Final answer:
The relationship described is known as an agency, whereby an agent is authorized to act on behalf of a principal in business dealings with third parties. This is distinct from partnerships, brokerage, or joint ventures, focusing instead on the representative capacity of the agent.
Step-by-step explanation:
The relationship between a principal and the principal's agent, arising from a contract where the agent is employed by the principal to interact with third parties, refers to an agency relationship. This arrangement is fundamental to business practices, as it allows the principal to extend their legal and commercial reach through the agent's actions. Unlike a partnership, where two or more people share ownership and management responsibility, an agency focuses on the representative actions of the agent on behalf of the principal.
In contrast to brokerage, which typically involves a transactional relationship for a specific purpose, and a joint venture, characterized by a collaborative business undertaking for a singular project or a limited duration, agency involves a broader, often ongoing representative capacity. Agency is a vital concept in commercial law, underpinning everyday business operations such as engaging a sales representative, authorizing someone to make purchases, or any action where one party legally binds another in dealings with a third party.