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Choosing a Registered Agent is a critical issue for newly forming and qualifying companies. Counsel, in advising their clients whether to appoint an individual or a corporate entity as Registered Agent, should take into consideration the real risks inherent in choosing an individual.
Nearly every corporation, LLC and LP are required to appoint and continuously maintain a Registered Agent in their state of formation and in every state in which they are qualified to do business as a foreign entity. This is an agent upon whom a summons and complaint and other initial litigation documents can be served.
A plaintiff does not, in general, have to serve the Registered Agent. The service of process rules typically also allow service on an officer, managing agent, general agent, or certain other persons authorized by the company or law. However, plaintiffs often prefer to serve Registered Agents for two key reasons, among others:
CT Tip: In general, a person may be considered a “managing agent” or “general agent” for service of process purposes if that person’s position, rank and duties make it reasonably certain that the defendant will be apprised that service of process occurred. This determination is within the court’s discretion, is decided on a case-by-case basis, and the outcome can be hard to predict.
A corporation’s, LLC’s or LP’s initial Registered Agent is set forth in the formation document. When an entity qualifies in a foreign state, the name and address of its Registered Agent located in that foreign state are set forth in its application for authority.
The choice of Registered Agent, like the choice of entity type, formation state, and entity name, is one of the earliest and most important decisions that a business will make in concert with their counsel. Unfortunately, the choice of Registered Agent is not always given the same level of attention. The impact of not choosing properly can substantially increase the risk of default judgments, which are costly both monetarily and in a damaged reputation.
There are a number of factors to consider in deciding whether to appoint an individual or a professional Registered Agent. The question of who qualifies as a Registered Agent has both legal and practical answers. In general, a corporation, LLC or LP will make one of the following choices:
Business entity clients will often seek their counsel’s advice on this important decision. Therefore, it is crucial that counsel be aware of some of the risks involved if their clients wish to appoint an individual to act as their Registered Agent. The following risks, illustrated by case law, can help inform the choice.
One of the risks is that an individual may not be at the office location registered with the state when process is delivered. This can result in a couple of problems. One is that in some states an unsuccessful attempt at serving the Registered Agent allows a court to order “substituted service” such as by serving the Secretary of State, or by posting or publishing the process documents. Substituted service is not as reliable in providing actual notice of litigation as direct service (such as in-person delivery or certified mail, return receipt requested). This in turn can result in the company failing to respond in time, which can result in a default judgment. The following case illustrates this point:
Another problem with the Registered Agent not being in the statutory office when the process server or mail carrier arrives is that the documents may be left with another person at the office. This sometimes results in neither the Registered Agent nor counsel receiving notice of the lawsuit in time to respond. Take for example the following cases:
Another risk is that an individual may move his or her office, or may leave the company’s employ, be transferred to another state, or for another reason need to be replaced. In those cases the Registered Agent’s name and/or address on file with the Secretary of State will have to be updated. If there is a gap in time before the records are updated the company may not receive notice of litigation. The following cases provide examples:
Another risk is that an individual Registered Agent may mishandle or ignore the documents because of a lack of training, or because he or she was busy with his or her own regular work, or was distracted by personal issues. Unfortunately, there are a number of examples of this risk, including the following:
Something else for counsel to consider is that sometimes the Registered Agent intentionally tries to evade the process server. Take the following cases:
It is ultimately up to the client to decide if it wants an individual as its Registered Agent or a corporation that provides professional Registered Agent services. Often, counsel will advise the client on this decision. In doing so counsel should be aware of some of the problems associated with the use of an individual as Registered Agent. In contrast, professional Registered Agents can more effectively reduce the client’s risks of default judgments.
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