ACCA F4 Corporate and Business Law Practice Exam 2026 – Complete Prep Resource

In agency law, the principal is defined as the party who grants authority to another person, known as the agent, to act on their behalf. This relationship is foundational in the context of agency, as it establishes the rights and responsibilities between the two parties involved. The principal is responsible for the actions taken by the agent within the scope of the authority granted, which can include making decisions and entering into contracts.

The principal’s role is crucial because it allows for the delegation of tasks and responsibilities, enabling the agent to act in the best interests of the principal. This authority can be expressed explicitly through a written or verbal agreement or implied through the circumstances of the relationship.

In contrast to other options, the agent refers to the party acting on behalf of the principal, and the contractual relationship often implies obligations that arise between the principal and third parties through the actions of the agent, rather than defining who grants that authority. The term "intermediary" usually describes a role that facilitates transactions but does not capture the essence of authority and representation intrinsic to the relationship between a principal and an agent. Thus, identifying the principal correctly underscores the importance of agency authority within legal and business contexts.