Question 1

What creates an agency relationship in business?

Accepted Answer

Three things: consent by the principal, authority granted to the agent, and the agent's agreement to act on the principal's behalf. This can be formal (a written agency agreement) or informal (telling your assistant 'go ahead and sign whatever looks good'). Written is always better.

Question 2

Can someone be my agent without a written agreement?

Accepted Answer

Yes. Implied agency exists when your behavior suggests someone has authority to act for you. If you've let an employee negotiate contracts for months without objecting, you've likely created an implied agency. Third parties who relied on that pattern can hold you to deals your employee made.

Question 3

What happens if my agent makes a bad deal?

Accepted Answer

If the agent acted within their authority, you're stuck with the deal. You might have a claim against the agent for damages if they were negligent, but the third party can still enforce the contract against you. That's why it's critical to define the scope of authority in writing.

Question 4

Is an employee automatically my agent?

Accepted Answer

Not automatically, but often in practice. Employees who interact with clients, sign documents, or make purchasing decisions are typically acting as your agents within the scope of their job. You're liable for contracts they make within that scope — even if they went slightly beyond what you intended.

Question 5

How do I limit my agent's authority?

Accepted Answer

Put it in writing. Specify exactly what the agent can and can't do: dollar limits on contracts they can sign, types of agreements they can enter, and approvals required for big decisions. Then communicate those limits to third parties. Secret restrictions that third parties don't know about usually won't protect you.

Question 6

What's the difference between agency and independent contractor?

Accepted Answer

An agent acts on your behalf and can bind you to agreements. An independent contractor performs specific work but doesn't represent you to third parties. A real estate agent can sign a lease on your behalf; a contractor who remodels your kitchen can't commit you to buying $20,000 in appliances.

Agency

Definition

In Practice

Common in these contract types

Related terms

Frequently asked questions about agency

Create a contract with proper agency clauses