# What Is an Agent? Definition, Types of Agents, and Examples

![Agent](https://www.investopedia.com/thmb/tlR8txIaI5rJgsj5uMF6a2Q2ous=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/agent.asp-final-2c6fe755ba534208bc93e647f2168b8f.png)

*— Investopedia / Joules Garcia*

> **Definition**
>
> "Agent" is a legal term for someone who has been given authority to act on someone else's behalf.

## What Is an Agent?

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

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 on their behalf. 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 and in their best interest.

### Key Takeaways

*   An agent is authorized to act on behalf of another person, such as an attorney or a stockbroker.
*   People hire agents to perform tasks that they lack the time or expertise to complete themselves.
*   A universal agent has wide authority to act on another's behalf, but a general agent or special agent has more limited and specific powers.
*   Agency by necessity is an agent appointed to act on behalf of a client who is physically or mentally incapable of making a decision.
*   Agents are generally required to be licensed and registered with the appropriate state authorities.

## Types of Agents

Agents come in all types, depending on their function and the industry in which they operate. In general, there are three types of agents: universal agents, general agents, and special agents.

### Universal Agents

Universal agents have a broad mandate to act on behalf of their clients. Often, these agents have been given [power of attorney](https://www.investopedia.com/terms/p/powerofattorney.asp) 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

General agents are contracted to represent their clients in specific types of transactions or proceedings over a period. They have broad authority to act, but only within a limited sphere. For example, a talent agent for an actor is a general agent.

### Special Agents

Special agents are authorized to make a single transaction or a series of transactions within a limited period. This is the type of agent many people use occasionally. Real estate, [securities](https://www.investopedia.com/terms/s/series66.asp), insurance, and travel agents are all types of special agents.

> **Important**
>
> Practicing as an agent in a specific industry without the proper license or registration can lead to fines or being prohibited from acting as an agent in that industry in the future. Before working as an agent, ensure that you have obtained the necessary licenses, certifications, and registrations.

## How Agents Are Used

People hire agents to perform tasks that they lack the time or expertise to complete. Investors hire stockbrokers to act as intermediaries for the stock market. Athletes and actors hire agents to negotiate contracts on their behalf because the agents are typically more familiar with industry norms and have a better idea of how to position their clients.

More commonly, prospective [homeowners](https://www.investopedia.com/home-ownership-4689706) use agents, relying on the professional's knowledge of real estate laws and transactions.

Businesses often hire agents to represent them in specific ventures or negotiations, relying on the agents' knowledge, contacts, or background information to facilitate deals.

## Loyalty Responsibilities of an Agent

### Duty of Avoiding Material Benefit

Agents generally benefit monetarily through fees, compensation, or other payment methods. For example, a real estate agent commonly receives a commission for their work in selling a house. However, they should not accept other benefits in excess of normal payment.

When acting on behalf of another, an agent must ensure they do not unjustly benefit from their agency position. This includes receiving substantial benefits from the relationship or exploiting their position to secure benefits that would not typically be part of a typical transaction.

### Duty Not to Usurp

When an agent acts on behalf of a principal, it may receive information that could be used for personal benefit. For example, an agent may receive information relating to a potential investment opportunity. The agent owes the principal the duty not to steal or supplant the principal's ability to transact. In this example, the principal retains the right to decide whether or not to invest; the agent must not take the place of the principal without the principal's explicit consent.

### Duty to Not Compete

On a similar note, an agent may not enter into transactions or engage in business that compete with the principal. This conflict of interest puts the principal at a disadvantage as the agent may obtain trade or business secrets during the course of the business relationship. For example, imagine an agent was tasked with shipping specific goods to a [manufacturing](https://www.investopedia.com/terms/m/manufacturing.asp) warehouse. The agent could obtain information related to the principal's operations that it could then use for its own personal benefit.

### Duty of Transparency

Formalized agent-principal arrangements often include language stating that the agent must disclose if it has any other principals for whom it is acting as an agent. This includes disclosing a sworn statement that the agent will act in good faith towards all principals and will deal fairly with each one.

### Duty to Protect Information

During the course of an agent's relationship with the principal, the agent may not disclose confidential information to unrelated parties. This may be defined through [confidentiality agreements](https://www.investopedia.com/terms/c/confidentiality_agreement.asp) or may not be explicitly called out. In either case, the agent must take care to evaluate the sensitivity of the information and the necessity for other parties to obtain it. This includes not using confidential information for the personal benefit of the agent (i.e, exchanging the information for personal benefit to an independent third party).

