Closing Certificates
Best Practice Summary

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Closing certificates are written statements of fact required by a party to a transaction as a condition of closing. They are separate documents from the main transaction document either because they are delivered at a separate time from the main transaction document (for example, a "bringdown" certificate updating representations and warranties) or because they are delivered by someone who is not a party to the transaction (for example, a good standing certificate from the secretary of state).

In a corporate financing or merger transaction, closing certificate requirements are generally listed among the closing conditions set out in the primary transaction agreement (i.e. the asset purchase agreement, stock purchase agreement, or agreement and plan of merger) and will be listed on the closing agenda or checklist. Typical closing certificates in a corporate financing or merger transaction include:

• Secretary's Certificates.
  
  
• Incumbency Certificates (which may or may not be part of the secretary's certificate).
  
  
• Officer's Certificate for representations and warranties and conditions precedent. Officers may also certify to any condition that the parties require such as stock ownership, solvency or other financial matters.
  
  
• Good Standing Certificates.
  
  
• Backup Certificates.

Secretary's Certificates

The most common form of closing certificate is a Secretary's Certificate whereby the Secretary of a corporation certifies to certain matters as explained further below. If a limited liability company has officers, it may also issue a Secretary's Certificate, or may instead issue a Certificate of the Managing Member. A limited partnership will issue a Certificate of the General Partner that will certify to matters and documents specific to a limited partnership, similar to a Secretary's Certificate.

The Secretary's Certificate is used to certify:

• Resolutions: That resolutions authorizing the transaction and related matters adopted by the directors and stockholders (in the case of a corporation), or members and managers (in the case of a limited liability company) or the general partner (in the case of a limited partnership, if the limited partnership agreement so provides) have been approved by the appropriate persons. Copies of resolutions are attached as an exhibit to the certificate, and a statement certifying that no resolutions regarding the transaction other than those attached as an exhibit have been adopted by the board of directors or stockholders, managers or members or general partner(s). Only copies of the body of the resolutions, not the actual minutes or consents with the preamble and signatures, are generally attached as an exhibit to the certificate.
  
  
• Bylaws: That the bylaws attached as an exhibit to the certificate are a true, complete and correct copy of the entity's bylaws (if the entity is a corporation). A limited liability company may be asked to certify to and attach its operating agreement. A limited partnership may be asked to certify to and attach its limited partnership agreement.
  
  
• Incumbency: As to the incumbency and specimen signatures of the officers of the entity who have executed the main transaction document(s). Incumbent officers and their titles are listed and their signatures appear as specimens adjacent to their titles. Whether the incumbency certificate is included in the body of the Secretary's Certificate, attached as an exhibit or contained in a separate document is a matter of preference.
  
  
• Charter: That no amendment to the charter (or certificate of formation) of the company has occurred since the date of the certified charter submitted as a closing condition. If there has been an amendment to the applicable document, the secretary so certifies and a copy of such amendment is attached as an additional exhibit to the certificate.
  
  
• Attestation: In an document including an incumbency certification, a paragraph after the secretary's signature will be added for another officer of the Company to attest to the secretary's appointment and qualification.

If a limited liability company has officers, it may also issue a Secretary's Certificate, or may instead issue a Certificate of the Manager's or Managing Member(s). A limited partnership will issue a Certificate of the General Partner(s) that will certify to matters and documents specific to a limited partnership, similar to a Secretary's Certificate.

Sample Manager's Certificate
Sample Secretary's Certificate
Sample General Partner's Certificate

Officer's Certificates

Representations and warranties are usually made by each party to a transaction in the main transaction document. Though deals vary as to the representations and warranties requested, generally they will concern the following categories of information:

• financial statements
  
  
• capitalization
  
  
• business operations
  
  
• regulatory compliance and risks of various kinds, relating to employee benefit plans, other labor matters and environmental issues, among others
  
  
• ownership of intellectual property
  
  
• pending or threatened litigation

In addition, there may be a catchall representation asserting that all material information has been disclosed to the other parties.

Bring Down Certificates

Officers are often required to execute a closing certificate, known as a "bring down" certificate, dated as of the closing date. A bring down certificate is generally required when a transaction is signed on one date and closed on a later date. This certificate "brings down" or updates representations and warranties contained in the main transaction document. Thus, if the main agreement contains a representation that the company has no undisclosed liabilities as of the date the agreement was executed, the bringdown certificate would state that as of the closing date, the company has no undisclosed liabilities.

The officer's certificate will usually not set forth specific representations and warranties but will state that all the representations and warranties made in the main agreement remain true and correct as of the closing date. Any exceptions are stated in the certificate or attached to it as an exhibit.

The officers' certificate usually must also state that the company has performed and complied in all material respects with the agreements and covenants required in the main agreement to be performed or complied with as of the closing date.

Sample Officer's Certificate

Good Standing Certificates

A good standing certificate is obtained from the office of the secretary of state in the states that are being asked to produce the certificate. A good standing certificate may only be requested from the domestic state or they may be requested from the domestic state and all foreign states where the company is registered to do business. It states that the entity is in "good standing" in the state, which generally means that it has made all its required filings. It may or may not reference payment of franchise and similar taxes. Delaware good standings will also attest to franchise taxes being paid. But in many states, if a company needs a certifiate of tax good standing, it will be a totally separate process. For more information on good standing certificates see LeapLaw's Good Standing Certificates Best Practice Summary.

Bring Down Good Standing

A "bring down good standing" is a report, usually transmitted by fax, stating that the company has remained in good standing from the date of the good standing certificate to and as of the closing date. These certificates are often requested on the day of a closing and only from the state of incorporation.

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Backup Certificates

Most transactions require an opinion of counsel from the attorneys representing the entity receiving consideration for its stock. Such attorneys will often require officers of the client to certify as to certain facts which support the legal opinion. An example of such a certification would be that securities of the certifying corporation were not offered through "general solicitation or general advertising" so that the company's attorney can confirm that an offering of securities was made in compliance with Regulation D.

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