For those who are establishing a start-up business, there are many things business owners need to consider when hiring employees to help run their companies. Agency, for example, is something business owners should consider when other people are conducting business on behalf of their company.

Agency is a common way of doing business for most companies because business owners cannot be everywhere at once and therefore cannot conduct every aspect of their business. They must rely on other people, agents, and employees to conduct business on their behalf. The importance of agency is that it often requires entering a contract with an employee or agent.

Business owners should be familiar with the laws of agency and know about the three types of agency:

1. Actual authority
2. Apparent authority 
3. Ratified authority

Because business owners are bound by contracts into which their employees or agents enter, principals should clarify whether the employee can or cannot claim authority to act on behalf of the business. Why is this important? It is important because business owners could be held liable if there is a breach of contract. However, if the business owner has not given the agent or employee authority, then the employee or agent may be liable to the third party for breach of the implied warranty of authority.

To avoid potential authority problems, business operators should have the right business contracts in place from the very beginning. This will help ensure that employees and agents know whether they can act on the company’s behalf with authority. However, if these things are not clearly spelled out in a contract, then the business owner may be liable.

For your Texas small business contracts, call an Austin business attorney today who is experienced in drafting and negotiating business contracts at the Posey Law Firm toll-free at 888.269.1962 or locally at 512-646-0828.