1. Home
  2. Knowledge Base
  3. Business Law
  4. Agency Law
  5. What is the Scope of the Principal Agent Relationship?

What is the Scope of the Principal Agent Relationship?

Cite this article as: Jason Mance Gordon, "What is the Scope of the Principal Agent Relationship?," in The Business Professor, updated January 11, 2015, last accessed April 8, 2020, https://thebusinessprofessor.com/knowledge-base/what-is-the-scope-of-the-principal-agent-relationship/.
Video Thumbnail
Principal Agent Relationship
This video explains the scope of the principal agent relationship.

Next Article: Employee vs Independent Contractor


What are the types of agent?

The principal will lay out the “scope of the agency”, including the responsibilities and limitations of the agent. Agents generally fall into two categories:

Limited Agent – A limited agent has a special purpose and limited authority to act on behalf of the principal. Unless specifically limited by the principal, actions done in furtherance of that purpose are within the scope of the agent’s authority. Under certain circumstances, agency law considers an independent contractor to be a special form of agent of the principal. The independent contractor is hired to perform a service for the principal but is generally not under the direct control or supervision of the principal. In this way, the agent has very limited ability to represent or act on behalf of the principal outside of the context of the services contract.

  • Example: I hire a real estate agent to represent me in the purchase of a business. She is my limited agent for that purpose. Her authority to act on my behalf is limited to this situation.

General Agent – A general agent has broad authority to act on behalf of the agent. The scope of the agency is not limited to a special purpose.

  • Example: Arthur is my employee. He serves a operations manager. As such, he is my general agent with regard to all aspects of operations falling under his responsibility. His authority to act as my agent is not limited to a specific task; rather, it is pursuant to his responsibilities in his position.

Numerous subcategories of agent exist within these broader categories. For instance, an “agent coupled with an interest” is a type of special agent who earns compensation through performing her agency duties (rather than receiving compensation directly from the principal). For example, a sales agent who receives a commission on sales may be an agent coupled with an interest. This type of agency is subject to contract rules and cannot be terminated without violating the legal rights of the agent or principal.

  • Note: Other common categorizations of agents include co-agents and sub-agents. Co-agents are multiple agents who serve a single principal for the same purpose. Sub-agents are authorized agents of an agent.

Discussion: Why do you think there is a distinction between a general and limited agent? How should the authority of a limited agent be interpreted? What should be the limits placed upon the authority of the general agent?

Practice Question: Erin is starting an interior design firm. She hires Ann as a senior designer, and Rachel as a design assistant. She hires Rita to handle her bookkeeping and Patricia to handle her business setup and legal matters. What is the status of each of these individuals (employee, independent contractor, general agent, or limited agent)?

Proposed Answer

  • Ann and rachel are general agents, as they serve as employees. Rita and Patricia are likely limited agents and independent contractors. They are not full-time employee.

Was this article helpful?