Commercial bonds guarantee the obligee (typically a provincial or federal governing body) that the principal (a business or individual) will perform duties in compliance with governing acts, regulations, and/or by-laws. If the principal fails to comply with the regulations, the surety provides remedy under the bond.
Commercial bonds are comprised of the following major classes of bonds: customs and excise, license and permit, fiduciary, lost document, and various special commercial bonds.
Commercial bonds have proven to be a cost-effective method of ensuring compliance with a variety of important laws and regulations.
Commercial bonds represent the broad range of bond types that do not fit the classification of contract.
TYPES OF COMMERCIAL BONDS
License and Permit Bonds are a general class of surety bonds required as prerequisites to receiving a license or permit to engage in certain business activities. Governments at all levels often require license and permit bonds for businesses and activities that involve some risk to the public. They assist to qualify a business to engage in a particular operation and can be required for the reimbursement of certain taxes, fees, or providing consumer safety.
This type of surety bond protects consumers against fraud and misrepresentation on the part of the principals. These surety bonds are payable to various licensing bodies, including both provincial and municipal governments (obligee).
Thousands of unique license and permit bond types exist, but the following are some of the most commonly requested:
- Consumer protection
- Collection agents
- Lottery
- Motor vehicle dealers
- Real estate brokers
- Contractors’ license
- Employment agencies
- Fuel tax
Fiduciary bonds are financial instruments designed to protect against financial losses resulting from dishonest acts or mismanagement by fiduciaries, individuals or entities entrusted with the responsibility of managing or administering assets or finances on behalf of others.
Fiduciary bonds are important for several reasons:
- Protecting beneficiaries by providing compensation in cases of fiduciary misconduct.
- Promoting accountability and discouraging fraudulent or dishonest behavior.
- Serving as a legal requirement in many situations, such as the administration of estates.
- Offering peace of mind to beneficiaries and interested parties, ensuring a financial safety net.
- Providing a means of compensation for losses caused by fiduciary breaches.
Specific regulations and requirements may vary across Canadian provinces and territories.
Fiduciary bonds are essential to safeguard the interests of beneficiaries, ensure accountability, meet legal requirements, and provide peace of mind in cases of fiduciary misconduct.
Lost document bonds are required in order to obtain replacement certificates (for stock, debenture, warrant or bonds like Canada Savings Bonds), life insurance policies or other financial instruments when an individual or company loses the originals. This bond guarantees that if the original lost document is found, it will be returned to the surety company for proper disposal and the issuer of the replacement security will not suffer an economic loss.
There are two types of lost document bonds or lost securities bonds:
- Open Penalty: are used for replacement certificates of fluctuating value such as common shares.
- Fixed Penalty: are used for replacement certificates of fixed value such as corporate debentures.
Examples of such can be:
- Certificated cheques
- Life insurance policies
- Stock certificates
- Debentures
- Bank drafts
- Common or preferred stocks
- Federal, provincial, municipal or corporate bonds
- Lost savings bonds
- Lost document certified cheques
Before issuing a replacement, financial institutions may require legal protection should the original and replacement still exist, in order to avoid the possibility of both being cashed, known as double redemption, either by accident or fraudulently.
The lost document bond provides assurance that the issuer of the replacement security will be legally protected from economic loss should the lost document turn up later. The lost document bond allows the issuing corporation or entity to provide a replacement certificate with the documents and piece-of-mind that they are legally protected.
Customs & Excise Bonds are financial instruments used to ensure compliance with customs regulations and requirements. These bonds are issued and serve as a guarantee that importers, exporters, and other trade-related entities will fulfill their obligations and adhere to the rules set by the Canada Border Services Agency (CBSA) and other relevant government agencies.
Businesses involved in import, export, manufacturing, sales or distribution of goods in Canada may require a customs and excise bond.
Customs bonds are required by the federal government and guarantee payment of various duties, tariffs and taxes. Common customs bonds are:
- Bonded Carrier Operations
- Customs Bonded Warehouse Bond
- Customs Brokers License Bond
- Customs Sufferance Warehouse
- Duty Free Shops
- Non-Resident GST Bond
- Release of Goods Bond
- Temporary Importation
Customs Bonds allow for the immediate release of imported goods prior to final determination and/or payment of required tariffs, duties and taxes.
Excise bonds are required by federal and provincial governments and guarantee payment of excise taxes and compliance with federal and provincial tax acts and regulations. Common excise tax bonds are:
- Fuel Tax Bond
- General Excise Bond
- Non-Resident GST
- Sales Tax
- Tobacco Bond
Excise Bonds allow businesses to use or ship goods prior to the payment of applicable excise taxes.
LICENSE & PROPERTY Bonds
A bid bond is typically required in the amount of 5 to 20 percent of the contract bid, most commonly 10 percent.
In the event the contractor does not fulfill its obligations, they must compensate the owner (Obligee) for the difference between their bid and the next closest bid. In the event the contractor does not compensate the owner, the bonding company must pay out the difference under the bid bond. The bonding company, in turn, will seek compensation from the contractor.
FIDUCIARY Bonds
A bid bond is typically required in the amount of 5 to 20 percent of the contract bid, most commonly 10 percent.
In the event the contractor does not fulfill its obligations, they must compensate the owner (Obligee) for the difference between their bid and the next closest bid. In the event the contractor does not compensate the owner, the bonding company must pay out the difference under the bid bond. The bonding company, in turn, will seek compensation from the contractor.
LOST SECURITIES / INSTRUMENTS Bonds
A bid bond is typically required in the amount of 5 to 20 percent of the contract bid, most commonly 10 percent.
In the event the contractor does not fulfill its obligations, they must compensate the owner (Obligee) for the difference between their bid and the next closest bid. In the event the contractor does not compensate the owner, the bonding company must pay out the difference under the bid bond. The bonding company, in turn, will seek compensation from the contractor.
CUSTOMS & EXCISE Bonds
A bid bond is typically required in the amount of 5 to 20 percent of the contract bid, most commonly 10 percent.
In the event the contractor does not fulfill its obligations, they must compensate the owner (Obligee) for the difference between their bid and the next closest bid. In the event the contractor does not compensate the owner, the bonding company must pay out the difference under the bid bond. The bonding company, in turn, will seek compensation from the contractor.
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