Future Business Leaders of America (FBLA) Business Law Practice Exam

In business law, what does actual authority refer to?

1. The power an agent has in a public space

2. The real power given by a principal to an agent

3. The implied authority a business owner holds

4. The right of an employee to act

The correct answer is: The real power given by a principal to an agent

Actual authority refers to the real power that a principal grants to an agent to act on their behalf. This authority can be either express or implied. Express authority is explicitly given, typically through written or spoken communication, outlining specific actions the agent is permitted to undertake. Implied authority, on the other hand, arises from the nature of the agent's position and the circumstances surrounding the agency relationship, enabling the agent to take actions that are reasonably necessary to fulfill their duties. Understanding actual authority is crucial because it determines the extent of the agent's ability to bind the principal in legal transactions. When agents act within their actual authority, their actions are legally effective, and the principal is held accountable for those actions. This concept is foundational in business law because it helps clarify the responsibilities and rights of both principals and agents in their relationships, ensuring that agents operate within the scope of power they have been granted.