Business Organizations Chapter 2

I. Introduction to Principal and Agency Law In this chapter, we will explain the principal-agency relationship. This relationship is based on a simple premise: that one person represents the interests of another.

Why is an Agency Relationship Necessary? Agency relationships are necessary where the principal wishes to remain unknown, or where the agent has skill, education and training that exceeds that of the principal.

The Basics of the Agency Relationship An agent’s authority to act derives from the principal’s rights. If the principal lacks capacity, so does the agent.

As far as the law is concerned, an agent is merely a substitute for the principal. Agency relationships are usually created by the express, intentional actions of the parties.

The Basics of the Agency Relationship Agency can be created by: Agreement of the parties Contract Operation of law

Agency relationships can encompass an enormous variety of business relationships.