Principals have different roles depending on the nature of an individual business, but the universal responsibility of a commercial business principal is significant influence. Some principals are also the founder, owner and CEO. Others own a large portion of company equity and sign off on major decisions. Some principals are simply considered major parties to a business transaction. Many legal documents designate a "principal," the majority of which refer to someone with decision-making authority.
The Different Roles of a "Principal"
Principal is a term with many meanings. As it relates to business, a principal can range from a company's representative dealing with a contractor to the company's leader.
Some companies have a specific position identified as the principal, and these positions often represent key members of the leadership team. Principals may handle client and business relationships, as well as develop the mission and strategic vision for the firm. For smaller companies, the president, CEO, owner and principal are often the same person.
In legal terminology, the principal might be the party who gives legal authority for another party called the "agent" to act on the principal's behalf. These principals can be individuals, corporations or even government agencies.
The last type of principal is the principal investor, or the investor who owns the most shares of the company. This is normally the owner or some other member of the leadership team.
In almost every circumstance, the company principal's major responsibility is managing relationships. This is most obvious in principal-agent transactions, where the principal is also responsible for compensating the agent and offering indemnification. But all principals act as representatives of a company's interest and are, in that way, ambassadors for the company.