When building and qualifying a company, business owners and entrepreneurs are required to decide on whom to designate as their registered agent.
In the United States, companies must have a designated person to represent the organization.
This makes it easier for both federal and state governments to contact and engage the company on issues such as taxation and service processes.
Who Is A Registered Agent?
A registered agent is the person who serves as the point of contact between the business and authorities. This person receives notices, summons, complaints, and other initial legal documents, including litigation files. Other documents served to a company's registered agent include tax forms, compliance reports, and annual report filing notices.
Documents from the Secretary of State's Office also pass through the desk of the registered agent when they are sent over. After receiving these documents, it's upon them to ensure that they are forwarded to the right personnel for further action. It's also the responsibility of this agent to track deadlines and due dates on behalf of the company.
How Do You Pick A Registered Agent?
There are multiple options when considering candidates for the registered agent role. The easiest option is appointing yourself to represent your organization. You can also appoint a close family member or relative to receive notices on your behalf. Another alternative is to assign this role to one of your employees.
If you want to consider outside help for this role, you can either hire your accountant or an attorney as your registered agent or outsource this task to a registered services agency. This way, you can be sure that you have professionals handling your company's representation. This option, however, comes with additional costs, and they could be expensive at times too.
Is hiring an agency or an attorney worth the cost? Let's weigh the risks of being a registered agent to find out.
Risks Of Being Your Business's Registered Agent
The United States law allows individuals to act as representatives for their businesses. While this might look like the most cost-effective option, considerable risks are involved.
Here are some factors that make being your registered agent unsuitable:
You Should be Present Through all Business Hours.
As a registered agent, you must be available at your place of work during business hours, 8am - 4pm, or 9am - 5pm every day of the week. You can rarely take time off or step outside to run errands. This requirement makes it difficult even to take lunch breaks at times.
The law requires that you are available to receive notices and other documents at all business hours. If you are not available, these documents will not be delivered, and you could miss out on important information. In the case of litigation notices, the lawsuits can proceed without your knowledge, denying you a chance to defend yourself when you miss a delivery.
For a small business that can't afford to have employees in the office, this is a costly option. It's even worse if you don't have employees as you will become tied up at your workstation.
You Can't Conduct Business Outside Your State.
Every company has to appoint a registered agent in each state they sell their products or provide their services. Furthermore, the registered agent must have a physical address in the state they are nominated to serve.
If you're serving as your registered agent, it isn't easy to expand outside your home state. An individual can't be present in two locations simultaneously. If you are based in California and chose to represent your organization, you can't tap into markets in other states with this arrangement.
An alternative way to tackle this hurdle when you nominate a registered agent internally is by having employees in each state. You can legally have employees as registered agents for your company in every state you operate. However, it's expensive to maintain brick-and-mortar locations across several states.
There's A Risk Of Mishandling Processes.
Internally sourcing for a registered agent risks fumbling key processes that prove costly to your business. Handling legal notices and formal company documents requires specialized skills and an eye for detail. It can also be difficult to keep deadlines and act promptly if you act as your registered agent as you run your business. If you hired a relative, a friend, or an underskilled employee, the same could happen.
Simple clerical errors such as noting the wrong date for a litigation appearance could have dire consequences, including being fined for failure to appear. If you missed a tax form return or an annual compliance report, you could expose yourself to investigations or heavy fines.
Also, if you or an employee made an error in judgment and underestimated a document's importance, you could face the same harsh results.
Your Address Becomes Public Record
When you nominate yourself, you are required to provide a physical address where you will run your business from. This is important for deliveries. While this may not be a concern if you have a business center, people running their companies from home might be wary of this.
Making your address public means that people can look up and find your home, which is a privacy concern. In addition, you have to navigate through slow bureaucracy to change your business address.
Getting Served In Front of Your Customers
A moment that business owners dread is being served. Worse still is being served in front of your customers. This could damage your reputation severely. Nobody wants to buy at a "rogue" business. Your employees could also decide to jump ship if you get served out of the blues bringing down your business.
As the registered agent for your company, you have to receive all documents, including lawsuits at your place of business. As this has to happen during business hours, your customers will likely be there. There's no confidentiality in the process.
Representing your own company helps keep costs down but has some serious drawbacks that outweigh the benefits. The risks of being a registered agent prompt business owners to look at other alternatives. So, who should you pick as a registered agent for your business?
What's The Alternative?
To address the shortcomings of representing your business, hiring a registered agent service is the best solution. This way, you have a dedicated team of professionals who understand business and legal matters. An agency service will take care of important business documents and tax forms on your behalf.
You only have to pay the annual fees on your end, and a load of reading through multiple business documents is lifted off your shoulders. A major plus is that you can easily find an agency within your budget that could be cheaper than hiring a full-time employee.
A registered agent service will keep track of your documents and dates to ensure that you don't lag. They will also create a backup for your important documents in case of an accident or natural calamity that could bring unexpected loss.
Most agencies have a countrywide presence, so you don't have to set up new structures when you expand. Your agency will gladly offer you its services in all states and guide you through the compliance requirements. An agency service also comes with helpful customer support to explain challenging legal issues and the ever-changing tax laws.
You can also choose to hire an attorney as your registered business agent. However, attorneys don't come cheap, which could significantly eat into your profits. Compared to agencies hiring an attorney is twice as expensive.
The Final Word
The law allows you to act as a registered agent for your business. At the same time, this is a risky move with harsh consequences. The role of a registered agent doesn't have much room for error, so professionals best fill it. The meager savings you make by representing yourself do not merit the dangers of it.