Key Takeaways

  • An agent is someone authorized to act on behalf of a business or person (the principal).
  • There are several types of agents, including general, special, and sub-agents.
  • Authority can be actual (express or implied) or apparent.
  • Agents owe duties of loyalty, care, and disclosure to their principals.
  • The principal-agent relationship can be terminated in various ways, including by mutual agreement or breach.
  • Agency relationships are essential in business operations, from sales and hiring to legal representation.

Agent Definition Business

The agent definition business is important to be aware of, particularly if you have an agent legally acting on you or your company’s behalf. Specifically, an agent is someone who has the legal right to act on behalf of another person or business, referred to as the principal. Such agents might be hired to negotiate or deal with third parties. As such, the agent is under a duty to act strictly on behalf of the principal, and has a specific scope of authority with which to act.

However, some agents might have what is referred to as apparent authority, meaning that he can take action on behalf of the principal as he sees fit. An example of this would be an attorney acting as an agent.  An example of someone that wouldn’t be considered an agent is an advertising agency. Such agencies are not agents of their clients because they are acting as principals for the purchased servicing bought on behalf of the client.  

What is an Agent: An Overview

Anyone can serve as an agent so long as they are mentally able to understand what is expected of them. An agent can serve for free and need not charge a fee to the principal. An example of when an agent would serve for free is if a senior citizen, acting as principal, allows his adult child to act as power of attorney. In this case, the adult child is the agent acting on behalf of the elderly parent.

The duties of the agent can vary depending on the relationship between the parties, and what type of duties the principal is seeking from the agent. Some examples include:

  1. An agent selling the principal’s home
  2. An agent acting on behalf of a company in a business vendor agreement
  3. An agent acting as an attorney for the principal
  4. An agent who is a family member of the principal
  5. An agent having direct managerial control over a business

What Are the Different Types of Agents?

In business, agents can be categorized based on the nature and scope of their authority:

  • General Agent: Authorized to act on behalf of the principal in all business matters within a specific area (e.g., a manager running a branch office).
  • Special Agent: Appointed for a specific task or transaction, such as selling a property or negotiating a single contract.
  • Sub-Agent: Appointed by the agent with the principal’s consent to help carry out the agent's duties.
  • Co-Agent: Works alongside other agents on behalf of the same principal, each with specific responsibilities.
  • Independent Agent: Represents multiple principals and typically operates autonomously.
  • Employee-Agent: A person hired by a principal (usually an employer) to act within the scope of employment.

Each type of agent carries different responsibilities and limitations based on the agreement and applicable laws.

Implied vs. Express Authority

Authority can be implied or expressly given by the agent. If the authority is expressly stated, then the principal is telling the agent what he can and cannot do. However, implied authority occurs when the principal tells the agent what needs to be done, and the agent needs to take additional measures to complete the job. The additional actions taken are appropriate under the implied authority theory, as a principal could reasonably expect such additional actions might be needed in order to carry out the express authority.

What Is Apparent Authority in Business?

Apparent authority arises when a third party reasonably believes, based on the principal’s conduct, that the agent has the authority to act—even if the agent lacks actual authority. This concept is crucial in protecting third parties in business transactions.

For example, if a company allows a salesperson to negotiate deals and never communicates otherwise, the public can assume the salesperson is an authorized agent. If the agent makes a contract under such assumptions, the principal may be legally bound to honor it.

Apparent authority prevents principals from avoiding obligations when they’ve created a misleading impression of an agent’s authority.

Can an Agent Enter Into Other Contracts?

An agent cannot enter into any other contract that would cause a conflict of interest with the outstanding contractual duties identified in the ongoing principal-agent contract. If this does in fact occur, the principal can revoke any authority previously given to the agent. This might cause contractual issues, particularly if a contract is in place that prohibits revocation. But such contracts will likely indicate that the agent cannot enter into another contract that would cause a conflict.

Certain terms and provisions should be included in the contract to protect both the principal and agent. For example, a principal might include a provision to the effect of prohibiting the agent to enter into another contract that would otherwise cause a conflict of interest; if the agent fails to abide by the requirement, then the principal has the option of voiding the contract or suing for breach of contract.

When Does an Agent Relationship End?

An agent’s authority and the principal-agent relationship can end in several ways:

  • By mutual agreement: Both parties consent to terminate the relationship.
  • Expiration of term: The agency was created for a fixed duration that has ended.
  • Fulfillment of purpose: The agent completes the task assigned by the principal.
  • Revocation by the principal: The principal withdraws authority (subject to contract terms).
  • Renunciation by the agent: The agent voluntarily steps down.
  • By law: Death, bankruptcy, or incompetence of either party may automatically terminate the relationship.

Understanding when agency ends helps avoid unauthorized actions and legal disputes.

What is a Principal?

A principal is the person or business seeking an agent to carry out the work on their behalf. Some examples of principal-agent relationships include the attorney/client, company/officer, and employer/employee relationship.

Examples of Agency Relationships in Business

Agency relationships are widespread in commercial and legal settings. Common examples include:

  • Real estate agents representing buyers or sellers in property transactions.
  • Talent agents managing the business interests of actors or artists.
  • Insurance agents selling policies on behalf of insurance companies.
  • Corporate officers acting on behalf of their companies.
  • Attorneys representing clients in legal matters.

These examples highlight how agents operate across industries to legally represent and advance the interests of their principals.

Duties of a Principal and Agent

The principal has 3 duties, including:

  1. A duty to honor the contract
  2. A duty to deal fairly
  3. A duty to indemnify the agent

The agent has his own duties, including:

  1. A duty to act in the best interest of the principal
  2. A duty not to engage in self-dealing
  3. A duty to act competently, i.e., the agent must fully understand his rights and responsibilities under the contract
  4. A duty of care, i.e., agent cannot act negligently

Frequently Asked Questions

  1. What is an agent in business?
    An agent in business is someone authorized to act on behalf of another person or entity (the principal) in dealings with third parties.
  2. What types of authority can an agent have?
    An agent may have actual authority (express or implied) or apparent authority, depending on the principal’s actions and the agent's role.
  3. Can an agent be held liable for their actions?
    Yes, if the agent acts outside their authority or engages in misconduct, they may be personally liable.
  4. Is an agent always paid?
    No. Some agency relationships are voluntary or based on familial trust, and agents may act without compensation.
  5. How is an agency relationship terminated?
    It can end by mutual agreement, task completion, time expiration, revocation, renunciation, or legal conditions like death or bankruptcy.

If you need help learning more about the agent definition in business, or how to draft a principal-agent contract, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.