What type of authority is given to an agent which allows them to act on behalf of the principal?

The correct choice is actual authority, which is granted to an agent by the principal, allowing the agent to act on behalf of the principal and legally bind them in agreements with third parties. Actual authority can be either express, where the principal explicitly states the agent’s powers, or implied, where the authority is not explicitly defined but is necessary to perform duties assigned.

This type of authority is crucial in agency relationships because it establishes a clear scope of power for the agent to operate within. When an agent acts within their actual authority, the principal is bound by the agent’s actions, provided those actions are within the defined authority.

Implied authority refers to powers that are not specifically stated but are necessary for the agent to carry out the explicit tasks assigned by the principal. Inherent authority allows an agent to take actions typically associated with their position, while apparent authority arises when a third party perceives an agent to have authority based on the principal’s representations. While these concepts are significant in understanding agency relationships, actual authority is the foundational form of authority that directly enables an agent to act on behalf of the principal.