commercial surety bond, performance bond

A bond provides temporary liquidity until an obligation is paid, or a task is completed.

A surety bond is a three-party contract where a surety guarantees that a principal will fulfill their obligations to an obligee, providing financial protection if the principal defaults.

Definitions  

The Principal: The party who is obligated to perform a certain task or meet a specific requirement. 

Example: Watt's Up Electrical, Inc. has agreed to wire a building for a specified amount of money by a 

certain date for a general contractor

The Obligee: The general contractor in this case, is the party who is owed a performance or obligation by the principal.

 The Surety: The party (often an insurance company) that guarantees the principal's performance to the obligee.  

A bond claim is triggered if Watt's Up Electrical, Inc. files for bankruptcy and cannot meet it's obligation to finish the wiring for the general contractor. The Surety steps in and pays for another electrical contractor to finish the job. But that's not all. Bonds are not like insurance. The surety will sue the principal for the amount it had to pay to finish the wiring job for the general contractor. This is why a bond application will require all personal information of anyone having ownership in the company. Yes, each owner/officer is personally liable. Unless specified otherwise.