What is an agency relationship? When you first begin operations, assuming you are the only employee and only your money is invested in the business, would any agency conflicts exist? Explain your answer.
Suppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions.
Agency relationship is a relationship between two performers where one hires the other to perform on their behalf. It could be between creditors and shareholders, managers and shareholders or lenders and borrowers.
In the case of a single employee in a business, all the authority and responsibility lies with that employee and that person is solely accountable for the activities performed. Thus, there would not be any conflicts or delay in decision making and performing other tasks.
An agency relationship exists when a person, called principal, hires another person, that is, agent to work on the principal's behalf and then delegates some authority and responsibility to the agent.
The conflict of interest does not exist when there is only a single proprietor in the company.
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