Principal

economic-dictionary

A principal is a natural or legal person who entrusts a commission agent to carry out a certain task or management. In exchange, the principal offers financial compensation in the form of a commission.

Therefore, a person or organization that acts as a principal trusts the figure of a commission agent to carry out commercial operations such as purchases and sales.

In this sense, in exchange for a commission agreed upon by said management, it transfers said responsibility to a third party. In most cases, this kind of outsourcing responds to a lack of means or infrastructure.

For this reason, external operators are used who can carry out these tasks in an onerous way and in exchange for a previously defined profit or commission.

Principal's functions

An individual who acts as a principal has some functions to highlight:

  • Personality: Both individuals and legal entities have the legal or formal capacity to be.
  • Direction of the commercial activity: You must establish the parameters in which the commission activity is carried out.
  • Demand accounts from the commission agent: As well as the result or evolution of the agreed operation.
  • External formal image: Regardless of the performance of the individual commission agent, both the external image and the legal responsibility fall on him.
  • Conjunctural and structural support: On many occasions, the commissioning party must provide the commission agent with the means to carry out the commercial action. At the same time, it can take care of expenses incurred in carrying out the purchase or sale.

Difference between principal and commission agent

In economic practice, a commissioning agent operates as the broker's counterpart. That is, it acts in opposition, taking charge of paying the corresponding commission expenses.

These commercial characteristics are usually sealed by means of a commission contract, a commercial contract concluded between both parties.

An exclusive capacity of the principal is to be able to stop the operation if he so wishes. You can do so as long as you carry out the previously agreed steps before carrying out the revocation of the specific contract.

Tags:  banks accounting administration 

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