What does apparent authority refer to in a business context?

Apparent authority in a business context refers to the perception of authority based on the principal's actions. This concept means that if a principal (such as a business owner or manager) has behaved in a way that suggests to a third party that an agent (an employee or representative) has the authority to act on their behalf, the agent can be considered to have apparent authority.

This perception does not necessarily require any formal agreement; rather, it arises from the way the principal has presented the agent and their role. For instance, if a business consistently allows an employee to negotiate contracts and communicate with clients in a manner that indicates they have the authority to make decisions, clients might reasonably believe that this employee has such authority. If the employee acts within that perceived role, the principal could be held liable for the actions taken by the employee under that assumed authority.

In contrast, the legal ability to enforce contracts, actual authority based on a written agreement, and authority assigned by government regulations do not relate directly to the perception created by the principal’s actions and thus do not fully capture the meaning of apparent authority.