Introduction to Agencies



Agency is a fiduciary relationship between an agent, who agrees to perform tasks and work, and a principal, who controls the work and in most cases compensates the agent for it. The relationship is focused in great part on the rights of third parties, with whom the agent will be working on behalf of the principal. The agent-principal relationship is mutual, with both parties agreeing on the broad outlines of how the agent will act, subject to the consent and control of the principal. The agent has a duty to remain loyal to the principal and work only in the best interests of the principal during this relationship.

At A Glance

  • Agency exists so that one person may legally act on behalf of another. Agency law establishes who is responsible for harms arising from the agency in various situations. The parties in an agency relationship are a principal, an agent, and third parties who interact with the agent.
  • The characteristics of the agent may affect whether the principal is liable for actions the agent undertakes. Agents act with actual authority or apparent authority, and either type of authority can bind a principal in contract and for some torts.
  • There does not need to be a formal document to create an agency relationship. Rather, the agent just has to act on behalf of the principal, with the principal's assent, and for the principal's benefit. No compensation is required to create an agency relationship.
  • An agency relationship exists if an agent agrees to act on behalf of a principal, completes that action, acts for the principal's benefit, and has the assent of the principal.
  • The agent owes fiduciary duties to the principal. The agent must obey the principal's instructions, show due care and diligence, and be loyal in discharging the duties of the agency. The agent has to act for the principal's benefit and not their own benefit.
  • The principal owes duties to the agent, but these are not fiduciary in nature. The principal must compensate the agent if compensation was agreed upon. The principal must also indemnify the agent for all claims that come about because of the agency relationship.
  • Agents act on behalf of a principal who has the legal right to control them. Employees are agents who are subject to a higher degree of control by the principal in terms of how they carry out their duties. Independent contractors are typically not agents, as they control the manner in which they do a task.
  • Congress delegates to administrative agencies the power to make rules and regulations in their areas of specialty. Examples include the Securities and Exchange Commission (SEC) and the Environmental Protection Agency (EPA).
  • Government regulates business for many reasons, including public safety, consumer safety, environmental protection, protection of particular industries, and generation of tax revenue. This regulation limits what businesses can do, generally in a way that benefits the common good.