What does service of process mean?
As we noted, a main function of the registered agent is to receive service of process. So, what is service of process? Process is the document that provides notice that there is a lawsuit filed against the individual or entity. Service of process is the delivery of that document. Usually, this involves serving the defendant with a document called a summons. The summons is often accompanied by a complaint.
When an individual is sued, it is easy to figure out to whom to give the legal papers — that individual. But what about when it is a business entity such as a corporation or LLC? You cannot just go into a business and leave the papers with anyone who might work for the company. Service of process can only be served on someone the rules and statutes say can be served.
The service of process laws of every state provide that in the case of an LLC or corporation, process may be served on the registered agent. In most cases, process can also be served on a corporate officer, LLC member or manager, a managing agent, or a general agent.
However, even when service on the registered agent is not required, plaintiffs often choose to serve the registered agent because the name and address are readily available, and it avoids what can be timely and costly litigation over whether the individual served was actually authorized.
What documents does a registered agent receive?
Here are examples of mission-critical documents that a registered agent for an LLC or corporation receives:
- Service of process (such as a summons and complaint) in connection with a lawsuit against the LLC or corporation
- Notice of garnishment proceedings against an employee
- Litigation documents once the lawsuit is underway, including motions or requests to produce documents
- Legal notices (for example, a notice from a state regulatory agency that your LLC or corporation may have violated a regulation)
- Government correspondence
- Other compliance-related documents
- Subpoenas (requesting documents or records, for example)
Although these documents might be very different, they all have one common element. Each one contains vital, time-sensitive information.
If an LLC or corporation has employees, it may be served with wage garnishments. Garnishment is an order directing a third party to seize the assets of a debtor to settle a debt. In the case of a wage garnishment, that third party is an employer, the debtor is an employee, and the assets are the wages owed to the employee. The wages of individuals can be garnished for child support, tax liens, student loans, and consumer debt.
Employers can be penalized for failing to comply with wage garnishment orders. For this reason, it’s very important to ensure that an LLC or corporation with employees has a professional registered agent handling service of process. One to three percent of United States employees have their wages garnished. And if an LLC or corporation receives a garnishment and fails to take action in time, it can be liable for the amount its employee(s) owes.
Similar to a garnishment is a charging order. This is a court order requiring a third party to make payments owed the debtor to the debtor’s judgment creditor. For example, an LLC may be served with a charging order requiring it to pay any distributions owed to a member to that member’s judgment creditor.
Another document often served on an LLC or corporation’s registered agent is a subpoena. This is a court order requiring the LLC or corporation to produce specific documents, records, or other physical evidence, or to testify.
Who can be a registered agent?
Each state sets its own rules for who can serve as registered agent. Generally, the registered agent must be an individual resident of the state who is at least 18 years old or a domestic or qualified foreign business entity with a physical address in the state. The one restriction in most states is that the LLC or corporation cannot act as its own registered agent.
For entities that are formed or qualified to do business in a state where one of the owners, managers, officers, or employees resides, the temptation may be to simply appoint one of these individuals as the registered agent. Another temptation is to have the entity’s attorney serve as the registered agent. Although expedient, these solutions usually are not the best option. An individual may not be at the registered office when process is delivered. Or they may be busy with their own work and forget to forward the documents to the LLC’s or corporation’s attorneys or otherwise may not be trained on what to do with these important and time-sensitive documents. Individuals also quit, retire, or move, and a new registered agent and office must be appointed.
For more information, see The risks of being your own registered agent.
How to get a registered agent for an LLC or corporation
You designate an initial registered agent and registered office when you form your LLC or corporation by including them on your Articles of Incorporation or Articles of Organization The same applies when you register to do business in another state (foreign qualify) by listing your registered agent on your Certificate of Authority.
In a number of states, the formation or qualification document must contain the registered agent’s acceptance of the appointment. The registered agent’s name and address must also be included in the LLC’s or corporation’s annual or biennial report.
The typical steps to appointing a registered agent are:
- Select a qualifying registered agent that meets state requirements
- Obtain consent from the registered agent (in some states, the agent must formally consent by signing an acceptance of appointment form)
- Submit your Articles of Incorporation or Articles of Organization to the formation state
- Submit your Application for a Certificate of Authority in foreign states where the corporation or LLC will be qualifying to do business
Risks and penalties for not having a registered agent
Having a registered agent is required by state statute. And the information on file with the state — regarding who the registered agent is and where the registered agent is located — is also required. There are penalties for violating those statutes including fines. Under many statutes, the failure to maintain a registered agent and registered office, and a failure to notify the state upon a change of registered agent or registered office, is a basis for the state to begin procedures to administratively dissolve a domestic corporation or LLC or administratively revoke the authority to do business of a qualified foreign corporation or LLC.
In addition to the statutory penalties, being without a registered agent can put a company at risk in other ways.