Definition
General Definition
Agency is a relationship between two parties where one party, known as the agent, is authorized to represent or act on behalf of the other party, known as the principal, in dealings with third parties. This relationship can manifest in multiple contexts including finance, government, investment, and personnel services.
Finance
In the financial context, agency refers to certain types of trust accounts in financial institutions where individuals, usually trust officers, act on behalf of customers. Trusted agents manage assets, investments, or financial decisions under the terms stipulated by the principal.
Government
In government-related contexts, agency refers to securities issued by government-sponsored corporations such as the Federal Home Loan Banks or Federal Land Banks. These securities are backed by the credit and support of the issuing agency or entity.
Investment
In the world of investment, agency refers to the act of buying or selling for the account and risk of a client. This means investment managers or brokers execute trades on behalf of their clients while the clients bear the investment risk.
Personnel
Agency in personnel contexts often involves firms that refer potential employees to employers for a fee. These agencies, also known as headhunters, match job seekers with potential job openings based on the qualifications and needs of both parties.
Examples
- Real Estate Agency: A real estate agent acts on behalf of a homeowner to sell a property, managing negotiations and communications with potential buyers.
- Investment Broker: An investment broker buys and sells stocks on behalf of a client, advising them on investment choices, while the investment risk remains with the client.
- Employment Agency: A recruitment agency refers candidates to employers based on job requirements, earning a fee if the candidate gets employed.
- Government Securities: Federal Home Loan Bank issues bonds, acting as an agent of the government to support housing and community development by providing dependable financial services.
Frequently Asked Questions (FAQs)
What is an agency relationship?
An agency relationship is a fiduciary relationship where one party (the agent) is authorized to act on behalf of another (the principal) in business dealings or legal matters.
What are the duties of an agent?
An agent has several duties towards the principal such as loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care.
Can an agent be held liable for their actions?
Yes, agents can be held liable for their actions if they act outside the scope of their authority or engage in fraudulent activities.
What are examples of government agencies issuing securities?
Examples include securities issued by Fannie Mae, Freddie Mac, Federal Home Loan Banks, and Federal Land Banks.
How does an employment agency work?
An employment agency acts as an intermediary between job seekers and employers. They collect fees for their services, either from job seekers, employers, or both, for successful placements.
Related Terms
Agent
An individual authorized to act on behalf of another person or organization, the principal, in business or legal matters.
Principal
A party who authorizes an agent to act on their behalf in business dealings or legal matters.
Fiduciary Duty
A legal obligation of one party to act in the best interest of another. The duty involves loyalty and care in managing the principal’s affairs.
Trust Officer
A person authorized to manage trust accounts, handling investments and administrative activities on behalf of the beneficiary.
Headhunter
A professional recruiter who seeks out candidates typically for executive or key positions, often working within a specific industry.
Online Resources
Suggested Books for Further Studies
- “Agency, Partnerships, and LLCs, Examples & Explanations” by Daniel S. Kleinberger
- “Fiduciary Law” by Tamar Frankel
- “The Law of Agency and Partnership” by Lawrence A. Cunningham
Fundamentals of Agency: Business Law Basics Quiz
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