How to Choose a Registered Agent
- Feb 24, 2015 | Ryan O'Donnell
For many new business owners, knowing the term registered agent—never mind knowing that they absolutely have to have one—is not always top of mind. However, let it be clear: when you incorporate your business or register your company in any state, you are required to have a registered agent. The good news: it's not difficult and you have plenty of options. Here's some background on this vital (and mandatory) point person, plus tips on how to choose one.
Purpose of a Registered Agent
A registered agent is simply a person available during normal business hours at a physical address (P.O. and/or private rented boxes are not allowed) in the state where they do business to physically accept delivery of important legal, tax, or business documents.
Who They Are
A registered agent may be an employee, a third party (say, a lawyer who does work for your company), or an outside agency. In rare cases, a company can be its own registered agent, but the state has to approve it (this doesn't happen often for the one big reason coming up).
The Real Reason You Need One
Let's be honest. Yes, it's smart for any business to have someone who can keep track of and distribute important mail to the right people. But in reality, the reason it's required because of what we've all seen in the movies: there's a tense board meeting going on when suddenly the door opens, a stranger walks in, and says, “Mr. Gekko? You are officially served,” and hands over a notice of litigation (also called service of process notices). THAT'S why a registered agent needs to be a person, and a person who can be found reliably: responding to the legal process. Still think you don't need one? Think again:
- If you're caught not maintaining a registered agent (and trust us, you'd be caught on absolutely the worst day), the state could revoke your business's corporate or LLC legal status as well as in some cases, assess additional penalty fees. It's bad to be sued; even worse to also lose your business.
- Even if you have a registered agent, their failure to perform can have grim ramifications. The classic, worst-case scenario: a customer slips and sues. Your agent fails to forward the summons to appear in court so nobody knows about the lawsuit. When the case goes to trial, nobody from your shop is there and the customer wins. Even worse, you would likely lose an appeal since you were properly served—your registered agent just forgot to tell you. Oops.
Choosing a Registered Agent
Worst-case scenario aside, choosing a registered agent is pretty simple. As stated above, you have options and each has its merits, so it is up to you to weigh the pros and cons and decide which one to choose. (It's easy to change your choice too. Again, most of the time it's a form.)
Being Your Own Registered Agent
- Every state allows it. As long as you live in the state you do business in, it's allowed. Just list yourself as your own registered agent.
- It's cheap and easy. As long as you show up for work at the same place and time basically every day, you're in at zero extra cost.
- Whispers at the water cooler. Since you must be available to receive the documents during normal business hours, it follows that others may also be working. If you're formally served and staff overhear that the business is being threatened with legal action, it can affect morale and peace of mind.
- Junk mail. When you're your own registered agent, your address is made public. This means you're fair game for all manner of junk mail.
Choosing Another Person
- It's somebody else, not you. In most cases, any resident of the state you do business in can act as your registered agent, meaning you're off the hook. They, of course, are ON the hook, meaning they have to be at work and reliable.
- If they're a professional, even better. If you can get your company's accountant, lawyer, or any of its corporate officers to be your registered agent, they're probably authorized to fill out any paperwork. Bonus.
- Can they be trusted? Generally, you can probably trust your own accountant, lawyer, or corporate officer to keep mum about private matters. However, this may be more difficult with someone who isn't on your payroll and isn't invited to the annual holiday party. Discretion is key.
- Offsite expertise can be expensive. If you can't convince your own, offsite attorneys and CPAs are a good option as they usually have their own established office, but their registered agent services might be spendy.
Hiring an Outside Agency
- Professionalism. Every state has third-party agencies that can provide this service. Find them online at the state's website.
- Expertise for multiple states. Some businesses provide registered agent services for all fifty states, so if you run businesses in multiple states or you formed in a state where you don't have residence, having an agency qualified to serve as your registered agent can make life grand.
- Price break. Outside agencies are also usually cheaper than hiring an attorney or CPA, allowing you to affordably get the privacy and protection you seek.
- Cost. Small firms may have trouble justifying the fee. But then again, what price is too much for peace of mind?
- If saving money is a major concern, think about staying within your company.
- If privacy is key, go for the outside—whether it's an attorney, a CPA, or a third-party agency—registered agent option.
- Lastly, you can always change your registered agent but when you find the person or agency you like, it's best to stick with them.