For corporations, LLCs and other registered business entities, legal filings and lawsuits are often a consequence of doing business. Whether routine, tax-related, or the result of a dispute or injury on company property, a business entity is just about guaranteed to receive legal documentation at some point.
Because of this, most states require corporations to designate a person or entity willing and able to receive such documentation at any time. This person or entity acts on behalf of the corporation and must register with the state’s secretary of state and is known as a “registered agent.”
Purpose of a Registered Agent
Registered agents serve a variety of basic functions, the most important of which is serving as the legal face of the company. Registered agents:
- Maintain a physical legal address and availability during normal business hours in the jurisdiction where the company was established (not a P.O. Box)
- Receive summons, lawsuits, and other legal actions on behalf of the corporation
- Receive annual government documents, i.e. franchise tax and annual report forms
- Track corporate standing and legislative changes
- Notify the corporation of all incoming documentation
Who can Serve as a Registered Agent
Generally, a registered agent must:
- Be a designated corporate officer, an individual incorporated in state, or third party entity;
- Legal resident of state; and
- Registered with Secretary of State;
- Have a publicly available address.
Why Use a Third Party Registered Agent
Corporate officers and individuals incorporated in state are allowed to serve as their own registered agents, given that they fulfill all of the other requirements needed to do so. Why then would any company choose to employ a third party for this function?
Third party entities that exist for the sole purpose of acting as the registered agent for multiple corporations have the ability and resources to:
- Track legislative changes that affect the corporations
- Track and inform corporations of their standing with the state (i.e. “good standing”)
- Act as a consistent legal address, should the business move locations
- Guarantee availability to receive legal documents at any time
- Protect corporate officers from receiving summons at potentially embarrassing moments
- Serve as a buffer between process servers and the corporation
If you are a corporate office of your company, you can imagine this scenario: You are in a meeting with a big client and a process server enters your office. He presents you with legal documents, offering little to no explanation of their contents. You know that the documents are routine or stem from a baseless lawsuit, but your client doesn’t. It’s likely that your client is now assuming the worst and reassessing doing business with you. Clearly this is a scene you want to avoid if at all possible. A third party registered agent helps you do just that.
Penalties for Failure to Act or Designate a Registered Agent
If you’ve ever been part of a lawsuit or received legal documents requiring a response or appearance, then you probably know that time is of the essence. There are often steps you need to take almost immediately, and consequences for failing to do so.
For instance, if you fail to appear in a lawsuit (after being properly served), the plaintiff can request a default judgment which you will not be able to appeal. This is a high price to pay for a clerical error.
In addition, if you fail to designate a registered agent or fail to act on legal documents once served, your corporation can lose their business license or good standing, be fined by the state, lose the ability to enter into contracts, and even potentially lose the ability to file a lawsuit. These are all very serious consequences that will greatly interfere with your ability to conduct business and could temporarily or even permanently halt it.
All in all, depending on where you are located, it may be up to you decide who you designate as your registered agent. The bottom line is that this position is crucial to the well being of your corporation and carries significant responsibility and weight. You should make the decision carefully, and fully understand the ramifications.