An agency agreement is a contract which enables one party (the “agent”) to enter into subsequent agreements on behalf of another party (the “principal”). In other words, the agent can sign contracts and other legal documents which are binding on the principal.  

Application for small business people

Agency agreements are extremely important for the operation of small businesses. Designated owners and employees of small businesses need to have the legal authority to enter into contracts on behalf of the business. Without a valid agency agreement, it is possible that a contract or other legal agreement signed by a representative of the business may be considered void.

The agency agreement will generally specify what type of contracts the agent is authorised to enter into. This may be limited by type or value. For example, some businesses will authorise certain employees to enter into transactions up to a designated dollar value. Provided the agent acts in accordance with this authority, the principal will be bound by any legal liability arising from the agent’s actions. If the agent goes beyond what he or she is authorised to do, then the principal will not be bound. A third party who is wronged by the actions of an agent may have legal recourse against the agent or the principal, depending on the circumstances.

Small businesses may also hire the services of a professional agent for a specific purpose, such as a real estate agent or a tax agent. There are tailored agency agreements to cover these relationships.

6 key things to consider

When entering into an agency agreement, you should carefully consider:

  1. Who are the parties to the agreement?
  2. What exactly does the agent have the authority to do?
  3. Are there any limitations or conditions on that authority?
  4. What is the term of the agency agreement?
  5. Is the agent entitled to a commission or reimbursement for his or her actions?
  6. What are the consequences of a breach of the agreement?

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Small business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

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