Buying a Towing Company: Licenses, Rotation, Bonds

A towing company runs on permissions as much as on trucks: licenses, truck permits, operator licenses, a spot on a police or city rotation list and agreements with motor clubs and fleets. A rotation list is the list an agency uses to hand out tow calls among approved operators. Many of these are tied to a named operator and may not move to a buyer automatically, so make sure the insurance, certificates and paperwork match whoever holds each permission after closing. This guide is for buyers of towing companies who want to know which contracts, licenses and bonds to check.

The short answer

No national towing license exists. States, counties and cities set the rules, so every rule here is an example tied to a named state.
In Texas the statute says a tow license is not transferable, and the Texas licensing agency says a change in ownership generally needs an original application, with a limited online update for an existing LLC or corporation whose federal employer tax ID does not change. How that fits your deal structure is for counsel.
A rotation spot or a motor club account is a contract or permission, not a freely transferable asset. Read the contract, not just the purchase agreement.
Insurance clauses in towing contracts differ by counterparty, so read each agreement. A certificate shows terms, but the endorsement grants them.
Bonds are not insurance. Whether a tow company needs one depends on the state and on each agency or contract, so ask each.

What licenses and permits does a towing company typically need?

The kinds vary by state and city. The table uses Texas and Florida as examples, and only as examples. Verify your own state and local requirements with the agencies that issue them.

Typical towing licenses and permits, with the insurance connection
Item	Example and who issues it	Insurance connection	Question at a sale
Company license	Texas Department of Licensing and Regulation (TDLR) licenses tow companies for one year	Liability insurance evidence, and cargo insurance evidence for some tow types, is filed with the application	Who is the licensed entity after closing?
Truck permit	Texas requires a permit for each tow truck, expiring with the company license	Evidence of insurance must be in each cab	Is every truck permitted in the right name?
Operator license	Texas requires a license for each tow operator, and even one consent tow needs a consent tow operator license and truck permit	Drivers on the insurance schedule should match licensed drivers	Who is licensed and who is not?
Storage yard license	Texas licenses vehicle storage facilities and their employees	Yard cover and garagekeepers must match the site	Is the yard licensed separately?
Tow assignment system	Florida lets its Highway Patrol and local governments set wrecker systems by zone or rotation	Agencies set their own insurance terms	Does the slot need consent to assign?
Lien and notice rules	Florida Statutes section 713.78 sets a lien and notice scheme	Records support claims and disputes	Are the lien files complete?

Texas also checks the people: controlling persons (owners, partners, officers, general managers) and operator applicants must pass background checks, so in Texas your own history will be checked in an acquisition.

What happens to licenses when the company changes hands?

Treat licenses as the first closing risk. Texas Occupations Code section 2308.156 says a license is not transferable, and TDLR says a towing company must file an original application on a change in ownership, including a merger or a switch from sole proprietor or partnership. An existing limited liability company (LLC) or corporation with no change in federal employer tax ID can update its controlling persons online. How these rules apply to a stock deal versus an asset deal, and whether a buyer can operate while the new application is pending, depends on the rule text and the agency's guidance. Ask deal counsel to read both and confirm with the agency.

A Small Business Administration (SBA) lender must get evidence of all licenses required to operate within 90 days after final disbursement. Where a license is not transferable, as in Texas, that can depend on a new license issued to you. See licenses, permits and registrations when buying a business and buying a business in a licensed trade.

Insurance filings usually tie to the licensed entity. Texas requires:

An insurer authorized to do business in Texas.
A certificate that says the insurer will notify TDLR 30 days before cancellation.
A certificate name and address that match the application exactly.
Evidence of insurance kept in each truck's cab.

Operating without the required insurance, or with an unauthorized insurer, is in TDLR's top penalty class. Whether a surplus lines policy satisfies the filing is a question for TDLR or the Texas Department of Insurance.

Is a rotation spot or a motor club account part of what you bought?

Not necessarily. A rotation spot is a contract or permission. In Florida, the Highway Patrol can limit how many operators join its system, and an operator who is denied, suspended or removed has only a narrow route to court review. Whether a given slot passes to a buyer, needs a new application or needs the agency's consent depends on the local ordinance or contract. Motor clubs are separate customers with their own vendor agreements.

Ask for each agreement, read the assignment, change of control and termination clauses, and use the seller's records to see what share of revenue each stream brings in.

A hypothetical example. A buyer assumes the company's spot on a city rotation list comes with the trucks. The city's contract names the operator and requires the city's consent to assign. Rotation work is 40 percent of revenue in the seller's records. The model now depends on a stream the buyer does not control, and the contract's insurance terms must be met by the buyer's policies from day one. The buyer asks counsel to approach the city before closing, not after. If the city will not consent, the buyer needs to know before signing whether the price still works without that 40 percent.

