What is an agency relationship in business transactions?
An agency relationship in business transactions is a type of legal relationship between two parties. One party, known as the principal, appoints the other party, known as the agent, to act on their behalf in business dealings. This can include tasks such as entering into contracts, buying or selling of goods and services, and other business transactions. The agent is subject to the instructions and directions of the principal, and can only serve as the principal’s representative. An agency relationship typically arises when one party trusts the other to act on their behalf and in their best interest. It is important to note that the principal is ultimately liable for any action taken by the agent, even if the principal does not directly order the action. When creating an agency relationship, both parties must sign an agency contract. This legally binds them to the agreement and outlines the powers and duties of both the principal and the agent. In California, the contract must include the scope of the agent’s authority, the compensation they will receive, and the duration of the agreement. Overall, an agency relationship is a binding legal agreement between two parties that outlines the actions and duties of each party. This is an important agreement in business transactions and should be taken seriously.
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