Registered Agents – Why Your Company Should Use an Independent Registered Agent

April 21, 2009 by  Filed under: Management 

Introduction

A few years ago, a small oil and gas company in a large city re-located its principal offices to a smaller city in the same state, but forgot to change its registered agent address at the Secretary of State’s office to reflect the move. Later, a third party filed a lawsuit against the company but could not locate its registered agent. As required, the third party checked the Secretary of State’s office to obtain the current address for the registered agent so that he could serve the summons on the oil and gas company, but the old address was of no use. Eventually, after being unable to locate and serve the oil and gas company with the lawsuit papers, the third party obtained a default judgment against the company. The oil and gas company later had to spend a substantial amount of money to vacate the default judgment, all because the company acted as its own registered agent and failed to file a change of address when it moved.

In another case, an individual agreed to act as registered agent for a small company. A third party later filed a lawsuit against the company and hired a private process server to serve the lawsuit papers on the company. This occurred during the Christmas holiday season. Because the registered agent was an individual, the process server appeared at the person’s home with summons in hand on Christmas Eve in order to serve the lawsuit papers on the individual, knowing that he would probably be at home. Of course, this was very upsetting to the individual and his family.

Although the foregoing cases are perhaps the exception to the rule, in both instances (and in similar instances that often occur) the legal risks, liability, frustration and embarrassment experienced in such cases could have been avoided if the companies had used an independent, registered agent as their service agent. There are literally hundreds of thousands of companies conducting business in the United States. These companies range in size from small, family owned businesses to Fortune 500 companies. From a legal standpoint, these companies can be corporations, limited liability companies, limited partnerships or other types of legal entities.

One thing that they all share in common is that they are all required under state law to have a designated registered agent. Once a corporation or limited liability company is formed, the laws of the various states require the corporation or LLC to designate a registered service agent so that service of process and other official documents can be properly delivered to the company. The name and address of the registered agent of every business entity doing business in a state is maintained in the office of the Secretary of State or other applicable state agency so that the public can use such information to serve official papers on the business entity if necessary.

Many companies, and particularly small companies, often designate an officer, employee or even an owner of the business to be the registered agent who will be served with summonses and other official documents as the company’s “registered service agent.” However, this can sometimes have serious, unintended consequences. There are several compelling reasons why a company should seriously consider using an independent, professional registered agent as its statutory “service agent” within a particular state. The good news is that there are independent registered agents who will provide this service at a very low cost.

Top 5 Reasons Why You Should Use an Independent Registered Agent!!

1. You Can Prevent Easy Discovery of Your Assets %26 Obtain Privacy and Anonymity

Lawyers for people who are considering suing someone often do an “asset search” before filing the lawsuit to see if the person has identifiable assets that could be used to satisfy a judgment. In the past, one of the methods used to conduct a preliminary search for a person’s assets was to search the public records to determine whether the person acted as registered agent for any companies. In the case of small businesses, this was done because the owner of the company typically acts as the registered agent for the company because the lawyer who formed the company in the first place may have designated the owner as the registered agent for the company. If you own a business, this has probably happened to you.

In the old days, if a person wanted to locate your assets and believed that you might be the owner of one or more companies, the person could manually check the records of the Secretary of State to determine whether you were acting as registered agent for any companies. The person conducting the search (typically a plaintiff’s lawyer) knew that if your name appeared as the registered agent for one or more companies in the state, you also probably owned the company or companies because people typically do not act as registered agent for companies that they do not own. However, this old method of trying to locate the assets (i.e. the companies) owned by a person through a manual “registered agent” search of the Secretary of State’s records could be like trying to find a “needle in a haystack.” In other words, this was not a very effective way to conduct an “asset search.”

However, in today’s modern era of high-tech computer programs and search engines, many states have implemented on-line computer access to the business records that are maintained in the Secretary of State’s offices or other central record keeping agency in the state. One example of this is Oklahoma’s “Sooner Access” program that is available on the Oklahoma Secretary of State’s website. Using these programs, which are often free of charge to the public, a person can perform a “registered agent” search in a matter of minutes and locate all of the companies for which you act as registered agent. This makes it quick and easy for a lawyer or other interested person to conduct an asset search using your name. If you act as your own registered agent for companies that you own, any person can now use your name in an online search to easily and quickly identity those companies. This makes many people very uncomfortable. In fact, many view it as an invasion of privacy. However, there is hope! The problem can easily be avoided through the use of an independent registered agent. If you use an independent registered agent, a person can no longer use your name to conduct an online “registered agent” search to locate your assets, i.e. the companies that you own. An independent registered agent can thus provide you with anonymity and a level of privacy that otherwise cannot be achieved.

