What is service of process?
As we noted, a main function of the registered agent is to receive service of process. So, what is service of process? Process is the document that provides notice that there is a lawsuit filed against the individual or entity. Service of process is the delivery of that document. Usually, this involves serving the defendant with a document called a summons. The summons is often accompanied by a complaint.
When an individual is sued, it is easy to figure out to whom to give the legal papers — that individual. But what about when it is a business entity such as acorporation or LLC? You cannot just go into a business and leave the papers with anyone who might work for the company. Service of process can only be served on someone the rules and statutes say can be served.
The service of process laws of every state provide that in the case of an LLC or corporation, process may be served on the registered agent. In most cases process can also be served on a corporate officer, LLC member or manager, a managing agent, or a general agent.
However, even when service on the registered agent is not required, plaintiffs often choose to serve the registered agent because the name and address are readily available and it avoids what can be timely and costly litigation over whether the individual served was actually authorized.
What other documents are served on a registered agent?
In addition to receiving service of process in connection with a lawsuit against the LLCor corporationdirectly, the registered agent receives other mission-critical documents, such as the following:
- Notice of garnishment proceedings against an employee
- Litigation documents once the lawsuit is underway, including motions or requests to produce documents
- Legal notices
- Government correspondence
- Other compliance-related documents
Although these documents might be very different, they all have one common element. Each one contains vital, time-sensitive information.
If anLLCor corporation has employees, it may be served with wage garnishments. A garnishment is an order directing a third party to seize the assets of a debtor to settle a debt. In the case of a wage garnishment, that third party is an employer, the debtor is an employee, and the assets are the wages owed to the employee. The wages of individuals can be garnished for child support, tax liens, student loans, and consumer debt.
Employers can be penalized for failing to comply with wage garnishment orders. For this reason, it’s very important to ensure that an LLC or corporation with employees has a professional registered agent handling service of process. Seven percent of United States employees have their wages garnished. And if an LLC or corporation receives a garnishment and fails to take action in time, it can be liable for the amount its employee(s) owes.
Similar to a garnishment is a charging order. This is a court order requiring a third party to make payments owed the debtor to the debtor’s judgment creditor. For example, an LLC may be served with a charging order requiring it to pay any distributions owed to a member to that member’s judgment creditor.
How is a registered agent appointed or changed?
When you form an LLC or corporation, you must designate an initial registered agent and registered office. The state won't approve your Articles of IncorporationorArticles of Organizationif you do not do so. The requirement applies when you register to do business in another state (foreign qualify) by obtaining a Certificate of Authority.
In a number of states, the formation or qualification document must contain the registered agent’s acceptance of the appointment. The registered agent’s name and address also must be set forth in the LLC’s or corporations’ annual or biennial report.
However, it is not enough to have a registered agent at the time of formation or qualification. An LLC or corporation must continuously maintain a registered agent in its home state and in every state where it is qualified to do business.
The registered agent appointed upon formation or qualification will not necessarily be the registered agent forever. This is particularly true where the registered agent is an individual associated with the company rather than a professional registered agent. (Companies may decide to change professional registered agents, too.) Say an owner, member, lawyer, or employee is appointed. That person may leave the company’s employ and must be replaced as registered agent. Or if the company’s address is used as the registered office, and the company moves, the registered office address must be updated.
Changing the registered agent or office is a statutory transaction and the statutes vary somewhat. Often the states provide a change of registered agent or registered office form. In some cases, the change may be made on the annual report. In others, an amendment must be filed.
What happens if you don’t have a registered agent or your agent information is not accurate?
Having a registered agent is required by statute. And the information on file with the state — regarding who the registered agent is and where the registered agent is located — is also required to be accurate. There are penalties for violating those statutes. Under many statutes, the failure to maintain a registered agent and registered office, and a failure to notify the state upon a change of registered agent or registered office, is a basis for the state to begin procedures to administratively dissolve a domestic corporation or LLC or administratively revoke the authority to do business of a qualified foreign corporation or LLC.
In addition to the statutory penalties, being without a registered agent can put a company at risk in other ways.
Default judgments
The company may not receive a summons in a timely manner. For example, if a company is sued and there is no registered agent to receive the summons, the plaintiff can serve the company in another way — one that may result in the company not responding to the summons in time. In many states, for example, process may be served on the Secretary of State if attempts to serve the registered agent failed. And if there is no registered agent and no other person can be found, the plaintiff may be able to go to court and obtain permission to deliver notice of the lawsuit by “substituted service” — such as by publication in a newspaper — or other methods that may not result in actual notice.
If an LLC or corporation is validly served and does not respond, the plaintiff can obtain a default judgment. A default judgment can be entered against a defendant even if the lawsuit was frivolous and the defendant could easily have won the case. By the time the judgment is enforced against a company’s assets, it may be too late to undo the damage. And while courts do not favor defaults, and will overturn them, if the reason for the default was the LLC’s or corporation’s failure to comply with the state’s registered agent requirement, the court may be less inclined to do so.
Loss of good standing
A company risks its good standing with the state. The failure to maintain a registered agent by itself may be considered a basis for losing good standing. In addition, the annual or biennial report the corporation or LLC is required to file may be sent by the state to the registered agent. If the registered agent information on file with the state is not up to date the LLC or corporation may not receive the report and may not file by the due date. That will also result in a loss of good standing. And not being in good standing can have a serious impact on a business. It can prevent a company from bringing a lawsuit in the state, expanding into other states, or obtaining financing that it needs to expand the business.
