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What is an Agency Relationship

1. What is “agency”?

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. Thus, she is responsible for the actions of the agent taken in furtherance of her duties or per the instructions of the principal. The agent will interact with “third parties” on behalf 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.

 

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