Implied agency is an agency created by the client and agent. Relationships between agencies can be created between two parties based on the nature of their connection. An implied agency may arise when the client places the alleged agent in circumstances where it is understood that the agent represents the client and acts on his behalf. There is an implied agency between the parent and the subsidiary, as a result of which the court finds that the parent is the owner of the enterprise run by the subsidiary to claim compensation for the disturbance caused by the local subsidiary (J. Harris 2005, p. 4). An implied agency agreement may exist between the cooperating agent and his or her client (M. Drouillard 2011, p. 85).
In an implied agency, the extent of an agent's decision-making power depends on the conditions of the position. An implied agency can be concluded from commonly accepted industry practices, previous contacts between the parties or the agent's status in the company. Agents do things for directors that they don't have the time for or are unable to do. This creates a relationship between the agent and the director. An agent may be:
- A person
- A partnership
- An organization that has the legal capacity to have rights and assume the duties of acting on behalf of another person
In this way, by delegating authority hierarchies, the agency can cover all employer-employee association (M. E. Cafferky 2014, p. 20).
Implied agency costs
The implied agency costs that are imposed on the newly created capital increase with the amount of external financing required. So a negative shock for an entrepreneur's net worth leads to smaller investments, creating a link between authentic and pecuniary variables. There is a model in which entrepreneurs have a formative advantage over lenders. Only the first group can observe the results of their projects at no cost (B. Carmichael, L. Samson 2002, p. 1).
Problems with implied agency
An agent is a person who works and the client is a party affected by the operation. The problem of the director is that managers can accomplish their own goals, even at the cost of lower profits for owners. The brokerage principle emphasizes loyalty to those who have power over financial assets. In many agency associations, both the director and the agent act in good faith in fulfilling their responsibilities to each other. This consciousness prompted some to propose an alternative to agency theory, which is based on the recognition that agents are not always selfish. This theory is called the stewardship theory (M. E. Cafferky 2014, p. 20).
- Cafferky M. E., (2014), The Gospel from Agency Theory in the Bible, "Christian Business Academy Review", 9
- Carmichael B., Samson L., (2002), Business Cycles in a Small Open Economy with Agency Costs, D´epartement d’´economique Universite Laval, Ste-Foy, Quebec, Canada
- Drouillard M., (2011), A critique of the British Columbia Residential real estate brokerage industry’s use of dual agency, "Appeal: Review of Current Law and Law Reform", Vol. 16 No. 1
- Graham D. A., (2014), Mobile Apps Within a Franchise System: The Vicarious Liability Risk, "Franchise LJ", 34, 213
- Harris J., and Hargovan A., (2010), Corporate groups: the intersection between corporate and tax law Commissioner of Taxation v BHP Billiton Finance Ltd, "Sydney Law Review", Vol. 32
- Harris J., (2005), Lifting the corporate veil on the basis of an implied agency: A re-evaluation of Smith, Stone and Knight, "Company and Securities Law Journal", Vol.23
Author: Katarzyna Satro