How is "agency" defined in business law?

In business law, "agency" is defined as a relationship where one party, known as the agent, has the authority to act on behalf of another party, referred to as the principal. This relationship is foundational to many transactions and legal arrangements, as it allows the agent to make decisions, enter into contracts, and perform actions that legally bind the principal within the scope of the authority granted to them.

The agency relationship is critical in various business contexts, allowing for the delegation of responsibilities and decision-making. For example, in a real estate transaction, a real estate agent acts on behalf of the seller to negotiate deals and represent their interests. Understanding this relationship is vital for comprehending how businesses operate and also how liability and authority are established and maintained.

The other options presented do not accurately define agency in the context of business law. A contract between two businesses relates more specifically to agreements or obligations between entities rather than the representative relationship that agency describes. Similarly, employee relations speak to the dynamics between employees and employers without the broader context of representation inherent in agency. Lastly, a legal definition of company ownership relates to the rights and responsibilities of ownership rather than the agency relationship.