A surety bond is a three-party agreement that guarantees the performance of a specific obligation. It involves a principal, who is the party required to fulfill a duty, a surety, which is the company that backs the bond, and an obligee, who is the party that benefits from the bond. If the principal fails to meet their obligations, the surety compensates the obligee up to the bond's limit. Surety bonds are commonly used in various industries, including construction and licensing. They help ensure that projects are completed on time and according to regulations, providing financial protection to the obligee and promoting trust in business transactions.