Surety bonds required to obtain a business license.
Learn more about license and permit bonds.
A business takes few actions today without a governmental permit or approval. Many of these government permits are granted only after the business posts a bond guaranteeing compliance with laws, ordinances, and regulations.
What are license and permit bonds?
License and Permit Bonds “put teeth” into the laws passed for public protection. A bond is unlike insurance in that an insurance policy is written for the benefit of the policyholder while a bond is written for the benefit of a third party such as the state or its citizens.
For example, sewer builders must conform to city sanitary regulations. They must give a bond to guarantee compliance with city regulations. If they do not comply, the surety pays damages or ensures compliance. The surety’s great care in selecting its risk helps ensure that only capable sewer builders will be licensed. License and Permit Bonds are divided into five classes:
- Those designed to protect the health and safety of the public, e.g., a sewer builder.
- Bonds required of an individual who has been granted some public privileges which may become a hazard to the general public, e.g., hanging a sign over the street.
- Those bonds which protect the public against loss of money or goods entrusted to the licensee, e.g., real estate broker, public warehouseman, etc.
- Those required of businesses highly susceptible to unscrupulous practices, e.g., small loan companies, motor vehicle dealers.
- Bonds that guarantee payment of taxes collected, e.g., gasoline tax bonds, sales tax bonds.
This latter category represents one of the most important types of surety bonds. These bonds guarantee that the principal will pay over to the state all tax monies received. In the event the principal fails or is unable to pay the tax, the surety company pays for any losses. Without corporate surety, a state program may not be able to collect its revenues.
Source: CNA Surety. Reprinted with permission.
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