In a principal-agent relationship, the principal gives the agent authority to act on behalf of the principal, and to bind or obligate the principal to contracts and other legal obligations, as permitted by the scope of the agency (authority). An agent’s authority may be sufficient to bind or obligate the principal if the authority was expressly given to the agent (actual authority), or if it was implied to other persons that the agent had authority to act on behalf of the principal (apparent authority)—such as by the principal’s adoption of the agent’s prior actions on behalf of the principal.

In Indiana, as in other states, the principal-agent relationship is governed by principles of agency law. The principal grants the agent the authority to act on their behalf and to enter into contracts and other legal obligations within the scope of the agency. This authority can be 'actual authority,' which is explicitly given to the agent by the principal, or 'apparent authority,' which arises when the principal's behavior leads a third party to reasonably believe that the agent is authorized to act. Apparent authority can be established by the principal knowingly allowing the agent to act in a certain way or by the principal's adoption of the agent's actions after the fact. It's important for principals to clearly define the scope of an agent's authority and for third parties to verify the extent of an agent's power to bind the principal. Indiana law will hold principals accountable for the acts of their agents when those acts are within the scope of the agency and will also consider the effects of the principal's representations (or lack thereof) to third parties regarding the agent's authority.