Which three parties are involved in a surety bond?

A surety bond involves three primary parties: the principal, the obligee, and the surety.

The principal is the party that purchases the bond and is responsible for fulfilling a specific obligation, such as completing a contract or adhering to regulatory requirements. The obligee is the entity that requires the bond, often to ensure that the principal will perform as promised. If the principal fails to meet their obligation, the surety — the third party — provides a guarantee to the obligee that they will uphold the financial promise made by the principal.

This structure helps ensure that the obligee is protected against potential losses due to the principal's non-performance, as the surety is often responsible for compensating the obligee up to the bond's limit in the event of a default by the principal. Understanding these roles is crucial when dealing with surety bonds, as they clarify the obligations and protections each party has in the agreement.