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Protect Your Company’s Assets – Choose its Registered Agent Carefully

By Sandra B. Feldman, Publications Attorney for CT Corporation.
 
Nobody wants their company to be sued – particularly when it didn’t do anything wrong.  But even worse than having to defend a meritless lawsuit is losing the lawsuit without ever having a chance to defend yourself.  And that is exactly what happens when a company has a default judgment awarded against it.
 
A default judgment is what can happen if a defendant is served with process and fails to file a response with the court by the date set forth in the summons.  
 
Default judgments can happen for a lot of reasons.  One of them is if the plaintiff makes a diligent attempt to serve a defendant corporation or limited liability company’s registered agent, at its registered office, but the registered agent is not there.
 
There is no shortage of examples of what can happen next.  In one recent decision from a federal court in Kansas, for example, a corporation had a default judgment rendered against it where its registered agent, who was the company’s president, testified that he was rarely at the address listed on the state’s records for receipt of process and that he only occasionally checked mail there.
 
Sometimes, even having the registered agent sitting in the office is not enough to prevent defaults.  In another decision, a default judgment was upheld against an LLC where the member-manager who was its registered agent testified he didn’t see the litigation documents in time because his in-box, where his assistant had placed them, was overflowing and he didn’t check it often enough.
 
Companies are also at risk of defaulting where their registered agent stops being their registered agent for some reason (such as leaving the company, moving out of state, resigning, etc.) and the company fails to appoint a new one and update its state records in time.  For example, in another decision, process was mailed to the registered agent, at the registered office listed on the state’s records and was signed for by an authorized person.  However the registered agent never saw them for a good reason – he had died three weeks earlier.  The plaintiff received a default judgment that was upheld by the courts.
 
As Casey Stengel once said, “you can look it up”.  And if there is a lesson to be learned from the cases it is that people forming a new company need to carefully consider who their registered agent will be before they file their formation document.  The right choice can help protect the company’s assets while the wrong choice can put them at risk.  
 
For more registered agent information, see our post on registered agents and service of process and our registered agent solutions.  

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