What is Agency in Business Law?
Most corporate attorneys are familiar with the concept of agency. Agency relationships are everywhere in commercial law. Maybe you’ve heard someone discussing being an agent of another. Anytime a person or organization acts through another, agency concepts are probably involved.
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The Agency Relationship
Who Can Be An Agent?
It seems pretty intuitive that an individual can be an agent (and usually, that is the case). An individual, however, is not the only possible agent. In fact, an organization can be an agent and even a principal. It’s even possible to have two organizations as the principal and agent. That means you can have individuals, for profit corporations non-profit corporations, partnerships, and LLCs all involved in agency relationships.
The first thing we must consider in determining whether or not an agency relationship exists is consent. Both the principal and the agent just have given informed consent to enter the agency relationship. This can usually take place explicitly or implicitly depending on the jurisdiction. In the clear cut cases, there will be some written agreement or clear understanding between the parties as to what the role of the agent will be this agreement will both govern the scope of the agency and be used to clearly show it was entered into by two informed parties. You don’t need a contract, however, to establish agency.As with many areas of the law, it’s not always that clear. In ambiguous cases, actions or statements that indicate knowledge and consent regarding the agent’s authority to act on behalf of the principal is probably enough. Most jurisdictions are going to apply an objective standard to determine if a reasonable person under the circumstance would have given informed consent and understood the implications of the relationship. That is to say, if the issue is before a court, there will often be an analysis of what the parties said and how they acted. Even if they claim there was no agency relationship, one could be found if they acted as such. It can be a complicated exercise which is why we recommend always utilizing a clear and unambiguous contract when dealing with a potential agency relationship. It is also important to consider that some jurisdictions may require an agency relationship be set forth in writing so consult with your local business attorney to make sure everything is covered for your desired arrangement.
Aside from consent, the other major element is control. The key aspect of agency is that the principal must be in control of the relationship. The purpose of the relationship ultimately should be to effectuate the wishes of the principal. This is the major differentiating factor between an agent and an independent contractor. If the principal is in control, it’s more likely to be an agency relationship. The control analysis can get very complicated so it’s best to speak with a business attorney as opposed to trying to outline all the possible ways a principal can control the agent.
Most of what we’ve covered here is common law agency and principles that generally apply irrespective of jurisdiction. That being said, agency is highly dependent on State law. Statutory rules either supplement the common law or change certain facets of it entirely. There could be considerable court precedent in a given jurisdiction providing color to the agency analysis. If you are in Ohio, Michigan or Florida, give our team of corporate attorneys a call today at 419-900-0955 to discuss your case. For other states, we encourage you to reach out to local counsel sooner rather than later if you are facing a potential agency problem.
Dennis P. Sawan
Licensed in Ohio and Georgia
Christopher A. Sawan
Licensed in Ohio and Michigan
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