Professional Documents
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Who can be a Principal?
Any person who has the legal capacity (meaning that they are not insane, or in certain
circumstances a minor) to perform an act may be a principal and empower an agent to carry out
that act. Persons, corporations, partnerships, not-for-profit organizations, and government
agencies may all be principals and appoint agents.
Inherent in the Principal-Agent (P-A) relationship is the understanding that the agent will act for
and on behalf of the principal. The agent assumes an obligation of loyalty to the principal that
she will follow the principal¶s instructions and will neither intentionally nor negligently act
improperly in the performance of the act. An agent cannot take personal advantage of the
business opportunities the agency position uncovers. A principal, in turn, reposes trust and
confidence in the agent. These obligations bring forth a fiduciary relationship of trust and
confidence between P and A.
An agent must obey reasonable instructions given by the P. The A must not do acts that have not
been expressly or impliedly authorized by the P. The A must use reasonable care and skill in
performing the duties. Most importantly, the A must be loyal to the P. The A must refrain from
putting herself in a position that would ordinarily encourage a conflict between the agent¶s own
interests and those of the principal (note: one might reflect on the role of certain Enron
executives on ³outside´ limited partnerships that did business with Enron in the early 2000s).
The A must keep the P informed as to all facts that materially affect the agency relationship.
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