Agency Relationship - Explained
Who is the Principal and Agent?
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Table of ContentsWhat is an agency relationship?Responsibility in the Principal for Agent Actions?Academic Research
What is an agency relationship?
An agency relationship is one in which a party acts on behalf of and with the authority of another party. The principal appoints or authorizes the agent to act on her behalf.
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Responsibility in the Principal for Agent Actions?
The agent will interact with third parties on behalf of the principal. A principal is responsible for the actions of the agent taken in furtherance of her duties or per the instructions of the principal. The agency relationship requires an understanding of the relationship between principal and agent, agent and third parties, and the principal and third parties roles, responsibilities, and rights.
Example: I hire Betty to negotiate a business deal on my behalf. I am the principal and Betty is my agent for this purpose. Betty will act as my representative in dealing with the third parties to this business deal.