An agency relationship exists when:
A)Organizational departments create and pursue their own goals at the expense of the overall corporate interests
B)Managers are not running the firm in the best interests of its owners
C)A principal contracts with an agent to act on behalf of the principal
D)An agent does not act in the best interest of the principal

Question

Quizplus · Accepted Answer

An agency relationship exists when a principal (such as a company owner) contracts with an agent (such as a manager or employee) to act on behalf of the principal. The agent is expected to act in the best interest of the principal, and if they fail to do so, the principal may have grounds for legal action. Choice A refers to siloed departments, not agency relationships. Choice B describes a situation where managers are not fulfilling their agency role, but it doesn't describe agency itself. Choice D refers to an agent not following their obligations, which is a potential issue within an agency relationship but not its defining characteristic.

An Agency Relationship Exists When