PART 3.

Agency
Relationship
s
 Agency relationship

•Legal aspect
of corporate
governance
 Agency
• Why do we care
about agency
relationships?
Concept of agency
• An agency relationship is a
fiduciary relation which
results from the
manifestation of consent
by one person to another,
 Agency relation
• that the other person
shall act in his behalf
and is subject to his
control and consent by
the other so to act.
 Agency relation
• Two parties are
needed. We have the
agent and the
principal.
 Agency relation
•The agent is the
director while the
principal is the
shareholder.
 Agency relation
• The agent agrees to work
for the principal ,subject to
the control of the other
part, the principal also
agrees to the agreement.
 Agency Relationships

•Q1. HOW ARE

AGENCY
RELATIONSHIPS
FORMED?
 FORMATION
• 1. By

agreement or
contract.
 FORMATION
•2. By
ratification.
 Ratification
• is the official way to
confirm something, usually
by vote. It is the formal
validation of a proposed
law, treaties, and
agreements are officially
recognized.
 FORMATION
•4. By
operation of
law.
 Operation of the law

•dictated by
existing legal
principles
 Formation
•5.By estoppels
 5.By estoppels
• Estoppel is a collective name
given to a group of legal doctrines
in common law legal systems
whereby a person is prevented
from making assertions that are
contradictory to his or her prior
position on certain matters before
the court - the person is said to be
"estopped".
 Agent duties
• 1. Loyalty: An
agent has the duty
to act solely for the
benefit of his or
her principal
Agency relationship
•The agent cannot
profit individually
without permission
from the principal.
 Obedience.
•2.The agent has
the duty to follow
lawful orders.
 Accounting
• An agent has the duty
to keep and make
available to the
principal an account of
all property and money,
 Accounting (cont).
• received and paid out
on principal’s behalf
,including gifts
received from third
persons.
 Performance
•An agent agrees
to use reasonable
diligence and
skill.
 Notification
•The agent has to
notify the principal
on subject matter of
the agent.
 Principal duties
These are principal
duties to the
agent.
 Principal duties
• 1.Compensation.
• 2.Reimbursement.
• 3.Indemnification.
• 4.Cooperation.
• 5.Safe Working Conditions.
 Compensation
• the principal has the
duty to pay the agent
in time, for the
services rendered.
 REIMBURSEMENT
• The principal has the
duty to reimburse the
agent for necessary
expenses incurred while
performing his duties.
 Indemnification
• The agent has the duty
to compensate the
agent for liabilities
arising from lawful acts
on principal’s behalf.
 Cooperation
• The principal has the
duty to cooperate
with the agent and to
assist him in
performing his duties.
 working conditions
• A principal has the duties
(1) to provide the agent or
employees with safe
working premises
,equipment, and
conditions,
 Working conditions
• and (2) to inspect
working conditions and
warn agent /employee,
of unsafe areas.
 Principal’s remedies
•Constructive Trust.
•Avoidance.
•Indemnification
 Constructive trust
• Anything an agent
obtains by virtue of
the agency
relationship belongs
to the principal.
 Constructive trust
• This is the reason anything
developed in intellectual
property while on the job,
belongs to the employer.
 Avoidance
• In the event that the agent
breaches her contract with
the principal, the principal
may elect to avoid any
contract he entered into
with the agent.
 Indemnification
• To the extent that the agent’s
breach causes harm to some
third party, who then sues the
principal ,the principal may
seek indemnification from the
agent.
 Termination
• An agency
relationship can be
terminated by Act of
the parties, and by
operations of law
 Act of the parties
• 1. Lapse of time .
• 2.Accomplishment of
task.
• 3.Closed the deal.
Act of the parties (cont).
• 4.Mutual agreement.
• 5.Renunciation(by
agent),revocation(by
principal).
 Operation of law
• An agency may terminate
as a matter of law due to :
• Death or incompetence(Of
agent or principal).
 Operation of law
• Impossibility of
performance.
• Materially changed
circumstances.
• Bankruptcy of the
principal or agent.