Who is referred to as the principal in an agency relationship?

In an agency relationship, the principal is the individual or entity that hires an agent to act on their behalf. This role is crucial because the principal grants the agent the authority to represent them in various transactions, making decisions, and executing actions as specified by the principal's directives. The relationship is fundamentally about trust and delegation; the principal relies on the agent to fulfill tasks that align with the principal's interests.

The other choices focus on different aspects of the relationship. The agent, for example, is defined as the one who acts on behalf of the principal. The third party is usually someone who interacts with either the agent or the principal but does not have a direct role in the agency relationship itself. The agency itself may be an organization or entity that provides services but does not inherently define who the principal is. Understanding the role of the principal is key to grasping the dynamics of agency relationships and their professional implications.