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 Arkansas, as in other states, the principal-agent relationship is governed by common law principles of agency, which are also reflected in various statutes. The principal gives the agent authority to act on their behalf, which includes entering into contracts and creating other legal obligations within the scope of the agency. An agent's authority to bind the principal can be actual authority, which is the power granted by the principal to the agent either explicitly or implicitly. Apparent authority, on the other hand, arises when a third party reasonably believes the agent has authority to act, based on the principal's representations or conduct. This could occur if the principal knowingly allows the agent to act in a certain way or fails to correct the impression that the agent has certain powers. In Arkansas, the actions of an agent within the scope of their actual or apparent authority will typically bind the principal to the resulting legal obligations. It is 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 act on behalf of a principal.