Business Law - Basic Agency Relationship Explained

This business law article discusses the basic legal environment of the agency relationship in the world of business.


Agency Relationship

An agency relationship describes a two party relationship in which the agent is authorized to act on behalf of the principal. This relationship is created by an agreement between two parties in which one party (agent) will act for the benefit of, and under the control of, the other (principal).

For such a relationship to exist and for the agreement to be legally valid both parties must have "capacity" or the ability to make coherent decisions for themselves.

Agent Authority

There are four main types or key concepts of agent authority.

Actual Authority - Is the right to make decisions for the principal given to the agent. It is delegated or communicated to the agent by the principal party.

Express Authority - This is authority expressed by the actual words of the principal party.

Apparent Authority - This is authority communicated by the principal to a third party about the agents authority. This would be like a company explaining an affiliates role to a customer. Take note that an agent can not give itself this apparent authority.

Implied Authority - This is authority that can be reasonable assumed given the validity and understanding of the expressed authority.

Types or Class of Agents

There are three main types of agents.

General Agent - describes a party that is continuously employed to conduct transactions or business operations and actions on the principles behalf.

Special Agent - A party that is employed or authorized to conduct a specific, single, or temporary activity on the behalf of the principal party.

Sub-Agent - This is an agent of an agent appointed to assist with the role given to the agent by the principal party

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