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What types of agency relationships do you come across at work, and how do they affect your business?
What lessons can you extract from agency law to avoid or lessen the risk of legal liability?
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Agency law to avoid or lessen the risk of legal liability
An agent is a person who does any act for another or represents another in dealing with third persons. The person for whom such act or representation is done is called principal.
Thus there are two essentials of the relationship of the agency:
1. Agreement between principal and agent
2. Intention of the agent to act on behalf of the principal.
Duties of the Principal towards agent
1. To indemnify the agent against the consequences of all lawful acts and acts done in good faith.
2. To make payment to the agent the commission or remuneration as per the agreement
3. To indemnify the agent for injury caused by the principal's neglect
Duties of Agents towards Principal
The Agent's primary fiduciary duty is to be loyal to the Principal. This involves duties:
not to accept any new obligations those are inconsistent with the duties owed to the Principal.
1. To do the work according to the directions given by the principal
2. To carry out the work with reasonable care, skill and diligence.
3. To maintain and submit proper accounts to his principal
4. Not to do any work on his account and not to use information obtained in the course of agency against the principal.
5. Not to make any secret profit
6. Not to delegate authority
7. To pay sum received for the principal
Towards third party
If the Agent has actual or apparent authority, the Agent will not have liability on any transactions agreed within the scope of that authority so long as the Principal was disclosed; otherwise both the Agent and the Principal are bound. If the Agent has acted without actual authority, but the Principal is nevertheless bound because the Agent had apparent authority, the Agent is liable to indemnify the Principal for any resulting loss or damage. (Wikipedia)
Thus if the principal is undisclosed then only the principal has right to intervene and assert his position as an undisclosed party to the contract, but where the principal's existence and or name is disclosed then the principal will be liable.
Shareholders and managers have the principal-agent relationship. In practice, there may arise a conflict between the interests of shareholders and managers. This is referred to the agency problem and the associated costs are called agency costs. Management may not work for maximization of wealth due to ...
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