What in the world is a Registered Agent? When you first hear this term, if you are like me, your mind goes straight to Ethan Hunt, Jason Bourne, or the ever famous Bond, James Bond. Sadly, I have the cruel task of explaining to clients that, while creating a new entity is pretty cool, you don’t get to join an exclusive interstate spy ring when you choose to incorporate your business.
So, if a registered agent isn’t an international man of mystery, what is it?
How lawsuits work and the need for a Registered Agent
To explain the role and purpose of a Registered Agent (or “R.A.”), we need to first understand how lawsuits work in the United States.
To initiate any lawsuit, “process” (papers used to put a Defendant on notice of a pending lawsuit) has to be served on a Defendant personally. A Plaintiff generally will hire the sheriff’s office or a professional process server to deliver papers by hand to you personally or to someone over the age of eighteen residing at your home address if you lived in the state.
However, what happens if you don’t live in the state? If you don’t live in the state, most states will allow service by publication in a local newspaper or by posting service on the door of any property you own in the state (i.e. rental property). If no one notifies you of the posting or the publication, you may end up having a default judgment entered against you and your property seized. If you are notified, then you have to avail yourself of that court’s jurisdiction or suffer similar consequences.
Well, along comes business entities. They aren’t a ‘person’ so who does a plaintiff serve in a lawsuit?
How the R.A. works for LLCs and Corporations
Since an LLC or Corporation is not an individual, it cannot have process served on it unless someone is appointed to serve as an ‘agent’ for the company. All 50 states require that such a person be appointed- This person is the Registered Agent.
Every state has a law requiring business entities to provide a name and a street address of a Registered Agent. Business entities, like LLCs and Corporations, are creatures of state law that are allowed to operate as separate entities and provide asset protection to their owners if state law is followed in the entity’s creation and maintenance.
A Registered Agent also needs to have a street address and can’t simply be a post office box. The good news is the annual fee for an R.A. is typically around $125 a year. Remember this is different from your company address OR mailing address. Some states require all three in order to file for an entity.
Can you be your own Registered Agent?
If you live in the state where your LLC is created, you can serve as your own Registered Agent, while those living out of state cannot. However, just because you live in the state, doesn’t mean you have to serve as your own Registered Agent. Many business owners choose instead, to hire a professional registered agent to keep their address off the public record. This privacy will not protect you from a lawsuit, but it may protect you from having a former tenant throw a rock through your window for evicting them.
Why have a professional Registered Agent
Finally, it’s a fair question to ask “Why”. Well, the first reason is that it’s required you have one. However, there are some important reasons that REALLY do help you.
- To avoid missing important notices. Even the best of us lose paperwork, misplace mail, forget deadlines, etc… A possible legal notice is NOT one of those things we want to miss. Using a real law firm to serve as your Registered Agent avails you of the fiduciary duty a lawyers owes to you to look out for your best interest and contact you immediately of any notices they receive. To consider our affordable law firm service learn more here.
- To avoid default judgments. The main purpose of the ‘legal notice’ through a Registered Agent is to warn you of a lawsuit. If you don’t respond to a ‘Complaint’ you can lose the lawsuit before it even begins (called a ‘default judgment’). A Registered Agent’s duty is to alert you immediately of these legal filings so you are kept aware and abreast of important court deadlines.
- Privacy. Using a professional Registered Agent rather than doing it yourself gives you excellent privacy protection. If you have your own commercial business street address that is one thing, but why put your home street address on public record if you don’t have to? The wise and prudent strategy is to use a P.O. Box or mail forwarding service for your business address and then the R.A. for the state requirement. This way, no one knows where you live and it’s much harder to track you down. (Again, we provide both mail forwarding and R.A. services at our law firm- check it out here).
Bottom line, a Registered Agent service is a necessary evil of doing business, but it also doesn’t have to be a huge cost or headache. If you do it right you can add better legal protection to your entity AND obtain greater privacy. Remember, sometimes it’s better to delegate the little things so you don’t miss anything and you can focus on what you do best.
* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
[Written in collaboration with Deven Munns, Attorney in the Rexburg, Idaho office]
Mark J. Kohler is a CPA, Attorney, co-host of the Radio Show “Refresh Your Wealth” and author of the new book “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.