A company's agent can act for the company and in some cases legally bind it. “Agency” is a legal term that describes the relationship between a principal (a person or business) who engages an agent (other person or business) to act for the principal. For example, a company acting as a principal may ask an agent, such as a trusted employee, to sign documents for the company or speak to vendors on behalf of the company. Company owners, directors, and officers should be aware of when a person may be an agent under the law.

Both the principal and the agent must agree to the agency relationship. However, principals may communicate the apparent authority of an agent in a certain area to a third party (called a manifestation of the agent's authority) without communicating the scope of that authority to the agent himself. For example, a principal could tell a vendor that the agent has the authority to make purchase decisions on behalf of the company. The vendor then may believe that statements made by the agent such as “We want three of that product” are communicating the agent's intent to exercise his authority and buy the product. If the agent is unaware that he has authority to buy the product, he may unwittingly exercise his authority. Unfortunately, the principal may be bound by the agent's actions.

Another caution to business owners involves an undisclosed principal. An agent may enter into a contract using his own name without disclosing that he actually acts on behalf of a principal. Under the common law, if the agent had power to make the contract and the parties eventually learn the principal's identity, the other party to the contract may sue the principal. However, if the agent actually has no power to enter into a contract, the principal may demonstrate that the scope of agency did not include this power and escape liability.

Agents and principals have duties to each other under the common law. For example, the agent has duties of care, loyalty, and obedience to the principal, similar to those duties held by a trustee. The principal has a duty to aid the agent's performance of his service, a duty to compensate the agent for services (unless the agent chooses to work for free), and a duty not to act in a way that harms the agent's reputation.

Under the International Business Companies Act, every international business company must have a registered agent – a person who is specifically designated as an agent for the company and who must be licenced to carry on the business of financial and corporate services. International Business Companies Act, Section 38. Companies usually have many other agents besides just registered agents. Because of the potential for principal liability for the acts of an agent, companies should carefully document the scope of an agent's authority.

To find out more about the law of agency, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.