What is an Agent?

An agent, in legal terminology, is a person who has been legally empowered to act on behalf of another person or an entity.

An agent may be employed to represent a client in negotiations and other dealings with third parties. The agent may be given decision-making authority.

[Important: Most people use special agents from time to time. A real estate agent, an insurance agent, and a travel agent are all special agents in legal terms.]

How the Agent Works

Two common types of agents are attorneys, who represent their clients in legal matters, and stockbrokers, who are hired by investors to make investment decisions for them.

The person represented by the agent in these scenarios is called the principal. In finance, it refers to a fiduciary relationship, in which an agent is authorized to perform transactions on behalf of the client.

Legally, there are three classes of agents:

  • Universal agents have a broad mandate to act on behalf of their clients. Often these agents have been given power of attorney for a client, which gives them considerable authority to represent a client in legal proceedings. They may also be authorized to make financial transactions on behalf of their clients.
  • General agents are contracted to represent their clients in specific types of transactions or proceedings over a set period of time. They have broad authority to act but in a limited sphere. A talent agent for an actor would fall under this category.
  • Special agents are authorized to make a single transaction or a series of transactions over a limited period of time. This is the type of agent most people use from time to time. A real estate agent, an insurance agent, and a travel agent are all special agents.

People hire agents to perform tasks which they lack the time or expertise to do for themselves.

Investors hire stockbrokers to act as middlemen between them and the stock market. Athletes and actors hire agents to negotiate contracts on their behalf because the agents typically are more familiar with industry norms and have a better idea of how to position their clients. More commonly, prospective homeowners use agents as middlemen, relying on the professional's greater skills at negotiation.

Businesses often hire agents to represent them in a particular venture or negotiation, relying on the agents' superior skills, contacts, or background information to complete deals.

There also is the agency by necessity, in which an agent is appointed to act in behalf of a client who is physically or mentally incapable of making a decision. This is not always a case of incapacitation. Business owners, for example, might designate agents to handle unexpected issues that occur in their absence.

Key Takeaways:

  • An agent is authorized to act in behalf of another person.
  • People hire agents to perform tasks which they lack the time or expertise to do for themselves.
  • A universal agent has wide authority to act in another's behalf but a general agent or special agent has more limited and specific powers.