One of the most basic corporate housekeeping responsibilities is for a company to appoint and maintain the right registered agent for its business. The choice of a registered agent involves several key considerations. Every company should take the decision seriously, especially given the consequences of choosing wrong.
Does My Business Need a Registered Agent?
A registered agent is a business or individual authorized by a company to receive notice of a lawsuit and other important documents on its behalf. In some states this person is also known as a resident agent or statutory agent. The registered agent for a company could be an individual, such as an officer, employee, accountant or attorney. Or the agent could be a company like On Point that is in the business of providing agent services in one or more jurisdictions.
A business entity can’t be formed without appointing a registered agent in the state of its formation, or in its “domestic” state. In addition to appointing an agent that is physically located in the domestic state, a company must appoint an agent in every other state where the company registers to do business. The address of the agent is filed with the Secretary of State and is known as the “registered address.”
Registered Agent’s Role and Requirements
State requirements vary, but generally speaking a registered agent must be available at the registered address during normal business hours. The requirement being that the agent is available to accept official documents on behalf of the company it serves.
The primary role of a registered agent is to receive “service” of a subpoena or lawsuit filed against the company. A registered agent is also responsible for receiving other official documents on behalf of the company, such as official correspondence like annual report filing reminders from the Secretary of State, notices from state taxing authorities, notices of administrative dissolution for failing to timely file an annual report, and other notices of delinquency.
It is crucial that official notices be forwarded to the company in a timely fashion as there are typically deadlines for required action. If a registered agent fails to do this, the company may face a default judgment in court, adverse tax consequences, fines and penalties, and inadvertent dissolution of the company’s legal existence.
Hiring a Professional Registered Agent Is Better for Business
Appointing an individual like one of the company’s employees, owners or relatives, to serve as a registered agent may be enticing. It may save the company some money in the beginning, but this can be a costly – and embarrassing – mistake in the long run.
One risk in appointing an individual to serve as registered agent is that he or she may not always be in the office to receive official documents being served on the company. In some states, the individual agent’s absence means that the papers may instead be “served” by leaving them with a different, and likely untrained or inexperienced, person at the same location or by delivering them to an unfamiliar person at the Secretary of State’s office. This method of service is rather indirect, isn’t very effective in providing prompt actual notice of the lawsuit or other important matter involving the company and may lead to an inadvertent legal judgment against the company if it doesn’t respond to a lawsuit in time.
Another risk is that an individual agent generally doesn’t perform registered agent services as his or her primary job. Instead, the agent’s job is an additional task to the person’s already existing more primary role, such as a business manager for the company or an attorney or accountant who has several other clients. These individual agents can get busy with their primary work and may not have time to give the documents served on the company the necessary and almost immediate attention they frequently require.
Many times, this happens when a company appoints one of its own employees as registered agent. This is a risky proposition for the reasons mentioned earlier and because there is a good probability that the employee will not stay with the company long-term. According to a recent survey conducted by the Society for Human Resource Management (SHRM), retention and turnover has been a top workforce management challenge for HR professionals. Amid dealing with employee turnover, someone at the company needs to remember to replace the now-former employee with someone else as the company’s registered agent. This can easily fall off the radar screen, especially when the HR team is focused elsewhere and may not be experienced in corporate housekeeping matters.
Also, if an individual is appointed as a registered agent but isn’t in the business of serving as an agent, he or she may not be properly trained in how to handle documents that the company is served with or understand the need to forward them to the appropriate company representative right away.
The Need for a Process
It is critical that a registered agent have an efficient process in place to handle important documents for the company it serves. At a minimum, the process should outline document intake, identify the steps for logging information about the documents received, track how and to whom at the company the documents are sent, and provide for any necessary follow-up to confirm receipt of the documents that were served. The absence of an efficient process can lead to documents being sent to the wrong company representative and missed deadlines.
When Things Go Wrong
The consequences of appointing an individual registered agent rather than a professional registered agent are very real. Consider these scenarios:
- A business owner’s relative accepts service of process at the owner’s home. She isn’t familiar with the legal system or the significance of the legal papers she accepts and doesn’t tell anyone about the lawsuit. A judgment is entered against the company when it doesn’t respond to the lawsuit that had been served on the business owner’s relative.
- A multi-million-dollar judgment is entered against a company that doesn’t timely respond to a lawsuit. This mistake is a result of the agent failing to forward the court papers to the company in a timely fashion.
- The sheriff appears at the home of the business owner, who appointed himself as registered agent at his home office address. The sheriff serves legal papers at the business owner’s home one afternoon, leaving the children and neighbors worried and curious about the legal trouble that must be brewing.
- A business owner designates herself as the company’s registered agent using her home address as the “registered” address. Her home address is now linked to her business publicly and virtually permanently and is easily accessible by others for legitimate and non-legitimate reasons.
Appointing Your Registered Agent
If your company has already appointed a registered agent and is considering making a change, or if you are forming a new company and need a registered agent, follow these prudent corporate housekeeping practices:
- Vet the agent to confirm experience in handling service of legal papers and other official documents
- Confirm the agent provides services from an office that satisfies state requirements for staffing and business hours
- Ensure the agent has a process for promptly notifying the company of the service of legal papers and other official documents
- Document the company’s Board or manager approval for appointing or making any change in the agent or registered office and maintain that documentation (such as Board minutes) with the company’s other governance records
- After the company makes it appointment, check the state’s database to confirm that it identifies the correct agent and address
