Guard Company License Transfer, Bonds and Contracts

A security guard company usually needs a state license for the company, a named qualifier or manager, a license or registration for each guard and, for armed work, a firearm credential. Proof of insurance is part of the license in Texas, Florida and New York, some states also want a surety bond, and a license may not simply transfer when the business is sold. Customer contracts add their own insurance terms, and federal contracts add rules of their own. This guide is for a buyer who needs to know what to verify before and after closing, using four states as examples.

The short answer

The Bureau of Labor Statistics says most states require security guards to be licensed. The four states reviewed here also license the company itself. Check your state's agency for the company license, the qualifier, guard registrations and any armed credential.
The statutes we reviewed for Texas, Florida, New York and California do not say that a guard company license transfers on a sale, so confirm with the agency. Texas and Florida require notice of changes in officers or partners, and Florida ties good standing to approval.
Insurance is a license condition. In Florida a cancelled policy suspends the license automatically unless replacement evidence is filed first, and in Texas the commission must suspend a license when the required bond or insurance certificate is not kept on file.
A surety bond is not insurance for you. The surety expects to be repaid, so ask the surety what it needs after an ownership change.
Customer contracts, federal contracts and lender documents each ask for insurance in their own terms. Match each one to the policy endorsements, not the certificate.

What licenses does a security guard company need?

Licensing is state law, and the layers vary. The Bureau of Labor Statistics (BLS) says most states require security guards to be licensed, with tighter checks for armed positions. The table shows four example states, not yours.

Licensing layers in four example states
State	Company	Qualifier or manager	Individual guard	Armed work
Texas	Security services contractor license from the Department of Public Safety	The license rests on the qualifications of a named individual	Ask the Department of Public Safety about registration for unarmed guards	A security officer commission to carry a firearm (section 1702.161)
Florida	Class B security agency license, one location per license, branches need their own	A manager license for the Class B agency, a Class M license, or a Class D guard license held for at least two years	Class D guard license, with the agency reporting each hire or termination within 15 calendar days	Class G firearm license
New York	Article 7 watch, guard or patrol agency license, with a $10,000 surety bond; holders of 10 percent or more of the stock are reviewed for good character	Ask the Department of State	Article 7-A registration card, with notice to the state within 15 calendar days of hire or termination	Special armed guard card, with a firearms course
California	Private patrol operator license	Qualified manager certificate, with an exam, and active direction of the business in California	Guard registration	Separate firearm rules: ask the Bureau of Security and Investigative Services

Armored car, alarm and locksmith businesses are regulated separately in many states (Texas lists them as separate kinds of security services contractor), and investigation work has its own rules in some. If your target runs more than one line, confirm each license.

Does the license transfer when you buy the company?

Do not assume it does. The sections of the Texas, Florida, New York and California statutes reviewed here do not say that a guard company license transfers on a sale, and each state's agency rules may say more. What the statutes do say is that changes in officers or partners trigger filings. Florida requires notice within 5 working days of a partner or officer change, with good standing contingent on the department's approval. Texas requires notice within 14 days of a change of officers or partners, and lets a business continue for a temporary period if the individual whose qualifications support the license leaves. Whether a sale itself triggers a filing is a question for the agency.

Your state may treat a stock deal and an asset deal differently, so make your first call to the licensing agency, with deal counsel on the line. Ask what must be filed before closing, whether the qualifier must stay and whether an asset purchase needs a new license.

A hypothetical example. A buyer closes a stock purchase of a guard company. The seller's licensed manager agrees to stay a month, then resigns. The state license depends on a qualifying manager. With no replacement qualified and no filing ready, the business may lose the right to operate, and customers' posts are at risk. Ask deal counsel and the state agency about lining up a qualifier before closing and whether the purchase agreement should address how long the seller's manager stays.

For Small Business Administration (SBA) 7(a) loans, lenders must also get evidence of required licenses within 90 days after final disbursement. The general pattern for trades where the seller holds the license is in when the seller holds the contractor license.

How do insurance and bonds tie into the license?

In Texas, Florida and New York, insurance is a licensing duty, so a customer's request cannot take you below the state floor and still leave the license intact.

Insurance and bond floors in the example states
State	Insurance evidence	Bond	What a lapse can mean
Texas	General liability: $100,000 per occurrence for bodily injury and property damage, $50,000 per occurrence for personal injury, $200,000 aggregate	A surety bond must be kept on file. Ask the Department of Public Safety for the amount	The commission must immediately suspend the company license if the required bond or insurance certificate is not kept on file (section 1702.123). The suspension can be lifted if proof that the bond or coverage stayed in effect reaches the commission within 10 days; after that a new application is needed. Knowing failure to maintain insurance evidence after notice is also a Class A misdemeanor
Florida	Combined single limit of at least $300,000, extending to licensed employees, with the department as additional insured for notice	Ask the Florida Division of Licensing whether a bond applies	The license is automatically suspended on cancellation unless replacement evidence is filed first
New York	General liability evidence of at least $100,000 per occurrence and $300,000 aggregate	$10,000 surety bond for a watch, guard or patrol license	Ask the Department of State
California	Ask the Bureau of Security and Investigative Services what evidence it requires	Ask the bureau whether a bond is required	Ask the bureau

A bond is not insurance for the company: it is a three-party arrangement among you, the surety and the party it protects. If the surety pays a claim it can recover from you, and most sureties require an indemnity agreement, often with the owners' personal indemnity. In contractor deals a seller's personal indemnity generally survives a sale and buyers often arrange replacement bonds. For a guard license bond, ask the surety what it needs after an ownership change. See do surety and license bonds transfer when you buy a business?.

