What defines the relationship between an agent and a principal in an agency?

The relationship between an agent and a principal is fundamentally characterized by a mutual agreement to represent and act on behalf of the principal. This agreement creates a formal agency relationship where the agent is empowered to take actions or make decisions that will bind the principal in legal or business matters. The essence of this relationship is rooted in consent, as the principal grants authority to the agent to act on their behalf, which is often documented through a contract outlining the specific duties and responsibilities of the agent.

This structured agreement is crucial as it establishes the legal and ethical framework within which the agent operates, thereby ensuring accountability and clarity in their actions. A clear understanding of this mutual agreement is essential for both parties to maintain a productive and professional relationship in various transactions or dealings.