How These Surety Bonds really work and a bit about the fundamentals!
There are thousands of different surety bonds, which are commonly used within the country of Canada. At the same time, there are numerous companies and brokers that offer these bonds. As someone, who is unfamiliar with surety bonds, the diverse nature can be fairly frightening. However, once you begin to delve into the basics of each type, you will find that surety isn’t entirely complex. Below, you’ll discover a breakdown of some of the most common surety bond types.
Regardless of the specific type of surety bond that you’re interested in, there are some fundamentals, which are fairly universal amongst all bonds. First and foremost, the Canadian government requires many bonds in various situations. Secondly, these bonds are typically put in place to provide protection to the consumer. Thirdly, each bond has three parties. These will be examined in greater depth below.
- Surety – The surety is the issuing company. They put their name on the line for the principal, who receives the bond. If the principal and obligee wind up in a dispute, the surety will be responsible for determining the outcome.
- Principal – The principal is the person, group or company that must purchase the bond. Within the surety bond contract, the principal will be responsible for meeting demands, living up to expectations and fulfilling duties in a timely manner.
- Obligee – The obligee is the group that is protected by the surety. If the principal fails to fulfill their duties in any shape or form, the obligee will be able to file a claim with the surety provider in an attempt to acquire reimbursement for their losses.
Although the surety remains the same, the principal and obligee are interchangeable and depend solely on the type of bond in question.
When most people think about surety bonds, they immediately focus on Canadian’s construction industry. This is the case, because construction bonds are amongst the most commonly used surety bonds in Canada. Within this specific category, there are several different types of construction bonds, including bid, performance, supply, and maintenance bonds. In this specific scenario, the construction contractor is responsible for acquiring the bond, which will then protect the developer, supplier, or laborer.
Court bonds are another type of surety bond, which is frequently used in Canada. Individuals and companies can use this type of bond. The court bonds are incredibly important, since they help to keep the court system from being overwhelmed with unnecessary lawsuits from unreliable individuals. Within the court environment, there are two main categories of bonds, including probate or fiduciary bonds and judicial bonds.
Appeal bonds and bail bonds fall within the judiciary category. The appeal bond is required, when you wish to appeal a court ruling. Fiduciary bonds and probate bonds go hand in hand. They’re used when someone wants the court to appoint them as a guardian over another individual. The bond is set in place to protect the minor, elderly or incompetent individual from being swindled by the appointed party.
License bonds are another type of surety bond, which is prevalent in Canada. Professionals and businesses that desire to acquire their license use this bond. Before submitting the application for the license, these individuals will need to obtain the bond for the specific amount required by their provincial or the federal government. Furthermore, it is always encouraged to refer to the CCDC to know exactly who the right company is for your bond. This not only limits risk, but educates the reader.