What do customer contracts ask a guard company to carry?

Contracts vary, so read this table as how each clause works, not as a list of what your customers will ask.

Common contract clauses and what to check on the policy
Clause	What it asks	What to check
Additional insured, primary and noncontributory	Add the customer as an insured, with your policy responding first and not seeking contribution from the customer's	Endorsements that say so for the right operations, not a certificate box
Waiver of subrogation	Your insurer gives up its right to recover from the customer	An endorsement; for workers' comp, a waiver endorsement that may list each state, and some states restrict them
Indemnity (hold harmless)	You take on the customer's liability for claims arising from your work	Whether the policy covers the contractual liability you accepted
Cancellation notice	Notice to the customer before cancellation	Whether the policy can promise it; standard conditions give notice to the first named insured, so look for a notice endorsement

The coverage gaps guide explains why customers care so much about these terms. After closing, expect customers and the state to ask for certificates naming the new entity. A certificate is information only, and the endorsement decides what the customer actually gets. See how to check your customer contracts against your policies and additional insured, waiver of subrogation and primary noncontributory. Contracts may need the customer's consent to move in an asset sale, and change-of-control clauses can let a customer renegotiate or leave, so ask counsel.

What changes on a government guard contract?

Does this apply to you? The rules below apply to federal service contracts. The Service Contract Act and the Federal Acquisition Regulation (FAR) are their sources. State and local government contracts have their own wage and insurance rules, so read the solicitation and ask counsel.

Wages. The Service Contract Act applies to federal contracts over $2,500 whose principal purpose is furnishing services through service employees, and the FAR lists guard services as covered. On a successor contract the wage floor follows the work: the contractor generally cannot pay less than the predecessor provided.
Insurance minimums. Where a federal contract requires insurance, FAR 28.307-2 sets general liability of at least $500,000 per occurrence for bodily injury, auto liability of at least $200,000 per person and $500,000 per occurrence plus $20,000 for property damage, and $100,000 of employer's liability except in monopolistic workers' comp states.
Cancellation notice. For work on a government installation, FAR 52.228-5 requires the insurance stated in the contract and an endorsement that a cancellation does not take effect until the later of the state law period or 30 days after written notice to the contracting officer.
Sale. An asset sale generally needs a novation agreement. The FAR says none is needed in a stock purchase with no change in the contracting party.

These apply to federal contracts that use the clauses, not to private customers. Small business size status for set-asides may also need to be recertified after an acquisition, so ask counsel.

What will your lender and landlord look at?

SBA's operating rules set no minimum general liability limit. They require hazard insurance on pledged assets, and lenders may ask for more. A guard company has little hard collateral, so the loan may not be fully secured. For a Standard 7(a) loan that is not fully secured, SBA requires life insurance equal to the collateral shortfall when the business depends on one owner's active participation, and lenders may ask for more. Confirm which loan type applies with the lender, and see SBA lender insurance requirements after closing. For the company's own office or dispatch lease, check whether the landlord wants additional insured status and contents cover.

Before closing, collect the license, the insurance evidence on file, the bond and indemnity papers, the post and contract list, any federal contract and the lender's conditions. A Morrow review can compare these documents against the inherited policies and flag mismatches, though terms depend on carrier underwriting and your attorney decides the legal questions.

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Frequently asked questions

Does a security guard company license transfer when I buy the business?

Do not assume so. The sections of the state statutes reviewed here do not say it does, and each state's agency rules may say more. Ask your state licensing agency and your deal counsel what must be filed before closing.

What happens if the licensed manager leaves after I buy?

In Texas, Florida and California, the company license depends on a named qualifier or manager. In Texas a business may continue for a temporary period if that individual leaves, and California requires a qualified manager. Confirm your own state's rule with the agency and line up a replacement before closing.

Do I need a surety bond for a guard company?

Some states require one. New York requires a $10,000 surety bond for a watch, guard or patrol license, and Texas requires a bond on file. A bond protects the party it names, and the surety expects you to repay any claim. Check your state.

Can a customer require more insurance than the state license does?

Yes. License minimums are floors. Customers and federal contract clauses can ask for more, and you must meet both. Compare each contract to your policies and endorsements.

Do I need a novation to keep a federal guard contract after a sale?

In an asset sale, a government contract generally needs a novation agreement. The FAR says none is needed in a stock purchase where the contracting party does not change. Ask deal counsel which applies to your deal.

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.

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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.

Contracts, Licenses and Bonds for a Security Guard Company