The fiduciary relationship that develops when one person expresses their consent to another person to act on their behalf and under their control, and the other person gives their consent.
Principal-Agent Relationship: Definition and Operation.
An agreement in which one entity formally appoints another to act on its behalf is known as a principal-agent relationship.
The agent represents the principal in a principal-agent relationship and is not permitted to have a conflict of interest when performing the act. The law of agency specifies rules for this type of relationship and is what is known as the "agency" relationship between the principal and the agent.
Frequently, a contract will define the principal-agent relationship in formal terms. An investor becomes the principal and the fund manager becomes his agent when he purchases shares of an index fund, for instance.
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