What does an agency agreement primarily establish?

An agency agreement primarily establishes the legal bounds of the relationship between the principal and the agent. This agreement outlines the authority granted to the agent by the principal, defining how the agent can act on behalf of the principal in various situations. It serves to protect the interests of both parties by clearly delineating their roles, responsibilities, and the scope of the agent's powers.

This legal framework is essential because it helps mitigate risks associated with the actions taken by the agent while representing the principal, ensuring that both parties are aware of their rights and obligations under the agreement. In addition, it can also provide clarity on matters such as liability, confidentiality, and the duration of the agency relationship, which are critical for the proper functioning of the agreement.

The other aspects of the agency relationship, such as financial responsibilities, service areas, or compensation rates, while important, are typically detailed within the broader context of the legal agreement rather than being the primary focus. This is why the legal bounds of the principal-agent relationship are the foundational aspect of an agency agreement.