Fact checked for accuracy by Janet Berry-Johnson, CPA.
As you navigate life as a business owner, you probably enjoy the freedom to make your own decisions. When designating a registered agent for your LLC, it might seem like the easiest decision to appoint yourself. While it seems like a no-brainer choice, there are several risks you must understand before doing so. Let’s dive in.
What is a Registered Agent?
A registered agent is an entity or individual appointed by an LLC to receive documents, process notices, compliance paperwork, government correspondence, and all other items on behalf of the company. Although the agent does not need to be certified, the purpose is to serve as a representative for the LLC on any correspondence.
What are the specific types of paperwork that the registered agent receives? It could be anything from lawsuits, regulatory reminders, compliance follow-ups, tax forms, and other annual reports from the Secretary of State. The registered agent must organize the critical deadlines and due dates to ensure the LLC remains compliant and in good standing.
Registered agent requirements are straightforward: the agent must be an official resident of the state where the LLC is registered. This person needs to have a physical address, which is where the paperwork will be sent. Therefore, the registered agent is not allowed to use a P.O. box as the designated address.
Risks of Being Your Own Registered Agent
The easiest solution may be to designate a member of your LLC, or yourself, as the registered agent. However, there are some vital things to consider before doing so.
The Agent Must Hold a Physical Address in the State
As mentioned before, the agent must have a physical address within the same state as the LLC. A private mailbox or mail service does not meet the requirement. This designated agent address needs to be a brick-and-mortar location where someone can drop off documents, forms, and other correspondence.
For business owners who register their LLC outside of their home state, this could be an issue. By not living in the same state as the LLC, the business owner will be unavailable to receive the critical documents in the mail.
The Registered Agent Needs to Always Be Available Doing Normal Business Hours
One of the risks of being your own registered agent is availability. As the designated registered agent, the company owner must remain at the “place of business” during all regular business hours, which includes 9 A.M. until 5 P.M. This also applies to all days of the week, and there are no exceptions.
Now, it is obvious where this is a drawback for the business owner. When you are your own registered agent, this means no off days. It also means you cannot come and go during the day. There will be no running errands, taking lunch breaks, or meeting with clients or vendors outside of the physical location.
Although the important mail may not come every day, someone must be available to accept the deliveries and documents from the Secretary of State. You do not want to be in a position where you miss an important deadline or service of process delivery because you were out to lunch.
Listing Your Home Address May Not Be the Best Choice
If you serve as your own registered agent, you might be forced to utilize your home address. When you operate a web-based or home-based business, you must make your address open to the public. Privacy issues come into play here because you might not want others to know where you live. It will also open up your inbox to flooding of mail from marketers and other junk.
There are also safety considerations in making your home address public. If you have an angry customer or litigant come to your home with a passionate lawsuit, you will want to address this away from your home.
You Can Only Conduct Business Operations in Your Own State
Being your own registered agent is also risky because it limits your expansion opportunities. For each state an LLC does business in, it must have a registered agent from that state. If you do not elect a registered agent in a state, that eliminates your chance of extending business operations in that area.
Therefore, serving as your own registered agent severely limits you. Because you cannot be in two places at once, you can only stay in the state you reside in. This risk also applies if you hire a local accountant, attorney, friend, family member, or business associate to be your registered agent. Your best option is to hire a registered agent service that has a presence in all 50 states.
Address Change Notifications Need to Be Communicated Immediately
Being your own registered agent means you need to stay organized and on top of things, and that includes address changes. If you plan on relocating your business location, you will need to notify the Secretary of State office of your address change immediately. If you rent your house and will be moving to a new address, the same rule applies.
You might think that this process is quick and easy, but that is not always the case. There is an extensive paperwork process, and you will likely need to pay a fee for each address change notification. Opportunity cost is a critical factor to consider when serving as your own registered agent. After the fees and time spent going through the documentation process, this is vital time lost toward growing your business.
Your Clients, Vendors, and Employees Could Watch You Get Served
When your business gets slapped with a lawsuit, it is often challenging, frustrating, and time-consuming to deal with. However, you may feel extra stressed when you serve as your own registered agent and get served in front of your employees and customers.
If you have a team and want to establish yourself as a leader, keeping your legal affairs separate from the workplace is wise. It could also be a bad look in front of your customers, knowing that you face legal trouble.
Can Your Lawyer Be Your Registered Agent?
If you decide not to be your own registered agent, turning to your lawyer may be your next best choice. However, it is critical to understand the risks with this option too.
Although a lawyer can certainly serve as your registered agent, there are three significant risks that need to be considered from the lawyer’s side:
- Risk of default judgments against the LLC owner or client of the law firm
- Attorney malpractice insurance entities not allowing claim coverage for registered agent services
- The LLC owner receiving penalties for not being compliant with regulatory filings and requirements
The Right Choice for Most Businesses: Hiring a Professional Registered Agent Service
At the end of the day, it is best to place your trust in a professional registered agent service. Although each LLC is different, there are several reasons why making this decision will have long-term benefits for your business.
The first is time. As a business owner, every hour of the day matters. Instead of worrying about paperwork, regulatory filings, and address change documentation, your time is best spent growing your business, investing in your employees, and meeting with clients. Serving as your own registered agent will require extended work hours that may not be ideal for you.
Secondly, hiring a quality registered agent service will ensure optimal compliance. Being attune to state laws and regulations is not your strongest skill, so it would be best to pass this off to an expert.
A professional registered agent service will also keep your legal affairs and filing process separate from your place of work. Any legal paperwork or potential litigation will be out of the public eye, which could save you the embarrassment of getting served in front of your customers or employees.
A professional registered agent service also allows you more flexibility. When you have a reliable registered agent service constantly available to accept your mail during business hours, it frees you to do more traveling for your business. You can go to networking events, navigate out of state, or run errands whenever you need to.
The Last Word
Overall, a registered agent service will give you peace of mind. When you invest in hiring a reliable team, you can be confident that your LLC is compliant, and you can dedicate meaningful energy toward business growth. If you are currently the registered agent for your business, read our article on how to resign as a registered agent and switch over to a professional registered agent service.
Questions? Let us know.
Filed under: Advice Columns