2. You Can Avoid Service of Process at Your Home or Office.

If you own a small business, there is a good chance that you are the designated registered agent for your business entity. When your business entity was first formed, there is a good chance that you were listed as the registered agent for the business. Often, the business owner does not even know that he or she is the registered agent for the business until the owner is served with a summons or other documents by a process server.

Unfortunately, the service of lawsuit papers and other official documents by a private process server often happens at the owner’s place of business or even at the owner’s home. Even in larger companies, the appearance of a private process server at your offices during the day to serve papers on the “registered agent” can be disruptive. At best, this is a nuisance; at worst, in the case of small businesses it can be an embarrassment to the owner. As described in the introductory section of this paper, there is one instance where a private process server served an individual with lawsuit papers at his home on Christmas Eve because the process server knew that the individual (who was the registered agent for a business entity) would most likely be home for the evening. By using an independent registered agent, the business owner can ensure that any summonses or other official legal documents are served on the third party registered agent, who will then send them to the owner under private arrangements. Many service agents will scan and e-mail the documents to a designated contact person on a confidential basis.

3. You Can Avoid Potential Liability Through Stability and Continuity

If you are like most small business owners, there is a good chance that you will re-locate your business at some point in time. Many small companies move their offices from time to time, but in almost every instance the owner who acts as registered agent for the business forgets to file a change of registered agent form with the Secretary of State or other applicable agency. This can create serious problems! If service of process or other official documents need to be served upon your company, but you do not have a current registered agent address listed with the Secretary of State because you moved your office without updating your registered agent address, it may be very difficult for a third party to locate you. This can result in serious consequences!

In many states the Secretary of State requires limited liability companies to file an annual form that is used to notify the Secretary of State’s office as to whether the company is still active, and to provide and maintain a current address for the company. These forms are typically sent to the registered agent’s office or the principal office of the company as shown on the Secretary of State’s official records so that the company can complete the form and file it with the Secretary of State. If you have moved your business, but did not file the appropriate change of address form with the Secretary of State, you may never receive the annual form. In some states, if you fail to file the annual form for three years the Secretary of State will you’re your company as inactive, suspend your company’s authority to conduct business in the state, and even give your company’s name to anyone else who wants to use it.

It is your responsibility to make sure that your registered agent address is current with the Secretary of State’s office so that third parties, including the IRS, can send important papers to you. If you fail to do this, you may miss being served with important papers. In a court of law, it is even possible that a default judgment could be entered against your company if service of process cannot be achieved because your registered agent or business cannot be located. If you use an independent, professional registered agent who always maintains the same office address, you can ensure that you will always receive the important papers that are being sent to your company through your registered agent. In many states, this will help ensure that your company remains “active” in the state and is authorized to conduct business in the state.

4. Many Independent Registered Agents Provide Reminders for You to (i) Prepare Annual Minutes to Help Avoid “Piercing of the Corporate Veil” Exposure, and (ii) File Your Annual LLC forms

Many companies fail to update their minute books each year by preparing annual minutes of board of director and shareholder meetings. However, for corporations in particular, it is very important that the minute book be updated at least annually to include the minutes of annual shareholder and director meetings (or consents in lieu thereof) as required by law to avoid a possible “piercing of the corporate veil” by third parties. Some independent registered agents assist you in minimizing this risk by send you a reminder each year to prepare your annual minutes or consent to action in lieu of formal meetings.

In addition, as discussed above many states require limited liability companies to file an annual form to let the Secretary of State know that the company is still active, and to provide a current address for the company. If you fail to file the form after a few years, the states will suspend your license to do business in the state and render the company inactive. In some instances, the state will not only suspend your authority to do business in the state, but they will grant your business name to someone else if it is requested. Some registered agents will either send annual reminders to their customers concerning the annual filing requirements, or they will furnish a “docketing” type of service that serves the same purpose.

5. You can Obtain Registered Agent Services at a Very Low Cost.

Although some independent registered agents charge $200 or more per year for registered agent services, others provide such services at a low cost of only $80 to $100 per year. Under a cost/benefit analysis, it is hard to imagine that a company’s money could be better spent to minimize the risks described above, and eliminate the nuisance of a process server showing up at your office with summons or subpoenas in hand.

Conclusion

There are many reasons why a company should retain the services of an independent registered agent for the purpose of receiving service of summonses, tax notices and other legal documents. Some of the more compelling reasons are discussed above. Given the low cost of retaining the services of an independent registered agent, it makes sound business sense to take advantage of such services. By doing so, a company can mitigate certain risks as described above. In addition, small business owners can help prevent free and easy “asset searches” by third parties, and maintain a level of privacy and anonymity that most people desire.

Copyright © 2009 Jere Jimerson

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