date of issue, and the company act relevant when drafting the documents.
- This is then followed by a brief introduction of those legally representing the company, their positions within the firm, and their signatures.
- It may also describe if they were elected or appointed.
- The final part of the document will include details of the firm/ individuals who drafted the document, their relevant qualifications and their signature.
A sample incumbency certificate is shown below,
This has been a guide to what is incumbency certificate and its meaning. Here we discuss the overview, sample and why it is required along with the key takeaway. You may learn more about finance from the following articles –