ACCA Certification Practice Test 2026 – All-in-One Guide to Secure Your Chartered Success!

In an agency relationship, the agent acts on behalf of the principal. This relationship is established when the principal delegates authority to the agent to make decisions or perform tasks on their behalf. The agent is entrusted with specific duties and responsibilities, which may include negotiating contracts, managing transactions, or representing the principal in various capacities.

This framework is foundational in various business contexts, such as when a company hires a manager (the agent) to make decisions for the business (the principal). The agent operates under the principal's interests, with the expectation that they will act loyally and in good faith.

In contrast, the owner, stakeholder, and shareholder do not fulfill this specific role within the agency framework. The owner refers to someone who possesses ownership in a business but does not necessarily act on behalf of the business. Stakeholders have an interest in the business's performance but may not be directly involved in decision-making. Shareholders own shares in a company and may influence governance through voting but are not directly executing tasks for the principal. Therefore, the agent's unique role in acting on behalf of the principal distinguishes it clearly from these other terms.