> **Fast Fact**
>
> An agent may have express authority (via a written contract) or implied authority (entered into agreement based on actions)

## Performance Responsibilities of an Agent

### Duty of Contract

All terms of any written agreement between an agent and a principal define the relationship between the two. For many agent and principal relationships, the contract is not explicitly defined upfront. However, custom or deliberate agreements may call for very specific terms that define what is and isn't allowed.

### Duty of Care

An agent is always tasked with acting with care and competence when handling affairs of the principal. Agents must act as the principal would, using discretion as if they would incur personal gain or loss from the action. Although the level of care may not be explicitly defined, it should be equal to what is reasonably expected by local standards.

The duty of care may be complicated when considering the agent's personal benefit potential. For example, consider a broker that receives a [commission](https://www.investopedia.com/terms/c/commission.asp) for the sale of certain investment products. For some clients, it may not be in their best interest to buy those investments. Therefore, the broker has a duty of care not to sell such products to those individuals, sacrificing personal gain to uphold the sanctity of the relationship.

### Duty of Obedience

An agent must comply with reasonable instructions. There may be situations where acting on one's behalf and following their guidance is not reasonable or legal, so the agent may not have to follow instructions. Otherwise, it is bound to perform tasks as expected by the agreement. This includes situations where the principal may be disadvantaged but has instructed the agent to act in a specific manner.

### Duty of Disclosure

As the agent gains sensitive information that may influence the decision-making process of a principal, the agent has the duty to disclose that information in an accurate, timely manner. Consider the example of Los Angeles Dodgers' player Freddie Freeman. Freeman's agent reportedly did not disclose to Freeman that his former team, the Atlanta Braves, wanted to re-sign him. By withholding such information, Freeman reluctantly signed with a different team.

### Duty of Separation

An agent also has the responsibility to keep the principal's affairs separate from its own. This includes ensuring that any transactions entered into on behalf of the principal are still legal property of the principal. This also ensures that any resources or capital used to transact are maintained in separate [bank accounts](https://www.investopedia.com/personal-finance/complete-guide-checking-accounts/) and that separate reporting ledgers are maintained.

> **Tip**
>
> When acting as an agent, you are often protected from liability as long as you act with care, reasonableness, and transparency.

## Agent Liability

An agent is often liable to their principal if they violate their duty or deviate from a reasonable, expected action performed on behalf of the other party. This may be the result of exceeding the authority they've been given, acting in misconduct, being unreasonably negligent, or any other situation where the principal may incur a loss that could have potentially been avoided.

When the agent performs a task for another without disclosing they are an agent, they may be considered liable because the agent was presumed to be a principal. Agents are also commonly liable when they expressly incur a personal liability by entering into an associated agreement.

## Agency by Necessity

There is also "[agency by necessity](https://www.investopedia.com/terms/a/agency-by-necessity.asp)," in which an agent is appointed to act on behalf of a client who is physically or mentally incapable of making a decision. However, this is not always a case of incapacitation. Business owners, for instance, may designate agents to handle unexpected issues that arise in their absence. For example, if a CEO were on a flight and unreachable, yet an emergency business decision needed to be made, agency by necessity could be used.

Agency by necessity is most often executed in times of emergency or urgency when the primary party is not available to make a decision. In these situations, courts generally recognize the third party making the decision as legitimate if that party was given power by the primary party to do so. The third party would be responsible for acting in the primary party's best interest.

[Estate planning](https://www.investopedia.com/terms/e/estateplanning.asp) often sees agency by necessity. For instance, someone may have created a will outlining how their estate should be disbursed at their time of death; however, there could be situations where the person became incapacitated before adjustments to the will were made. Here, a trusted party could make decisions based on necessity.

## What Is the Job of an Agent?

An agent is a legally authorized entity that represents another entity's interests, performing specific or general tasks the principal cannot complete.

## What Is the Role of an Agent?

An agent is legally bound to act in the best interests of its principals, performing duties for its principals.

## What Are Agents in Business?

There are many types of agents in business, such as a firm's lawyer or a subordinate assigned to make decisions if the owner or CEO is unavailable.

## The Bottom Line

An agent is anyone who has been entrusted to act on behalf of another individual. People usually call upon an agent when they need someone with more expertise or when they don't have the time to complete a task.

Agents are commonly used in the finance, law, real estate, insurance, acting, and music industries, yet they can be found in almost any situation when advanced knowledge on a topic is needed. Agents can save people a lot of time, money, and headaches by helping them complete important tasks.  

> **Article Sources**
>
> 1.  ESPN. "[Los Angeles Dodgers' Freddie Freeman Fires Agent](https://www.espn.com/mlb/story/_/id/34162315/sources-los-angeles-dodgers-freddie-freeman-fires-agents-led-offseason-contract-talks)."