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A Morrow guide

Buying a Marketing Agency: Client Contracts, Licenses and Bonds to Check

In this guide

Read your client agreements first. They carry the insurance, indemnity and ownership promises that can catch a new owner, and the office lease adds its own insurance clause. Licenses are mostly ordinary business registrations, with extra filings only for specific work such as contests, talent booking or foreign clients. Where a bond appears, it protects the party it is written for, such as a state, a prize winner or a client, not the agency. This guide is for the buyer of an advertising, digital, public relations or media buying agency who wants to know which paper to read first and what to reissue at a sale. Confirm local rules with the issuing authority and your attorney.

The short answer

  • Client agreements are the paper that matters most. Read each one for indemnity (a promise to cover the client's losses), required insurance, additional insured status, waiver of subrogation, primary and noncontributory wording, notice duties and ownership of the work. The table below explains each.
  • An additional insured endorsement or a certificate of insurance does not create coverage the policy lacks. The standard general liability form removes personal and advertising injury coverage for an insured whose business is advertising, so check what each policy actually covers for the agency itself.
  • Agencies typically need ordinary business registration, local licenses and tax registrations. Specific activities can add more: contests and sweepstakes in some states, talent booking in some states, and federal foreign agent and lobbying rules.
  • A surety bond is a repayment arrangement. If the surety pays, it expects the agency and its owners to reimburse it, so a bond is not insurance for the agency.
  • At a sale, check consent and change of control clauses, reissue certificates, confirm licenses with each issuer and expect bonds to be re-underwritten.

What do client contracts ask a marketing agency to insure?

Client master services agreements often carry significant insurance language. Limits and clauses vary by client and by industry, so this guide gives none. Read the three largest agreements first and compare each clause with the policies you inherited.

Client contract clauses to look for and what to check
ClauseWhat it may askWhat to check in your policies
Indemnity for intellectual property and advertising claimsThe agency pays if its work infringes someone's rights or makes a false claimWhether professional and media liability respond. The standard general liability form excludes advertising liability assumed in a contract, except liability you would have had without the contract
Required policiesGeneral liability, professional or media liability, cyber, workers' compensation, sometimes umbrellaThat each exists, with limits and a claims-made date that meet the clause
Additional insuredThe client is added to the agency's policyThe endorsement form and whether it reaches the claims the client worries about
Waiver of subrogationThe insurer gives up recovery rights against the clientWhether the policy allows a waiver agreed before a loss
Primary and noncontributoryThe agency's policy pays first, without asking the client's policy to shareThe endorsement and the policy's other insurance wording
Data and security dutiesNotice windows and security standards for client dataThat cyber coverage and internal procedures match the notice period
Ownership of work and freelancer assignmentsThe client owns the deliverables and the agency holds rights to everything in themWhether freelancers assigned their rights in writing, and the license inventory for images, fonts and music

The guide to checking customer contracts against your policies shows the method, and additional insured, waiver of subrogation and primary noncontributory explains each term. The agency pages on indemnity clauses and the contract insurance requirements checklist add detail.

What do the lease and client certificates require, and can a certificate fix a mismatch?

Leases commonly ask the tenant to carry general liability and property insurance on its own contents and improvements, workers' compensation where required and a certificate of insurance. Landlords often ask for additional insured status and a waiver of subrogation. Dollar limits are lease specific, so read yours rather than assume. Ask whether the landlord's insurance clause was written for an ordinary office and whether it asks for coverage your policies do not offer, such as advertising liability under general liability.

A certificate of insurance is a summary document. It does not amend the policy or give the holder rights, and an additional insured endorsement only adds a party to coverage that already exists. Neither can supply coverage the underlying policy leaves out.

A hypothetical example. A landlord and a large client both ask to be named as additional insured and to receive a waiver of subrogation, and the agency requests two certificates. Months later the client is sued over a claim about an advertisement the agency made, and it asks the agency's general liability insurer to take over the claim. The policy has no endorsement for that client, so the client is not an insured under it.

Even if the client had been added, the endorsement's own wording would decide whether it reaches advertising claims, because some additional insured forms are written for bodily injury and property damage only, while others also reach personal and advertising injury. The agency's own coverage for the underlying claim also depends on its professional and media wording. The client holds a certificate and no coverage. The mismatch could have been found by reading the policy before the certificate was requested.

Read why a certificate is not coverage and lease insurance requirements most new owners have never read. If the seller issued certificates, see certificates the seller issued.

Does my agency need a license, and when do contests or talent booking change that?

The U.S. Small Business Administration (SBA) says most small businesses need a mix of federal, state and local licenses and permits, and that zoning can apply even to a home-based business. Typical requirements for an agency are ordinary business registration, local business licenses and tax registrations. Rules differ by state and city, and whether sales tax applies to marketing services is a question for your accountant.

Specific activities can add more. The examples below show the kinds of rules that exist. They name specific states and statutes, not every state. Tell your attorney what the agency actually does and have them confirm the rules where you operate.

