If you are looking at starting your own business, the paperwork can get very confusing. The government requires you to have tax forms, health insurance, public liability insurance as well as any kind of trade certification or proof of qualification that is required in your field before allowing you to commence work. You will also, in most cases, need to have proof of ownership of a bond policy.
A Surety bond is an agreement that you make with another party to prevent any financial loss. Let’s use an example to see how it works. Imagine that you are the owner of a garden landscaping company. You have applied for a contract position in an Aged care facility to install a garden and maintain the grounds. The facility owner may ask you to have a bond policy in place to protect the company should you or any of your employees choose to act in an illegal or negligent manner.
In this case when you look at the paperwork for your bond policy, the landscape business owner is referred to as the principal, and the owner of the facility is called the obligee. There is a third party involved in the agreement, called the surety, which is the organisation provide the bond agreement for the parties involved in the contract. If for any reason the principal should fail to follow state and federal laws regarding their work, or need to end the contract early, the agreement states that financial damages are to be paid to the obligee. The role of the surety is to provide financial backing for the principal to be financially able to meet any contractual arrangement no matter what the circumstances that brought them to the position of having to breach the terms of the contract.
If for any reason your business breaks any of the terms of the bond contract or breaks local or state laws that cause financial hardship to any third party, your surety bond is there to help all those affected by your negligence. The bond issuer will investigate all claims made against your business. If these claims are found to be true, your bond will settle all amounts with the claimant as well as any legal costs that may have been incurred. This is only a temporary fix however. Because your business is responsible at all times for your actions, the financial burden will ultimately rest with you. You will be required to pay back the bond company for all costs that were incurred and settled by your policy.
The surety will complete a number of checks on both your private and company finances and work history before offering to provide you with a bond policy. If you have a poor credit rating or a record of breaking contractual obligations, you may not qualify to be able to secure a bond agreement for your business due to the risks involved for the surety should your business fail and declare insolvency or bankruptcy.