How to Help Your Client Choose a Registered Agentby
From processing legal notifications to ensuring businesses remain compliant with tax requirements, registered agents play an essential role in any company. In this article, accounting expert Melissa Pedigo explains exactly what a registered agent does and considerations when choosing one, such as the state where your client is setting up their business.
Starting and running a business means making countless decisions. One that is often overlooked is choosing a registered agent.
One of the many important duties a registered agent performs is notifying company management when a lawsuit is filed against the company. With small businesses incurring over $180 billion in civil litigation costs in a single year, receiving prompt notification of legal action is essential.
There are numerous choices for selecting a registered agent, and since every company needs one, it’s important to understand both the benefits and drawbacks of some of the most common options.
What’s a Registered Agent?
Registered agents play a vital role in every company because they are responsible for receiving service of process and other important tax and governmental notices. A registered agent’s name and contact information must be on file with your state’s Secretary of State. In some states, registered agents are called resident agents or statutory agents. Regardless, they all play the same role: making sure your company receives timely notification of legal information.
The most important task for a registered agent is receiving service of process. This is when a company receives an initial notice of legal action being taken against them. A legal action could be due to one of the following:
- An employee’s injury on the job
- A customer’s claim for breach of contract
- A government’s demand for unpaid taxes
Without a registered agent, a business may not know they’re a party to a lawsuit and therefore fail to respond, resulting in damaging consequences for the company, such as a default judgment.
For example, assume a customer slips, falls and injures their leg inside your client’s store and then sues your client. When the customer files their lawsuit, they will need to notify your client’s registered agent that your client’s company is a defendant in the case. If your client does not have a registered agent, or if the registered agent fails to advise your client’s management of the lawsuit, this could cause your client to fail to respond, which can lead to disastrous consequences.
In addition to service of process notifications, registered agents receive essential tax and compliance information from the state and federal government. This includes:
- Annual report deadlines
- Tax bills or delinquencies
- Renewal notices for trade names or trademarks
Deceptively Simple Requirements
Because registered agents hold such a critical position in companies, most states have minimum requirements that need to be met. In general, the registered agent must:
- Be at least 18 years old
- Have a physical address in the state where your client does business
- Be available during regular business hours at the physical address
Some states have additional, stricter requirements. For example, Virginia requires that a registered agent be either a licensed attorney or a member of the company’s management team.
Although these requirements may seem simple, it’s essential to carefully consider who to appoint as a registered agent since they have such important responsibilities. Just because someone meets your state’s minimum requirements for being appointed a registered agent, doesn’t mean they should be.
Common Registered Agents
While anyone who meets a state’s minimum requirements can be a registered agent, some types of people are chosen more often. Here are the most commonly appointmented registered agents and the pros and cons of each.
Designating the business’s owner as the registered agent may seem like the logical choice. After all, the registered agent will need to be familiar with company lawsuits and be interested in keeping the business compliant with tax and regulatory reporting requirements.
However, there are some drawbacks. For example, if the company operates out of the owner’s home, the owner’s address will be listed in public records if she is the registered agent, affecting her privacy. Furthermore, the owner must be available at the company’s physical location during normal business hours, making vacations and time off next to impossible.
Trusted employee or manager
If a company has employees, another logical choice may be to appoint a trusted employee or a senior manager as the registered agent, since most employees are at the office during regular business hours.
However, if the employee resigns, is fired or otherwise leaves the company, you’ll need to quickly find a replacement. Taking time off is also a challenge, since registered agents are required to be available at the company’s office during normal business hours.
Third party (e.g., corporate attorney or accountant)
Some businesses appoint their attorney or an external accountant as the registered agent, which is reasonable given that a registered agent handles legal matters impacting the company, tax bills and other financial notices.
However, appointing a third party will likely cost money. Attorneys and accountants typically charge an annual fee to serve as registered agents.
Professional registered agent service
An easy and convenient solution is to use a professional service. For an annual fee, the person you hire will consent to being the registered agent and allowing their name and address to be included in company filings. These people often have a physical office in your client’s state that is staffed during regular business hours. They will forward any correspondence they receive to your client’s management. Since they are singularly focused on acting as registered agents, you can be confident that nothing will be missed.
This solution often makes the most sense for:
- Businesses formed in states where they don’t operate (most commonly in Nevada and Delaware)
- Companies operating in multiple states without a physical location in any of them
- Home-based organizations that lack a physical business address
The main drawback of using a professional service is that they can cost anywhere from $100 to $300 per year, depending on the level of service they provide.
While there’s no right answer when it comes to appointing a registered agent, some choices are better than others depending on your client’s business. Talking your client through the pros and cons of these choices will help them make a sound decision for their company, thereby preventing any legal or financial setbacks.