Fines and penalties
An LLC or corporation may be hit with monetary penalties for non-compliance with statutory requirements.
Administrative dissolution
As noted earlier, the state can administratively dissolve an entity. If this happens, the owners may be exposed to liability for debts owed to business creditors. In most cases administrative dissolution can be remedied—but not in every case and not after too much time has elapsed.
For more information, readWhy you need a registered agent.
Who can be a registered agent?
The minimum qualification toserve as a registered agentis pretty simple. The registered agent must be an individual resident of the state or a domestic or qualified foreign business entity with an office in the state. The one restriction in most states is that the LLC or corporation cannot act as its own registered agent.
For entities that are formed or qualified to do business in a state where one of the owners, managers, officers, or employees resides, the temptation may be to simply appoint one of these individuals as the registered agent. Another temptation is to have the entity’s attorneyserve as the registered agent. Although expedient, these solutions usually are not the best option. An individualmay not be at the registered office when process is delivered. Or they may be busy with their own work and forget to forward the documents to the LLC’s or corporation’s attorneys or otherwise may not be trained on what to do with these important and time-sensitive documents. Individuals also quit, retire, or move, and a new registered agent and office must be appointed.
What are the benefits of using a professional registered agent?
It is often a better strategy to choose a professional registered agentbecause it is essential that the registered agent always be ready, willing, and able to perform two critical functions mentioned earlier:
- receive important state and legal documents
- relay these documents to the appropriate party quickly and effectively
A professional registered agent — as the name implies — is a company in the business of providing registered agent services. With a professional registered agent, you can be confident that there will be someone at the registered address during all standard business hours and available to be served with a legal notice. There is no worry that the registered agent will be on vacation or away from the office when service of process is attempted. Moreover, receiving legal notices in front of customers (and if operating a home-based business, in front of your family, friends, and neighbors) can be uncomfortable, to say the least. This is more likely to happen if you use the business or home address as the registered office address than if you use a professional registered agent’s address.
Another key factor is that promptly relaying the information is essential, especially in the case of a lawsuit — which usually requires a response within a matter of days to avoid a default judgment. Receiving and forwarding legal documents is the professional registered agent’s entire job, not simply an interruption in an otherwise busy schedule.
Finally, dealing with paperwork and keeping up with industry requirements and regulations is time-consuming. A professional registered agent is focused on this area of the law and, in the case of CT, has a team of attorneys and contacts with state legislatures that monitors and responds to changes in the law.
When to use a professional registered agent
Thechoice of registered agent, like the choice of entity type, formation state, and entity name, is one of the earliest and most important decisions that a business entity's owners can make.
The following questions can help you decide whether having a professional registered agent makes sense for your LLC or corporation. If you answer “Yes” to any of these questions, you should strongly consider appointing a professional registered agent.
- Does your company do business in multiple states?
- Did you incorporate or form in a state other than where you do business?If a corporation or LLC will be doing business in multiple states, it is an advantage to have the same registered agent in each state. It is much easier to keep track of who the registered agent is in each state and lessens the administrative burden.
- Will the company have subsidiaries?Each subsidiary will have to have its own registered agent in its formation state and in states where it will qualify. Keeping track of the comings and goings of individual registered agents for each subsidiary can be a difficult task. Having the same registered agent for the parent and each subsidiary — which can be done by using a professional registered agent — reduces the administrative burden for the person responsible for compliance with the registered agent requirement.
- Do the individual owners, employees, or other individuals who might be named as registered agent set their own business hours or work from multiple locations?Remember, the registered agent needs to be at the statutory location during business hours.
- Will your address ever change?If you plan on using the business’ address or an individual’s address as the registered office, you must remember to change the registered office if that address changes.
- Do you want to keep your address private?The address of the registered agent is publicly available. Using a professional registered agent means the professional registered agent’s address is the one that will be made public.
- Do you see clients or customers at your home or business address?If this is the case, you probably would prefer they not see a sheriff or process server coming to serve papers — and have your clients or customers wonder why the business is being sued.
- Are you concerned about keeping up with the compliance obligations of the governing business entity laws and the consequences of failing to comply?If this is the case, you may want to go with a professional registered agent. In addition to the professional registered agent’s statutory responsibilities of receiving and forwarding documents, professional service companies often provide a full range of services for LLCs, corporations, and other types of business entities to help them with their compliance needs.
What to look for when choosing a registered agent
A registered agent should be reliable, accurate, and consistent. They should be available and physically present at the registered office during normal business hours. This ensures any hand-delivered legal documents get proper attention.
They should also know the business entity and compliance rules, have professionally trained staff with expert knowledge on how to properly handle and forward SOP papers, have state-of-the-art processes in place to deliver crucial documents to you, and follow up with you regarding delivery.
It is also important to have a registered agent that has the coverage and expertise to support your business as it expands into other states where a registered agent will be required.
For more information, seeHow to Chose a Registered Agent.
Conclusion
Choosing a registered agent for a corporation or LLC is a very important decision. It is a vital role. If not done properly, it can have disastrous consequences for the company. It is for that reason that professional registered agent companies exist. Every person who is responsible for deciding who should be the registered agent in the home state or a foreign state should seriously consider appointing a professional registered agent.
Related services
- Registered agent solutions
- Service of process solutions
