JESSA C.

CAMPONION BSBABM-2
MODULE-1: INTRODUCTION TO FINANCIAL MANAGEMENT

“Agency Relationship”
Why do I care about agency theory? Because it is the fundamental concept on which
other business or other relationship are built, such as partnership, corporation, trust and the like.
According to the module, Whenever a person or a group of persons (principal) employs
another person or group of persons (agency) to render services and at the same time delegate
decision making authority to the agent, and agency relationship exists, (Agency theory).
The relationship itself is called a fiduciary relationship. This means the principal is
placing special trust and confidence in the agent to act for the benefit of the principal at all
times.
An agency relationship is the fiduciary relation which results from manifestation of
consent by one person to another that the person shat act in his behalf and is subject to his
control, and consent by the other so to act.
Usually, this authorization is written down into a contract which details exactly what an
agent can and cannot do, but it doesn't have to be. You can give authorization orally, and an
agency relationship may be implied in certain circumstances.
It simultaneously means the principal is bound (normally) by what the agent does, since
the agent is acts as if the principal were there him/herself. It allows the principal ability if you
will, to be more than one place at a time, thereby expanding their potential business
opportunities.
Simply stated, the agent acts for their principal as if it were the principal acting and with
the same authority as if it were the principal.