The principal, with regard to a surety bond, is the person or party that is required to perform the obligation in a surety bond agreement. The risk associated is based on the principal's ability to perform the required obligation. When the principal fails to meet the obligation, the potential for a claim on the bond arises.
The obligation to be performed by the principal varies based on the type of bond:
- Commercial License and Permit bonds - The principal is typically the business or individual seeking a license or permit. The obligation being secured by the bond is the principal's adherence to applicable laws, rules and regulations.
- Contract bonds - The principal is the individual or business being contracted to complete the job or project. The obligation being secured is the principal's completion of the contracted project or job.
- Civil Court/Judicial bonds - The principal is the individual or business that has been given the requirement to post a bond in order to proceed with a legal process such as an appeal. The obligation being secured is the principal's acceptance and fulfillment of the court's judgment if the case does not rule in the principal's favor; e.g., a principal appealing a ruling may be required to obtain a surety bond to appeal a case that was not judged favorably.
- Fiduciary Court/Judicial bonds - The principal is the individual or business being given the responsibility to manage the assets or care of another individual or business, e.g., an executor of the estate of a deceased person. The obligation being secured is the principal's adherence to the courts rules and guidelines for providing care and/or managing the protected assets.
- Financial Guarantee bonds - The principal is the individual or business that is required to make payments to the obligee in accordance with a schedule or other predetermined manner. The obligation being secured is the future payments due in accordance with the payment schedule or plan, e.g. a commercial lease agreement bond secures the lease payments to the obligee.