What insurance might towing contracts and leases ask for?

Regulators set floors, but each counterparty can ask for more, and terms differ from one agreement to the next, so the contract in front of you is the only reliable guide.

Towing counterparties, what each agreement may ask and what to check
Counterparty	What the agreement may ask of you	What to check against the policy
City or police rotation agreement	Insurance evidence, who holds the slot, and the city's consent to assign	That the policies name the entity that will hold the slot and match the insurance clause
Motor club vendor agreement	A right to audit you, and possibly additional insured or waiver wording	That the endorsements exist. A certificate shows what is on the policy but adds nothing
Property owner or parking facility tow agreement	Indemnity for wrongful tow claims, with signage and tow tickets as the paper trail	Refunds and fines are generally not what insurance pays, so keep signage, tickets and fee records
Repossession client agreement	A lender client's indemnity clause that may shift risk to you	Ask counsel to read it and the broker to compare it with the policies. The legal standard for repossession is for counsel
Fleet or commercial account	Limits, and care for the vehicles they send you	The on-hook limit and valuation against the values of their vehicles
Yard lease	A landlord's ask for pollution cover and additional insured status	Pollution wording and the endorsement the lease names

Look in each agreement for additional insured status, waiver of subrogation, primary and noncontributory wording, limits and cancellation notice, and match each to a named endorsement. The standard garagekeepers endorsement excludes liability resulting from an agreement in which you accept responsibility for loss, so an indemnity clause may leave damage to a customer's vehicle uninsured. Auto and general liability forms often treat some assumed liability differently through an "insured contract" provision, with limits, so have your broker compare each indemnity clause with each policy. See how to check customer contracts against your policies.

Do towing companies need bonds?

Texas's tow licensing pages do not list a bond requirement, but that is one state's licensing rules, and an agency or customer may ask for a bond in its contract, so check each document. Absence in one state's rules is not proof that none applies elsewhere. In Florida, the $1 million bond in the lien notice scheme belongs to the third-party notice service, not the tow operator.

A bond is not insurance for you, because the surety expects the principal to repay any claim. If a bond does apply, a change in ownership often means the surety re-underwrites it, and a new owner may be asked to sign an indemnity agreement. See do surety and license bonds transfer and surety bond versus liability insurance.

Who to ask about a bond:

The licensing agency.
Each rotation or municipal agency, in its contract (deposits or bonds).
Each motor club vendor agreement.
The yard landlord.
Your lender.

What should you collect before closing?

Build one folder for permissions and paperwork, and give the broker a copy. Include endorsements, not just certificates. See why a certificate is not coverage.

Every license, truck permit, operator license and yard license, with holder and expiry date.
Rotation, municipal and motor club agreements, with the assignment and change of control clauses highlighted.
Regulator history where published. Texas lets anyone verify a license and search disciplinary actions.
Tow tickets, lien files, fee schedules and any pending hearings or demands.
The yard lease and its insurance clause.
Every certificate the seller issued, with the endorsements behind each. See certificates the seller issued.

For the insurance picture, read insurance after you buy a towing company and the coverage gaps guide. Choosing who reviews these documents is covered in how to choose a broker for a towing company. Morrow can compare your contracts with the inherited policies and flag differences, and any new terms depend on carrier underwriting.

Keep reading

Frequently asked questions

Does a towing license transfer when I buy the company?

It depends on the state and the deal. In Texas the statute says a license is not transferable, and the Texas licensing agency says a change in ownership generally needs an original application, with a limited exception for an existing LLC or corporation whose federal employer tax ID is unchanged. Other states differ, so ask deal counsel and the licensing agency before closing.

Will the seller's spot on the police rotation list come with the business?

Not necessarily. A rotation slot is a contract or permission, and whether it passes to a buyer depends on the local ordinance or contract. Ask the agency and have counsel read the assignment terms.

Do towing companies have to carry a bond?

It depends on where you operate and who you work for. A city or agency contract may ask for one even where state licensing rules do not list it. Ask each one, and remember a bond is not insurance for you.

Does a certificate of insurance give my customer coverage?

No. A certificate is information, not coverage. Additional insured status, waiver of subrogation and similar terms come from endorsements on the policy, so check that the endorsement exists.

What insurance do tow trucks need by law?

It depends on your state, city and tow type. Texas sets per-truck minimums by tow type, which the insurance guide for towing companies lays out as one example. Check your own state and city, and ask counsel whether federal rules reach you.

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 Towing Company