Bond Language

[Mr. Bond]

The bond I am required to have for the state of Texas has the following verbiage. "The bond must be maintained until two years after the date that the credit services organization ceases operations." Can you please explain what this means?

[marietta68]

The bond I am required to have for the state of Texas has the following verbiage. "The bond must be maintained until two years after the date that the credit services organization ceases operations." Can you please explain what this means?

The state wants the ability to evaluate your company's operations, records, reporting, and payment of taxes and fees for a period of two years after your business is closed (for any reason). This is commonly called a "liability tail".

[Bond Magician]

So, in other words, is this bond a two year bond term?

[marietta68]

So, in other words, is this bond a two year bond term?

No, the term of the bond is the duration for which it covers the licensed activities. Then, there's an additional two years after operations cease during which the state can file a claim for unsatisfied obligations. Keep in mind that no additional liability accrues during this time, it's only a window during which a claim can be filed with the surety if you've failed to fulfill some aspect of the statutory obligation.

This language is not unusual nor particularly onerous (for well qualified principals) as statutory provisions allow governmental authorities plenty of time to make claims against bonds, particularly those that guarantee payment of tax obligations. But this feature does reinforce the reason for careful underwriting of these obligations.