MONDAY, JULY 13, 2020
Surety bonds are a type of contract between three parties. This contract promises responsibility for a debt or fault.
The three parties involved in a surety bond are:
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Principal: The principal is the person or entity that is hired for a duty and held responsible for completing a contract.
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Obligee: The obligee is the party that hires the principal for a certain project, or otherwise the entity that the principal is liable to.
There are many different types of surety bonds. Let’s take a contracting bond, for example. The obligee, a federal business, hires a contractor (the principal) to complete a project. The obligee requires them to purchase a surety bond. This bond guarantees that, if the principal is not able to complete the project according to the contract agreed upon, that the surety will then compensate and fill the position to complete the project.
The surety will then often seek compensation from the principal.
Different Types of Surety Bonds
Common types of surety bonds include:
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Contractors License Bond: This bond is required for contractors to obtain certain licenses. It protects clients from contractors who fail to follow regulations.
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Court-Bond Plaintiff: A plaintiff bond guarantees payments if a court rules in the defendant’s favor. There are other types of bonds depending on the lawsuit and coverage needs.
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ERISA Bond: ERISA bonds protect employees from fraud and dishonesty concerning the Employee Retirement Income Security Act.
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License & Permit Bonds: License and permit bonds are required for certain businesses and professionals to obtain licenses and permit by promising that they will follow the regulations related to the permit or license.
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Notary Bonds: A notary bond promises that the bonding company will pay the Texas Secretary of State’s office up to $10,000 for losses caused by the public.
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Official Bonds: Public official bonds guarantee that public officials will perform their duties as dictated by the office’s laws and regulations.
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Miscellaneous: Miscellaneous bonds are bonds that don’t relate to legal issues, contracted work or construction projects. These types of bonds are often purchased by companies and professionals. A license and permit bond is a type of miscellaneous bond.
If you own a business or are a working professional, be sure to look into the type of bonds you may need for operation.
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It is not be used as a substitute for competent insurance, legal, or tax advice from a licensed professional
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