Activity-based rules an agency may meet
ActivityKind of ruleExample to verify
Sweepstakes or other promotion where prizes are awarded by chance, New YorkState registration with a bond or trust accountGeneral Business Law 369-e: prizes over $5,000, a $100 filing at least 30 days ahead, and a trust account or bond for the prize value
Game promotion tied to consumer products or services, FloridaState registration with a bond or trust accountStatute 849.094: prizes over $5,000, a $100 filing at least 7 days ahead, and a trust account or bond
Booking talent, models or creatorsState talent agency license with a bondCalifornia Labor Code sections 1700.4, 1700.5 and 1700.15 require a license from the Labor Commissioner and a $50,000 bond for talent agencies. Whether an influencer or creator agency counts depends on its activities
Public relations or political work for a foreign clientFederal registrationThe Foreign Agents Registration Act (FARA) treats a public relations counsel or publicity agent for a foreign principal as within its definition, and a willful violation carries criminal penalties. The definition is fact specific and has exemptions
LobbyingFederal registrationThe Lobbying Disclosure Act sets registration deadlines and income thresholds adjusted over time

The statutes use broad wording. New York names any person, firm or corporation proposing the promotion, and Florida's definition of an operator includes an agent or employee. Both have exemptions, and neither covers every contest. Whether an agency that runs a client's promotion must file is a question for counsel. A buyer inherits campaigns already run, so ask the seller for the list of contests and the filings made. See licenses, permits and registrations when buying a business.

Which bonds might apply, and do they protect me?

A surety bond is a three-party arrangement. The agency is the principal, the surety issues the bond, and the party the bond is written for, called the obligee, is protected. The surety looks at the principal's finances and its owners before it writes the bond, and if it pays a claim it has the right to recover from the principal. Many sureties ask for a signed indemnity agreement from the company and, often, from its owners personally.

That is why a bond is not insurance for the agency. A contest bond or trust account is meant to secure the prize pool, and the California talent agency bond is deposited with the Labor Commissioner as a condition of the license. Neither exists for the agency's benefit. Reimbursing the surety is the agency's job. See surety bond vs liability insurance and the surety bonds page.

If a client ever asks for a performance bond, a surety would generally underwrite the buyer, not the seller, and may ask for new indemnity from the new owners.

When ownership changes, bonds are usually re-underwritten or reissued. A seller's personal indemnity to a surety generally survives a sale unless the surety releases it, and a purchase agreement alone does not do that. Read do surety and license bonds transfer when you buy a business.

What transfers at a sale and what must be reissued?

The answer depends on whether you bought the company or its assets. Your purchase agreement and deal counsel control. The table shows the general pattern.

What generally happens by deal type
ItemStock or membership interest purchaseAsset purchase
Client master services agreements and statements of workThe agency entity stays the party. A plain anti-assignment clause is usually not triggered, but a change of control clause can beA contract with an anti-assignment clause needs the client's consent to move to your company
Media vendor and platform agreementsThe agency stays the party. Check change of control wordingConsent may be needed to move each one. Check whether the agency or the client is the party on the media contract, since media buyers often act as principal
Insurance policiesThe policies stay with the entity. Tell each carrier, and read change in control wording on claims-made policiesThe seller's policies cannot be transferred without the insurer's written consent, so you need your own in force at closing
Certificates of insuranceUpdate the descriptions and holders so they match the current policiesIssue new certificates in the new entity's name
Licenses and registrationsAsk each issuer whether a change of ownership must be reportedAsk each issuer whether a new application is needed
BondsExpect re-underwriting and new indemnityA new bond in the buyer's name is generally needed
Office leaseRead the assignment and change of control termsA landlord's consent is usually needed for assignment

See asset purchase vs stock purchase for how the structure works, and the first guide in this set for the policies you need in force on day one. A lender or investor may ask early about key client and media vendor contracts, so line up consents before closing where you can. Also ask whether any large client can end the contract on short notice or on a change of control. Insurance does not respond when a client leaves.

What should I check in the first 60 days?

  1. Read the three largest client agreements and the lease against the policies, and note every mismatch.
  2. List every certificate issued in the last year and reissue the ones that name the old entity.
  3. Ask the seller for contests and sweepstakes run, with any filings and bonds, and for influencer, review and consent records.
  4. Confirm with counsel whether any talent booking, foreign client or lobbying work triggers a registration.
  5. Collect freelancer agreements and intellectual property assignments.
  6. Ask your broker to confirm in writing that required endorsements are on the policies, not only on certificates. The certificate tracking guide helps you set up the process.

If you want a second reader, a Morrow review can line the three largest client agreements and the lease up against the declarations pages and forms you inherited and list the mismatches. Any new terms depend on carrier underwriting.

The coverage gaps guide for marketing agencies shows what to do when a clause cannot be met by the policy you have.

Keep reading

Frequently asked questions

Do I need a license to run a marketing agency?

Agencies typically need ordinary business registration, local licenses and tax registrations, and some activities add more. Rules differ by state and city, so ask your state and city offices and your attorney, especially about contests or talent booking.

Does an additional insured endorsement cover my client's advertising claims?

Not automatically. It adds the client to coverage that already exists, and the endorsement's wording decides which claims it reaches. Some additional insured forms cover only bodily injury and property damage and others go further, so the wording decides. If the policy does not cover the claim for the client, the endorsement does not create coverage. Ask your broker to read the endorsement and the exclusions together.

Do I need a bond to run a sweepstakes for a client?

Some states, including New York and Florida, require registration and a bond or trust account for chance-based prize promotions above a $5,000 prize threshold. Scope and exemptions vary, and who files when an agency runs a client's promotion is a question for counsel.

Do my client contracts transfer when I buy the agency?

In a stock purchase the agency stays the party, though a change of control clause can still be triggered. In an asset purchase, contracts with anti-assignment clauses need the client's consent. Deal counsel should check both before closing.

Is a surety bond insurance for my agency?

No. The surety expects to be repaid by the agency and often by its owners. A bond protects the party it is written for, not the agency.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

Morrow · 25 New Chardon Street, 4th Floor, Boston, MA 02114

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.