Principal-Agent Relationship

Posted in Finance, Accounting and Economics Terms, Total Reads: 508

Definition: Principal-Agent Relationship

A principal agent relationship is where an individual who can appoint another person who can take decisions for a business in the case of his absence due to some or the other reason. An agent acts on the basis of a contract under which there should not be any presence of conflict of interest in any of the activities that he is subject to perform.

A principal agent relationship is also similar to a power of attorney under which an individual holding a business entity can appoint another person to carry out certain activities or to take some decisions on his behalf due to his absence from duty. An agency can also work in the situation of an individual wanting to buy shares or sell them through an agent, in this case a broker in a brokerage firm.

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