Agency Setup in India

Agency Setup in India

1. What is an Agency?

An agency is a legal relationship where a principal authorizes an agent to act on their behalf in dealings with a third party. The agent’s actions legally bind the principal.

2. How is an Agency Created?

An agency can be created through:

• Express Appointment – A direct agreement, oral or written.

• Agency by Estoppel – The principal’s representation leads a third party to believe someone is their agent.

• Agency by Ratification – The principal later approves an act done on their behalf without prior authorization.

• Agency of Necessity – An emergency requires one party to act for another to protect their property.

3. Who Can Set Up an Agency?

• Principal – Any adult of sound mind.

• Agent – Anyone, including minors or unsound persons, but they won’t be personally liable. The principal bears the risks.

4. Benefits and Limitations

✅ Benefits – Lower costs, easier recruitment, market expansion, and local expertise.
❌ Limitations – Limited control, brand risks, unsuited customers, and termination liabilities.

5. Tax Implications

Agents are taxed under the Income Tax Act, 1961, based on their entity type (Individual, Firm, Company, HUF, etc.). Commission agents are taxed on income earned from facilitating sales or services.

6. How is an Agency Terminated?

1. By Act of the Parties – Mutual agreement, principal’s revocation, or agent’s resignation.

2. By Operation of Law – Completion of purpose, expiry of time, death, insanity, insolvency, or destruction of subject matter.

Conclusion: Agencies facilitate business operations but require careful structuring to manage risks, tax obligations, and termination conditions. 🚀