You’re taking steps to legally establish your new business entity and you’ve discovered you have a lot of work and legal red tape to cut through. One of the requirements you’ll have to meet is designating a registered agent for your business.
But if the state requires you to maintain a registered agent for legal reasons, what happens if they screw up and don’t do an adequate job? Surely they can’t force you to hire a registered agent service and then penalize you for its incompetence.
I’ll walk you through all of the various aspects of liability that are involved with registered agents and clear up any confusion you may have.
Do Registered Agents Have Liability?
Yes, there is a degree of legal liability for registered agents. Registered agents can face financial damages if they fail to forward documents to businesses that face legal woes as a result of their negligence.
What Are the Duties of a Registered Agent?
To understand the relationship between registered agents and legal liability, it helps to know which aspects of your business your registered agent is responsible for as well as which of those duties can result in liability if they screw up.
Compliance
Many people struggle with remembering names and dates, which makes remembering yearly compliance filing dates a nightmare. Annual reports, as the name suggests, come only once a year — usually on the anniversary of the date you started your business. But don’t worry. It’s your registered agent’s job to keep track of such things.
A registered agent acts as a go-between, intercepting government correspondence for your company, and as such they will let you know when a compliance filing date is coming up. Some of the top registered agent services even offer compliance alerts for worry-free compliance.
Important Document Management
All your legal documents, correspondence, and official communications will come to the listed physical address for your registered agent, and it’s your registered agent’s job to get this mail to you using either mail forwarding or online document-management systems.
Many of the best professional registered agent services now offer these online document-management systems. Your registered agent will scan and upload your documents to their system, and you can access them digitally.
Not only can you sort through your mail and delete anything you don’t need (like junk mail), you also have the option to store service of process and other documents on a convenient online portal. Plus, it’s a lot faster than mail forwarding!
Accepting Service of Process
It’s not easy to explain registered agent duties without also mentioning service of process. But in the process of doing so, some online resources have gone overboard and made it sound like you’ll be called to court on a daily basis.
A service of process is a legal notice that means either your company is being sued, that your presence is requested in court, or that you’re being compelled to testify.
Clearly, you don’t want to be receiving legal notices like these from your registered agent every day. But if you do receive a (hopefully rare!) service of process for your company, then your registered agent will receive it on your behalf.
Why Is It Important for a Registered Agent to Have Liability?
Your agent is expected to remain at the registered agent’s address and be available during standard business hours to complete all the duties I just described.
If your registered agent isn’t around during normal business hours and misses a service of process from a process server, it could result in serious legal and financial consequences for your business, including a default judgment against your company.
Also, if you’re in a state that requires you to maintain a registered agent and you miss a service of process, the Secretary of State or an equivalent government agency could revoke the good-standing status of your business because it’s illegal for a business entity to function without a registered agent.
This is a crushing blow with immediate ramifications for any business. Your business won’t qualify for financial assistance, will be barred from expanding to other states, and will no longer be permitted to conduct business in the state.
The state government could move to dissolve your limited liability company or other type of business through “administrative dissolution” if it loses its good standing.If your company is dissolved, you’ll also lose your business name reservation, maybe forever
Because these consequences are so costly, it’s important that your registered agent can be held liable.
In What Scenarios Can I Hold My Registered Agent Liable?
Most of the liability that a registered agent assumes is involved with how they accept service of process and whether they deliver time-sensitive documents to you in a timely manner.
If your registered agent misses a service of process and a default judgment is issued against your business, it can be held liable for your business’s damages. If your registered agent is also an attorney and doesn’t perform registered agent duties satisfactorily, they could not only be held liable as a registered agent but could also face malpractice claims as an attorney.
Your registered agent can also be held liable if it doesn’t notify you about compliance-related documents that are sent to you. If you miss an annual report filing deadline as the result of your registered agent’s negligence and then lose your good-standing status, or are no longer legally allowed to do business in your state, your registered agent is liable for those damages.
Furthermore, registered agent information is important and must be updated at least on an annual basis, which is why things like annual reports exist. If your registered agent changes its address throughout the year, it’s required to not only notify the Secretary of State but you as well.
Failure to do so could mean you miss legal notices, important documents, tax forms, or government correspondence that could impact your business. So, failure to update this information is something your registered agent is liable for as well.
When Is Your Business Liable Instead of the Registered Agent?
There are a few instances in which your business may be sued and it’s not the fault of the registered agent.
Your registered agent is required to keep its address updated both with the state government and its clients, and your LLC information is required to be kept up to date, too. However, if the information isn’t updated due to something on your end, then the registered agent isn’t at fault.
For instance, if your LLC has moved and not updated its address with the registered agent and the Secretary of State, and you miss important business mail, your registered agent isn’t liable.
Another instance of a business taking on liability for not having a registered agent during a brief time period is when the registered agent has died. If your initial registered agent dies, then it’s your duty to appoint a new registered agent. And if you don’t, and you miss important documents, that’s on you.
How to Avoid These Risks
Most often, these problems happen with individual registered agents. It’s even possible if you decide to be your own registered agent, an equally fraught choice. If you hire a registered agent service, a whole firm of registered agents, it’s not likely to miss service of process or fail to forward documents.
In several places, any registered agent company that has more than 50 clients is required to fill out a commercial registered agent listing with the state government. This not only means that their service is good enough to serve 50 or more different business entities as their registered agent service, but also that the state regulates their service a bit more than a small non-commercial registered agent service or an individual.
Although they’re still liable, there’s really no oversight when it comes to an individual registered agent. So, if you want to avoid these risks almost entirely, then you should choose a professional registered agent service or commercial registered agent service.
Conclusion
If your registered agent makes a mistake and a default judgment is issued against your business, or if you lose your company’s good-standing status and it results in legal and financial damages, your registered agent can be held liable for the damages. You can avoid these risks and complications by hiring a professional registered agent service to take care of all your registered agent needs.
If you’d like to learn more about registered agents, read my guide on the Best Registered Agent Services. If you haven’t chosen a business structure yet and want to learn more about the LLC formation process, read How to Start an LLC. And if you feel you’d benefit from additional support throughout the complicated formation process, read the Best LLC Formation Services.
