Agency relationship is a consensual relationship between two parties, where one party, the principal, gives authority to another party, the agent, to act on behalf of and under the control of the principal to deal with a third party, thereby creating a fiduciary relationship. The law of agency allows one person to employ another to do his/her work, sell his/her goods, and acquire property on his/her own behalf. Although a principal-agent relationship can be created by a contract between the parties, a contract is not necessary if it is obvious that the two parties intended to act as principal and agent. The intent of the parties can be expressed with words or implied by their actions. The principal can authorize the agent to perform a variety of tasks or restrict the agent to specific functions, but no matter how much authority is given to the agent, the agent represents the principal and is subject to the principal's control at all times. More important, the principal is liable for the consequences of the actions that the agent performed, and the actions and words exchanged between an agent and a third party are binding to the principal. This is known as vicarious liability and it is the reason business owners must be extremely careful of who they hire to represent his/her company. Agency theory is the idea that the agent does not always have the principal’s best interests in mind. A voluntary, good faith relationship of trust, known as a fiduciary relationship, exists between a principal and an agent, and there are four main elements of fiduciary duty that the agent has toward the principal for the principal’s protection. The first requires the agent to exercise a duty of loyalty to the principal. An agent cannot receive outside benefits without the permission of the principal, share confidential information, fraternize with the competition of the principal, work for the principals competition, deal secretly with...
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