Selling or Buying a Bonded Construction Business

Three things, three different rules

A sale looks like one transaction. For bonding purposes it is three, and they do not resolve at the same time or in the same document:

• The license, which follows the entity and depends on how the deal is structured.
• The bonding program, which has to be re-underwritten for whoever now owns and runs the company.
• The indemnity agreement, which is between you and the surety and is not affected by your sale contract at all.

The license: entity sale versus asset sale

In an entity sale — the buyer acquires the shares or membership interests — the licensee is unchanged. The same legal entity holds the same license number. What changes is who owns and officers it, and those changes are reported to CSLB. The qualifier arrangement has to keep working too: if the seller was the RMO and is leaving, that starts the qualifier replacement clock on the day they disassociate.

In an asset sale — the buyer takes the equipment, contracts, and goodwill but not the company — the license does not come along. The buyer needs their own license in their own entity, with its own bond, exactly as in a change of entity. If the buyer is not already licensed, that timeline can be the long pole in the whole deal.

The bonding: re-underwritten, not transferred

A surety wrote your program on the strength of your financials, your track record, and the people running the work. Change the ownership and every one of those inputs is in question. Bonds are not assets that transfer with the company.

What the surety will want to see is the new ownership's financial strength, who is running operations now, whether the seller is staying on in any capacity, and how the balance sheet looks after the deal — which matters more than buyers expect, because a purchase funded by loading debt onto the company weakens exactly the working capital the bonding capacity was built on. A transaction that makes commercial sense can still shrink the program.

Tell the surety early. A change of control discovered after closing is a bad way to begin the buyer's relationship with the market they depend on.

The indemnity: the part sellers miss

Your General Indemnity Agreement is a contract between you and the surety. The surety is not a party to your purchase agreement, so nothing in that agreement changes what you owe the surety.

A clause saying the buyer indemnifies you is worth having, and it does not help you against the surety. If a claim is paid on a bond written while you were an indemnitor, the surety can come to you. Your recourse is then against the buyer, under a contract that is only as good as the buyer's ability to pay.

Release has to be asked for and granted in writing. Sureties will not normally release an indemnitor while bonded jobs are still open — those are the obligations the indemnity exists to back. Realistically that means release comes after the last bonded job is complete, closed out, and past any warranty or maintenance period.

What to do, and when

• Before you sign anything: tell your surety broker. Structure affects bonding, and bonding sometimes affects structure.
• List every open bonded job, with expected completion and warranty end dates. That list is your realistic timeline for indemnity release.
• Ask for the release in writing, and get the surety's written position on what it will require and when. Do not rely on an understanding.
• Chase closeout on finished jobs. Every job with an outstanding consent of surety is a job keeping you on the hook.
• Buyers: get your own bonding conversation started early, before closing, so the company can keep bidding the week after the deal.

Buying or selling a bonded contractor? Bring us in before the structure is fixed — the bonding consequences are much cheaper to design around than to fix afterwards. Start a conversation. This is general information, not legal or tax advice; use a transaction lawyer for the deal itself.