Does Your Company Need a Resident Agent?

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process_serverOne of the most frequently-asked questions I get in the business formation and maintenance business concerns resident agents. What are they, how do they work, and how do resident agents connect to businesses.

A resident agent (also called a registered agent) is tasked with being the legal face of a company. So if your company is being sued, a process server, or sometimes a sheriff, will physically go to the resident agent’s office to personally serve the documents. If documents are served by registered mail, then they will again come to the resident agent’s office. And it’s also a handy address for state and federal tax agencies to use, when they want to make sure that mail reaches the company’s owners.

All states, with the exception of West Virginia and New York, require companies either formed in-state or registered to do business in-state to have a resident agent. And, resident agents are required for all formally-incorporated entities (Corporations, Limited Liability Companies, Limited Partnerships, Professional Corporations, Non-Profits, and so on).

Resident agents need to be people, or a commercial company that offers resident agent service, like my company, Business First Formations, Inc. Service is offered on an annual basis, and must be renewed each year.

A company can’t act as its own resident agent, but someone within your company could certainly be named as the agent. So, you could act as the resident agent for your own company.

This is another question I get all the time, “Can I act as my own resident agent and save the yearly fee?” The answer is yes, and in some cases it’s a great idea. In other cases, it doesn’t work so well.

For example, you have to provide a street address where someone can physically come and serve documents. That address needs to be somewhere members of the general public can get to. Unless you’ve got an outside office, that means putting your home address on the record, which doesn’t do much for your privacy. It can also be problematic if you live in a gated community or monitored apartment building, where the public doesn’t have free access.

Being a resident agent also means being around on a regular basis during working hours. That can create problems if you like to travel and are away from home a lot.

And what happens if someone tries to serve documents on your company while you aren’t there? Process servers are allowed to go to court for an order giving them another way to serve documents. Typically this involves mailing the paperwork to you by registered mail, or even taping a copy to your front door. If you’re not around for days, and a process server thinks you’re trying to avoid service, he or she could go to court and get that order. You could come home from a couple of weeks in Tahiti to find out you’d been sued and lost, because you didn’t file a response in time.

I wish that sounded farfetched, but here’s a couple of true stories.

In the first story, a real estate investor kept his Nevada properties in a Nevada LLC. He lived out-of-state, and rather than engage a commercial agent, named himself as the agent. To get around the location requirement, he used the address of one of his properties.

All was well, until the tenant in that particular house decided to sue him. The client couldn’t serve his landlord, but he could get an order allowing him to serve the documents by leaving them at the house … the house where he just so happened to live. The landlord didn’t find out about the lawsuit until after the time to respond had passed, and he was hit with the default judgment (tenant was attempting to foreclose the property and transfer title to himself).

In a similar vein, there was a rash of defaults in the Las Vegas area, where homeowner associations were serving documents on the property addresses, rather than on the investors personally, or on their companies (if the investors had a company). Because the tenants didn’t know what to do with the documents, they often ignored them, ditched them or sent them to the landlord months later. Meanwhile the homeowners’ associations were getting their default judgments, and filing claims to seize and sell the properties. One individual only found out the property had a problem when she did a title search and discovered she wasn’t the owner anymore. It was a mess!

On the other hand if you have an Internet-based business, like affiliate marketing, or something with little public interaction and low risk, why not save some money by acting as your own resident agent. It’s all about the circumstances.

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