Definition and Purpose of Agency Relationships
An agency relationship is a professional connection in which one party represents or acts on behalf of another party for their benefit. The agent may be an individual, an organization, or another agent. The principal may instruct an agent to enter into transactions, pay taxes, and perform other functions on their behalf.
An agreement between the two parties governs agency relations. The agent, or representative, has the right to make decisions and act based on information provided to them by the other party (Naheem, 2020). Agency relationships involve a party providing services or performing specific duties. They can often be helpful and profitable for both parties.
Creation of Agency Relationships Through Contracts
These relationships are created when the parties enter into a contract that defines the rights and obligations of each party. In the contract, both parties must undertake to give each other rights and obligations. Typically, one party must be responsible for advertising and selling the other party’s goods or services, and the other party must pay an agency fee for such services. Usually, there are rights and obligations for both parties, as well as the terms and conditions of the contract (Naheem, 2020). Sometimes the contract can be signed directly between the agent and the host, but most often it is signed between the agent and the organization that uses it.
Key Contract Requirements and Agent Responsibilities
The contract must be correctly drafted and contain all the necessary information, including the terms of the agreement, the rights and obligations of each party, and the procedures for terminating the agency relationship. During the term of the agency agreement, the agent must provide the receiving party with services and fulfill all the obligations promised in the contract. Depending on the contract, the agent may be paid for his services or receive a commission. He must also promptly provide the receiving party with sufficient information and maintain a contractual relationship.
Methods and Reasons for Terminating Agency Relationships
An agency relationship can be terminated for a variety of reasons. They can be terminated by mutual agreement or at the initiative of one of the parties. Sometimes, a court decision may terminate an agency relationship if one of the parties violates the contract.
The most common are the expiration of the contract, termination of the contract by agreement of the parties, termination of the contract at the initiative of the agent, termination of the contract at the initiative of the principal, and the expiration of the contract due to the termination of the performance of services. In the event of the contract’s expiration or termination of the contract by agreement of the parties, the agency relationship can be extended by signing a new contract (Naheem, 2020). In addition, the agency relationship may be terminated at the expiration of the term, or it may be terminated at the initiative of the agent or the receiving party without any additional conditions.
Overall Significance of Agency Relationships in Business
In general, an agency relationship is a business relationship between two parties that can be beneficial and profitable for both parties. It is a contractual relationship between two parties in which one party (agent) represents the interests of the other party (principal) in certain legal situations. They are created at the conclusion of the contract and can be terminated at the initiative of one of the parties, upon reaching the term of the contract, or by a court decision. They provide both parties with the opportunity to benefit from the business relationship.
Reference
Naheem, M. A. (2020). The agency dilemma in anti-money laundering regulation. Journal of Money Laundering Control, 23(1), 26-37.