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If you are starting a business, selecting the correct business structure is one of the first choices that you must make. In general, you are free to operate your business using any type of entity that you wish, but the choice that you make triggers a number of compliance responsibilities.
There are six major business structures. These are the:
The first two types—the sole proprietorship and the general partnership—are what are known as “common law” entity types. This means that you don’t have to file any paperwork with a state in order to operate as a sole proprietor or as a general partnership. If you are the sole owner of a business and you take no action to form another type of entity, you are operating as a sole proprietor. If you are in business with other people, and you take no action, you are operating as a partnership.
The remaining four types—limited partnerships (LPs), limited liability limited partnerships (LLPs), limited liability companies (LLCs) and corporations (Inc.)—are “statutory entities.” A statutory entity is a creature of state law—their existence and characteristics are governed by state laws.
Operating as a statutory entity provides some level of asset protection for the owners. (The degree to which an owner’s assets are protected depends upon the type of entity and the specific state’s laws.) However, in order to obtain this state-sanctioned shield, you must comply with the state’s registration laws.
All states demand that statutory entities meet two requirements:
The type and amount of information that must be disclosed in the initial application with the state (such as Articles of Incorporation, Articles of Formation, or Certificate of Authority) as well as in the ongoing Annual Report filings varies among the states depending upon the type of entity and how “business-friendly” the state is. For example, Delaware, Nevada and Wyoming require very little information to be disclosed.
States are far more uniform when it comes to the registered agent requirement. (Remember, some states refer to this as “resident agent” or “statutory agent.” Regardless of the name, the requirements and functions are the same.)
All states require that any formal entity (corporation, LLC, LLP or LP) designate a registered agent that:
Most states also require that the registered agent be available during normal working hours throughout the year in order to accept service of process and other official court and government documents.
The requirements of state residence, a physical address, and availability must be considered when the corporation, LLC, LP, or LLP selects its registered agent. The temptation—particularly if the state of incorporation or formation is the primary business location—is to simply have a member, manager or officer serve as the Registered Agent.
While this is possible, it is not always advisable. The documents delivered to a Registered Agent are often highly important and generally require action within a short period of time. If that company officer is extremely busy, that mission-critical document could get overlooked. Or, if the designated officer is away on business or vacation, the process server (the person who delivers that summons that commences a lawsuit) may just leave without serving the document. This could have the unfortunate result of a default judgment against the company.
It behooves any statutory entity to do more than just meet the statutory minimum. It is advisable to have an experienced professional registered agent company, such as CT, serve as the company’s registered agent. This ensures that the person receiving the information will deliver it to the appropriate individuals within the company in a timely manner.
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