A registered agent is an individual or business entity that receives service of process, important legal documents, government correspondence, and tax notices at your business’s registered office address. Many states require business entities to maintain a registered agent to protect businesses from missing a service of process.
Considering there are such negative side effects for your business as a result of a registered agent neglecting their duties, you could be out a lot of money for something you didn’t even do.
In this article, we’ll explain everything you need to know about a registered agent’s liability and what the law says about holding them responsible.
*A registered agent is sometimes known as a statutory agent or a resident agent. All these phrases refer to the same commercial service.*
Are Registered Agents Held Liable?
Yes. Many people think a registered agent is completely immune from liability. But the truth is while the liability that a registered agent takes on is limited in nature, it definitely exists, and legal action can be taken against a registered agent.
You can hold a registered agent liable if the registered agent fails to meet its legal obligations and causes damage to your company or costs you money.
If a registered agent doesn’t do its job and a default judgment is issued against your business, and you lose your company’s good-standing status with the Secretary of State, or if your LLC (limited liability company) is dissolved as a result, you have the right to sue your registered agent for damages.
The agent can be held liable for not performing its duties for the LLC, and for not meeting its legal obligations with the state government. You will, however, have to prove that the registered agent’s action directly resulted in financial loss to your business entity. That may be harder to do than you think. It’s best to consult with an attorney.
What Are the Duties of a Registered Agent?
A registered agent has several important duties that, if it fails to complete properly, can result in serious legal and financial consequences for the business it serves.
Compliance
Your registered agent is your company’s official point of contact for multiple government organizations (such as the IRS and the Secretary of State).
It might be difficult to recall compliance filing deadlines unless you’re adept at remembering anniversaries and other dates. Many of the deadlines, such as for your annual reports, are due on the same day each year (usually the day you legally established your business).
Of course, this is easy to remember when you’ve just started your business and you’re all bright-eyed and bushy-tailed, but it becomes harder over time. The plus side is that your registered agent is charged with keeping track of these deadlines for you.
So as a filing deadline approaches, you can rely on your registered agent to notify you. Some of the best registered agent services also send out compliance alerts to guarantee worry-free compliance and extra peace of mind.
Management of Important Documents
If your company doesn’t have a physical location, or you have a home-based business, the obligation to have a physical street address might be annoying, but the requirement isn’t unreasonable.
All of your company’s mail, documents, and service of process notices are delivered to your business address. Some of the best registered agent service providers have online document-management systems, which are worth checking out for two reasons.
For starters, these registered agent services scan and upload your documents and official communications the day they get them, and you can view them the same day. It’s far quicker than standard mail forwarding since you don’t have to wait for your documents to show up in the mail.
Second, these document-management systems enable you to keep your documents online and get rid of anything you no longer need. This eliminates the demand for physical file storage.
Service of Process
Although registered agents and service of process go together, the abundance of internet registered agent information may lead you to believe that your business will be served on a daily basis. But that shouldn’t be the case at all.
Hopefully, your company will seldom be served with court documents (like service of process) indicating that it’s being sued. However, if your business is ever sued, it’s your registered agent’s responsibility to receive legal documents on your LLC’s behalf.
Registered Agent Risks
There are risks associated with hiring a professional registered agent service or an individual registered agent. The issues can be as simple as a registered agent failing to update their address, or as serious as missing a service of process.
However, there are considerably more risks involved with an individual registered agent or inexperienced registered agent service. Here are a few of the more serious risks involved with your registered agent.
Failure to be Present at Your Registered Office Address
Choosing an inexperienced registered agent means you run the risk that they may not be at your listed address when they’re supposed to be. Also, virtual addresses aren’t acceptable to use as a registered agent address in some places, so if your registered agent service uses one then the service of process will automatically be forwarded to the Secretary of State.
If your registered agent isn’t present at your business address during business hours, your mail may be accepted by someone else, which is fine and dandy so long as your registered agent is able to intercept it and deliver it to you. If they don’t, then you may never get your mail and it could result in a default judgment against you or penalty by the Secretary of State.
Failure to Issue Address Change Notices
Your registered agent’s address might seem like a minor thing, but it’s really not. Because of legal notices and compliance deadlines, an updated registered agent address is not to be trifled with. If your registered agent fails to keep this updated, you could find yourself in hot water as the business owner, even if it’s not your fault.
Mishandling or Ignoring Important Documents
An individual registered agent is probably not well-trained and knowledgeable about the legal requirements on their end to receive service. This can result in all sorts of legal problems simply because they don’t know what they don’t know.
In an instance where individual registered agents don’t forward legal notices properly, for whatever reason, you could encounter a load of legal issues. Remember, all your mail—think tax notices!—goes to your agent. Correspondence from the government, creditors, business associations, all of that is vulnerable if your registered agent doesn’t know what they’re doing.
Holding a Registered Agent Liable
So, you want to sue your registered agent? The first step in doing so is obviously going to be to seek legal counsel. You’ll also need to be able to prove that your registered agent has neglected their duties and that the neglect caused your company legal or financial damages.
When to Hold Your Registered Agent Liable
- Your registered agent didn’t inform you about a service of process: If a default judgment was issued against your company because you weren’t in court to defend it, you might have a case.
- Your registered agent failed to inform you about an important compliance deadline: If you’ve lost your company’s good standing as a result, you could hold your registered agent liable.
Holding Someone Else’s Registered Agent Liable
If for some reason you want to hold another company’s registered agent liable and would like to find their name and address to send them service, it should be as easy as looking up the company’s information on the Secretary of State’s website.
Why would you sue someone else’s registered agent?
Generally for not doing their job. If you’re trying to serve a company with service of process and can’t because their registered agent mistakenly thinks they should just decline all legal notices for the company in hopes that they won’t actually have to go to court, and then you get to court and receive an unfavorable ruling, there’s precedent for holding their registered agent liable too.
This sort of thing actually happens from time to time with individual registered agents who don’t know much about the laws and what they are and aren’t allowed to do in their position.
Can You Be Your Own Registered Agent?
If you don’t want to trust someone else with all of this, there’s nothing that says you can’t be your own agent. But, among other things, that means you take on all the registered agent liabilities yourself. As I’ve mentioned, there’s a lot of legal liability that falls on a registered agent for missing important correspondence like service of process.
Missing a service of process could result in a default judgment that rockets your entire organization. And since you missed the notice, you won’t know about the court proceedings to defend against them or to be present for them.
Also, if you choose to be your own registered agent, your personal information will be listed on the public record if your business doesn’t have a physical address. Of course that raises security concerns, but it also means you’ll be vulnerable to cybercrimes and identity theft.
Conclusion
An LLC’s registered agent can be held liable for damages if they’re derelict in their duties. This means that if the registered agent mishandles service of process, fails to update their registered agent address with the Secretary of State, or otherwise does something that causes legal or financial damage to your business, they can be held legally liable and sued because of it.
If you want to learn more about the duties of a registered agent, or about different registered agent service providers, read my guide on the Best Registered Agent Services. If you haven’t chosen a business structure and would like to learn more about LLC formation, read How to Start an LLC.
And if you want some assistance with your business formation paperwork and guidance through the formation process, check out my guide to the Best LLC Formation Services.
