Posted in Finance, Accounting and Economics Terms, Total Reads: 257
Definition: Actual Authority
Actual authority refers to specific powers allowed by a company or an individual known as a principal to a third party, known as agent to act or take decisions on behalf of them. Actually authority can be of two types either the principal has given authority (express authority) to the agent or it can be implied as well.
Express authority is when the principal has expressly told the agent to perform that authority on behalf of him. It can be oral or handwritten. The contracts are the perfect example of express authority. X owns a stationery store and he hires Y to manage the store. X specifically tells Y that it's his job to negotiate and make purchases with the suppliers. Thus Y is X's agent, and therefore has express authority to make contracts with suppliers on behalf of X, the principal.
Implied authority can by virtue of being necessary to carry out his express authority. For example, every senior executives and directors have decision making authority on virtue of their position in the corporation. For example, X hires Y to manage the stationary store. As part of Y’s duties, X tells him to keep the store well stocked. Ordering registers from the suppliers is very necessary to keep stores inventory stocked. Therefore, Y has implied authority to make contracts with the suppliers.
Any decision taken by the agent is legally binding and enforceable by law as long as it falls within the ordinary course of the company’ business.
Actual authority is different from apparent authority as apparent authority involves a situation in which the third party believes or understands that the agent has the authority to act on behalf of the company. It can be due to verbal or circumstantial representation of agent and such actions taken under apparent authority are not legally binding.