A Contractor License Bond is a type of commercial security bond which involves three parties: the contractor or the principle, the governing body which requires the bond, and the insurance company who supervises the agreement. In the State of California, the Contractor License Bond is required and regulated by the CSLB or Contractors State License Board for all forms of construction. Under section 7071.6 of the Business and Professions Code, the Contractor License Bond is required for the issuance of active licenses, reactivation of inactive licenses, and renewal of active licenses for contractors. It must be deposited to the Contractors State License Board in the form of cash.
The Contractor License Bond was obliged by the law to protect clients from violations and unprofessional conduct on the part of the contractor. The bond also works for the benefit of employees whose salaries have not been duly paid by the contractor. Any reports of violations committed by the contractor will be appropriately investigated in adherence to the Business and Professions Code. And if the contractor has been proven guilty of any violations, a bond payout or financial compensation will be awarded to the aggrieved party. Unlike the usual insurance agreements, the contractor will be required to pay for the legal expenses on top of the amount of bond claim.
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For contractors who are applying for a Contractor License Bond, check out the list of requirements mandated by The State of California – CSLB.
The written agreement must be prepared by a surety company duly licensed by the California Department of Insurance.
The bond must be written in a form approved by the Attorney General’s Office and should bear the signature of the attorney-in-fact for the insurance company.
An amount of $15,000 must be deposited to the CSLB for the contractor’s bond. This amount was increased from $12,500 effective January 1, 2016.
The business name and license number provided in the bond should exactly match with the records from the CSLB. Failure to provide the correct business name and license number may result in the delay or cancellation of the bond.
The bond must be submitted not later than 90 days from the effective date of the bond.
Additionally, if the license is qualified by a Responsible Managing Officer or RMO who owns less than 10% of the corporation’s stock, a Bond of Qualifying Individual amounting to $12.500 is required. Otherwise, if the contractor owns 10% or more of the voting stock of the corporation, a Bond of Qualifying Individual Exemption must be filed. If the contractors are registered as a Limited Liability Company or LCC, an additional $100,000 bond will also be required by the board.
If a license has been revoked for a violation of the Contractors’ License Law, the company must file a disciplinary bond with the Registrar in order to reinstate or reissue the license. The disciplinary bond must be filed in addition to any other bond required on an active contractor’s license. The disciplinary bond cannot take the place of or be combined with any other bond.