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Agency Agreement

This Agreement is entered by and between Jonas Adam, individually or collectively as the "Signee" and Jane Smith, as the "Signer", together referred to as the "Parties".
The Contract is dated [the date both parties sign].

1. Agreement terms

The Parties agree that the following agreement is dependent on the terms presented as follow:

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Agency Agreement

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An agency agreement, also known as an agent agreement, allows one party to work or act legally on behalf of another party. While this may sound abstract at first, it is a common agreement that has many applications in situations you will be familiar with. Read on below to understand exactly what an agency agreement is, what your agency agreement template should have, when to use an agency agreement, and common mistakes when using an agency agreement.

Who uses an agency agreement?

Although at first glance an agency agreement may sound very theoretical, it has many common and practical use cases that you likely have encountered before. For example, whenever you work with a third-party service provider, you likely work with them on an agent/principal basis. Have you ever hired a lawyer? What about a realtor to buy or sell property for you? Have you ever hired an accountant to manage your finances and do your taxes? What about working with an investment broker to manage your personal or company assets? These are all common examples of situations where you would sign an agency agreement giving that third-party, the service provider, the legal right to do certain things on your behalf.

What are the important concepts in an agency agreement template?

There are two keywords to understand in creating and reading an agency agreement. The first is the principal. The principal is the individual or corporation that is essentially engaging another person, also known as the agent, to do something on their behalf. It is important to note that while the principal is engaging the agents, often times hiring them for some commercial activity, they are often not actually hiring the agent in the formal sense. Typically the agent is a service provider such as a lawyer or accountant who is only performing a narrowly defined in a specific task or set of tasks on the principal’s behalf. 

A key part of the agency agreement is defining explicitly who the agent is and who the principal is. Note that the agent and or the principal can be an individual or a corporation. So, a corporation can engage in an agency relationship with another corporation, an individual with another individual, a corporation with an individual, and even an individual with a corporation.

An agency agreement allows the principal to delegate work to an agent to work on their behalf while still protecting both parties involved. (Source)

How is an agency agreement template different than employment?

Although an agency agreement outlines how the principal engages the agent to do something on their behalf, the agency agreement is not necessarily a formal employment relationship. In many cases, it may not even be a formal subcontractor agreement relationship. It is important to recognize that an employment agreement entails certain other rights, benefits, and responsibilities, such as a specific salary, benefits such as health insurance, and even bonuses. An agency agreement usually outlines a narrowly defined, specific task that the agent performs for the principal, either indefinitely until the agreement is terminated or for a specific period of time.

Why do you need an agency agreement?

Like many legal agreements, the agency agreement is primarily designed to set the rights and responsibilities of two or more parties upfront and clearly, to minimize the chances and impact of a dispute or other issues in the future. An agency agreement is really beneficial to clearly define what the agent expects the principal to do and not do, and vice versa. While there is no strict formal definition of exactly what an agency agreement needs to include, it is most beneficial in bringing up certain points such as compensation and the duration of the contract as a means of both parties understanding the expectations of the other before entering into the principal-agent relationship.

Why would you want an agency agreement?

There are several significant benefits of signing an agency agreement. In general, often when you engage an agent as a principal, you are gaining access to their specialized skills and knowledge to do something you otherwise would not be able to do. That could include engaging a lawyer to litigate on your behalf or an accountant to manage your finances, for example. Having an agency agreement in place empowers them to do their job to its fullest while protecting you and them from any ramifications. An affiliate agreement may be combined with other agreements outlining specific parts of the work that the agreement will do, such as an affiliate agreement.

What are the risks of an agency agreement?

Although there are many benefits to working in a principal-agent relationship and using a template for your agency agreement, there can be risks as well. The main consideration is that, because the agent is considered a legal representative of the principal, the principal can be held legally accountable for any misconduct performed by the agent themselves. Anything that the agent does while performing the tasks that the principal engages in for could be considered as if the principal themselves committed them. This is why it's very important to ensure that you not only sign a proper agency agreement, but ensure sure you know and trust the agent that you are engaging.

How do state and local laws affect the agency agreement template?

Like all legal agreements, the agency agreement is impacted by both federal and individual state laws. This is why it is very important to state clearly the locations of the principal and agent involved in the relationship, as well as specifically noting the jurisdiction in which the agreement is signed. Federal law place is some restrictions on the agreements, such as what services the principal may engage the agent to undertake. However, states usually have more specific and detailed laws, especially regarding the principal-agent relationship as it applies to the agency agreement. If signing an agency agreement, especially one that has complexities relating to an agency agreement across states, then you should consult a local lawyer to ensure you understand and account for the details of the local law.

An agency agreement is typically used when engaging professional services, such as accounting or legal. (Source)

What else is an agency agreement known as?

Although it is most commonly known as an agency or agent agreement, there are several other names that the agreements can be called. These include:

  • an agreement for agency
  • an agreement for a principal-agent relationship
  • agreement for agent relation
  • an agency arrangement agreement

What should an agency agreement template contain?

Although there is no single required template for an agency agreement, there are several common items that are found in many agency agreements and are strongly recommended. Keep in mind that the details of your agreement will be determined by the type of work the principal is engaging the agent for, as well as the jurisdictions, especially the state or states in which the agent is performing the work.

The first and most important thing that the agency agreement template should contain is the full names and addresses of the principal and the agents. The agency agreement should also clearly state yes the principal and or agents or individuals or corporations. The agency agreement should also state clearly the purpose of the agency: What exactly is the principal hiring the agent to do, and why does the agent need to act on their behalf? Often times it can benefit the principal to make this scope as broad as necessary to perform the duties, but not so broad that it can leave the principal liable for any issues that arise as the agent performs the duties for the engagement.

Agency agreements will also commonly contain the parameters of the engagement itself. For example, is the engagement between the principal and the agent exclusive or nonexclusive? If it is exclusive, is it exclusive for the length of the engagement or only for a certain period of time? Similarly, the agency agreement template should include the definition of how long the engagement itself is, whether it is indefinite or time-limited. If it is indefinite, then the agreement should include the terms and processes under which it may be terminated, including the notice period necessary.

The agency agreement template should also include a clear delineation of the geographic area in which the agent can act on behalf of the principal. Just as the description of work limits the abilities but also limits the liabilities of the agreement, so does this geographic description reduce the implications for the principal.

The agreement may also include clauses clearly outlining the rights and responsibilities of the formal relationship between the principal and the agent. For example, as described above, an agency relationship typically does not reflect a true employment relationship. A good agency agreement will make the lack of an explicit employment relationship clear. At the same time, and agency agreement templates should include nondisclosure and confidentiality provisions that protect both parties, but especially the principal.

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