Occasionally, companies express an interest in listing more than one entity on a bond. In these situations, Customs does allow separately incorporated entities to be listed on the same bond as co-principals as long as the entities each have the same distinct legal status, such as corporations, partnerships or sole proprietorships. It is important for a company to understand the advantages and disadvantages of listing multiple entities on the same bond.
In most situations, the main advantage to listing multiple entities on the same bond is the premium savings. This happens for two reasons: one, the premium rate is structured in such a way that a higher rate is applied to low value bonds, while progressively larger amounts enjoy a lower rate per thousand, and two, due to the fact that a minimum bond amount is set by Customs, which all of the proposed principals would meet in an aggregate basis. Some companies will issue one bond with multiple entities in a sufficient amount to cover multiple entities in lieu of issuing separate bonds. In some situations the issuance of this one bond in lieu of multiple bonds would result in a premium savings.
While there is a potential for premium savings there are several disadvantages of listing multiple entities on the same bond. For example, when listing multiple entities on the same bond, each entity becomes jointly and severally liable for the other entities listed on the bond. Therefore, if a claim is made by Customs, Customs would be able to compel all parties listed on the bond to pay the claim irrespective of which principal caused the claim. This is potentially the most troublesome aspect of joining entities on the bond as co-principals.
As co-principals are jointly and severally liable for each other, any principal listed on the bond would be able to terminate the bond at any time. Our office has seen several instances where a company may sell a co-principal listed on the bond to another company and the newly sold company may obtain their own bond through another surety market. When this happens, it is possible that the sold entity does not make the other co-principals listed on the bond aware that they are terminating the bond. When this happens, all other parties listed on the bond are unaware that the bond is being terminated and therefore, may need to post single transaction bonds, in the case of an Importer bond, in order to clear any entries until a new continuous bond is in place (a co-principal can be difficult). In order to add or remove a co-principal to or from a bond, the bond would have to be re-written.
While there are some advantages to co-principals, in most cases we believe the disadvantages pose sufficient cause for consideration. It is for this reason that our office typically recommends issuing separate bonds for each entity required to obtain a bond. If you have any questions or concerns about the listing of co-principals on the same bond, please feel free to contact our Bond Department.