Agency Relationships 101 - Definition and Types - Our Guide

Managing a business entails various responsibilities to handle and tasks to accomplish, which is understandably challenging for any individual.

If you are having a hard time taking care of other business responsibilities, then you may consider hiring agents to help you run your business more effectively. Whether you are occupied with handling other business matters, or you have to go on an out-of-town business trip, a skilled agent can help make an important commercial transaction and work on your behalf.

For this setup to be effective, you should first establish an agency agreement, define your relationship with your agent, and learn and understand more about your rights and obligations with one another. You may also seek legal assistance from commercial lawyers before getting into an agency agreement.

What is an agency agreement?

Agency agreements are established relationships that let agents act on behalf and in the interest of the principal.

What is the relationship between the principal and the agent?

The principal refers to the individual who agrees to allow a trusted person to act on their behalf. On the other hand, the agent is the person acting on behalf of the principal.

What does “agency” mean in commercial relationships?

In essence, an agency in a commercial relationship is fiduciary. This means that an agent is legally obligated to act in the principal’s best interest concerning their business, money, or property.

The most important part of the agency relationship is the trust and confidence between the agent and the principal. Since the agent should act only in the best interest of the principal, they must always act ethically according to the agency agreement.

What are the most common agency relationships?

The most common agency relationships include the following:

  • Employers and employees
  • Lawyers and clients
  • Real estate agents and auctioneers

Please take note that agency relationships can be tricky. However, keep in mind that rights and obligations depend on the type of agency relationship with your agent.

What are some commercial agency relationships? 

  • Brokers

A broker is an individual or a business that will buy or sell goods or services according to the instructions of the principal.

If you are selling, a broker is responsible for increasing your profit. Meanwhile, if you are buying, they will help you get the best deal.

One example of this relationship is having a stockbroker. The stockbroker, who is the agent, will earn commission-based profits. They are obligated to look for the best buy or sell prices available in the market that is beneficial to you, the principal.

  • Factors

A factor, or a mercantile or a commercial agent, is vital in the buying and selling process of goods or services. Unlike brokers who are responsible only for helping you make the most profit or get the best deal, they can also hold possession of the goods you are aiming to buy or sell.

Conclusion

Understanding the different types of agency relationships, particularly in commercial transactions, is essential in determining the rights and obligations of the principal and the agent with one another.

If you are seeking legal assistance, then trust only professionals who understand your rights and obligations. Our team of experienced commercial lawyers in Brisbane is more than capable of providing you with innovative commercial and property solutions. Get in touch with us today to learn more about how we can help!