Answer
The three generic problems arise in business firms. The first involves the conflict between the firm’s owners and its lined managers. Here the owners are the principals and the managers are the agents. The problem lines in assuring that the managers are responsive to the owner interest rather than pursuing their own personal interest.
The second agency problem involves the conflict between or one hand owners who possess the majority or controlling interest in the firm and on the other hand, the minority or no controlling owners. Here the non-controlling owners can be thought of as the principals and the controlling owner’s as the agents, and the difficulty lines in assuring that they are not expropriated by the latter. While this problem is most conspicuous in tensions between majority and minority shareholders, it appears whenever some subject of a firm’s owner can be control decisions affecting the class of owner’s as a whole. Thus it minority shareholders enjoy veto rights in relation to particular decisions; it can give rise to a species of this second agency problem. Similar problems can arise between ordinary and preference shareholders, and between senior and junior creditors in bankruptcy.
The third agency problem involves in conflict between the firm itself-including, particularly its owners and the other parties with whom the firm’s contacts, such as creditors, employees, and customers. Here the difficulty lines in assuring that the firm, as agent, does not behave opportunistically toward these various other principles-such as by expropriating creditors, exploiting works, or misleading customers.