A Surety Bond involves three parties:
• THE PRINCIPAL: The person or business with an obligation to perform.
• THE OBLIGEE: The person, company or governmental unit requiring the guarantee.
• THE SURETY COMPANY: Who provides the bond to guarantee that the principal fulfills their obligation.
The surety company has no role as long as the principal performs their obligation. However, if the principal does not do what is required, the surety company has to meet the obligations. Therefore, the surety company is entitled to be reimbursed for losses and costs by the principal.
The surety company may require the principal to provide a business and/or personal indemnity agreement before a bond is written.