If you own a business you know how challenging it can be to comply with all of those state, federal and local laws to which your business is subject. And if you chose to form a corporation, limited liability company (LLC), limited partnership (LP), or limited liability partnership (LLP), you know that one of the many compliance requirements is to appoint and maintain a Registered Agent.
How much do you know about service of process and registered agents?
This article covers:
Compliance is always easier — and less scary — when you understand what the requirement is and why it exists. Therefore, we offer you this brief explanation of what a Registered Agent is, why you need one, and what bad things can happen if your company does not have one, or, perhaps even worse, has one who fails to measure up.
What is a registered agent?
A registered agent is an individual or business organization (the “agent”) appointed by a corporation, LLC, LLP, or LP (the “principal”) and authorized by the principal to receive legal documents and official government communications on the principal’s behalf. When a document is received by a company’s Registered Agent, it is as if the company had received the document directly. A Registered Agent is known by various other names too, including an agent for service of process, resident agent, process agent, or statutory representative.
What is a registered agent’s main function?
The registered agent’s main and most vital legal function is to receive service of process and to forward the documents received to the appropriate person at the corporation, LLC, LLP, or LP. In many cases, the appropriate person will be a lawyer who can prepare a proper legal response or a company official who will make sure it gets to the lawyer.
What is service of process?
Service of process comes into play every time a lawsuit is filed. It is a concept every business owner should know about because every company — no matter how well run — can become involved in a lawsuit, either as the party bringing the suit (the plaintiff) or the one being sued (the defendant). In addition, many companies receive wage garnishment orders related to employees or former employees.
To bring a lawsuit the plaintiff has to first obtain a summons from the court clerk. The summons contains important information including:
- The names of the plaintiff and defendant
- The plaintiff’s attorney
- The court
- When the defendant has to reply
- What happens if the defendant does not reply in time
The summons is also known as “process." It has to be delivered to the defendant. This delivery is called “service”. Thus, service of process is the procedure through which a person filing a lawsuit provides the party being sued with notice of the lawsuit. The complaint, which describes the lawsuit, is generally served along with the summons.
Why is proper service of process required?
Service of process is governed by a detailed set of statutes and rules. It serves three main purposes:
- It provides a defendant with notice of the action filed against it.
- It gives the defendant the opportunity to respond and defend itself.
- It establishes the court’s power over the defendant.
“Proper” service of process — that is, service of process that complies with the applicable rules and statutes — is required by the U.S. Constitution. To be more precise, it is required by the Due Process clauses of the 5th and 14th Amendments. These amendments say that any deprivation of life, liberty, or property must be preceded by notice and an opportunity to be heard. Without proper service of process, a court lacks the power to make a defendant pay money to the plaintiff or to order the defendant to take, or not take, any actions.
Why do the states require companies to have a registered agent?
When an individual is sued it is easy to figure out who to give the legal papers to — that individual. But what about when it is a business entity such as a corporation, LLC, LLP, or LP? You cannot just go into a store or office and leave the papers with anyone who might work for the company. Process can only be served on someone the rules and statutes say can be served. And, in general, that is only a responsible person who is likely to make sure those documents end up in the hands of someone who can file a timely legal response for the defendant. By requiring corporations, LLCs, LLPs, and LPs to appoint and continually maintain a registered agent, the states are trying to ensure that they have such a responsible person.
How is a registered agent appointed?
The registered agent’s name and address are set forth in the articles of incorporation, articles of organization, statement of LLP registration, or certificate of limited partnership. They are also set forth in the application for authority filed to do business in other states. In many cases, the registered agent’s consent to the appointment is required as well. If there is a change in the registered agent or its address (which is also known as its registered office) the state must be notified.
What if a company does not have a registered agent?
The states impose penalties for non-compliance. Some will administratively dissolve or revoke the authority to do business of companies that have not maintained a registered agent or let the state know about a change in the agent or its address in a timely manner.
Just as important are the consequences of maintaining a registered agent who does not do the job properly – such as someone who may not be in the registered office when the process server shows up, or who loses or mishandles the papers, or for any other reason does not make sure the company’s lawyer received notice of the lawsuit. This can cost the company a significant amount of money in default judgments or in the costs and attorney’s fees involved in fighting the defaults.
The moral of the story is that business owners who plan on forming a corporation, LLC, LLP or LP should be aware that they will need a registered agent and should pay as much attention to the choice of registered agent as they do to the choice of entity, formation state, company name, and other important pre-formation decisions.
For information on CT Corporation’s registered agent services contact a CT Corporation professional.