Should an attorney act as a registered agent for their clients?

However, there are risks involved when a law firm acts as a registered agent for its clients. The risks include (1) default judgments against the client; (2) attorney malpractice insurers denying coverage for claims involving registered agent services; and (3) state penalties assessed against the client for non-compliance with jurisdictional filing requirements.

In addition to the risks involved, law firms should also take into account the time and effort that providing the registered agent and registered office for its business entity clients will take.

Risks and potential liability attorneys acting as registered agents face

In most states, almost any person or business entity may act as a registered agent. The appointment itself is fairly straightforward. Perhaps because of this, attorneys may regard receipt of service of process as a simple activity, when it is actually a deceptively complex procedure, governed by a number of statutes and rules.

Risk of default judgments

Anyone undertaking the responsibilities of a registered agent assumes certain risks. One risk is that of a court entering a default judgment against a business entity client for failure to respond to the process. The risk for the attorney acting as registered agent is that, rightly or wrongly, the client might claim that it never received the process and allege that its attorney was at fault for failure to forward the process properly or in a timely manner. Under these circumstances, the client might expect the attorney to compensate the client or might even sue the attorney who acted as registered agent to recover the amount of the default judgment and any other available damages.

The risk of being sued necessitates confirmation of whether the law firm’s professional liability insurance policy covers registered agent activities. The standard lawyers’ professional liability insurance policies may not contain specific language covering errors or omissions occurring when an attorney acts as a registered agent for its clients. The firm might assume that it has coverage under general policy language covering the “practice of law” or the “conducting of professional services.” However, coverage is not necessarily guaranteed under those general provisions.

Furthermore, some insurers may insist on a clause whereby the attorneys agree not to act as registered agents. This may be because of the serious harm that a client can suffer as a result of a default judgment.

Lawyers who want to act as registered agents should also keep in mind that registered agents are expected to be available at the registered office address when process is delivered. If they are not there - say because of an extended vacation or illness — and the plaintiff, after making diligent attempts is unable to serve the registered agent, a court may order substituted service (say, by serving the Secretary of State). This can lead to actual notice not being received in time to respond.

Lawyers acting as a registered agent also need to train the personnel working at the firm’s office - if the office is listed as the registered office - on the proper handling of documents being served. A failure to do so is another cause of defaults.

With or without insurance coverage, the attorney may need to settle out-of-court in order to avoid additional expenses. In instances where the attorney’s professional liability insurance covers errors and omissions for registered agent activities, the lawsuit could result in increased premiums. In cases where an insurer denies coverage, the effort, legal costs and fees involved in defending against the underlying lawsuit, and perhaps for bringing a separate suit against the insurer, may be too time-consuming and cost prohibitive. This is true even if the attorney has proof of his or her lack of culpability for the default judgment.

And there are even more costs to consider. Contentious legal actions between attorneys and clients have the potential to sever their business relationship. Even if a matter settles out-of-court, the client may lose confidence in the attorney and the law firm. Not only could this result in the loss of the particular client, but in referrals as well.

Risk of non-compliance

State agencies routinely send official notices to business entities through their registered agents. These notices can include reminders of deadlines for filing annual reports and paying franchise taxes, as well as delinquency and administrative dissolution notices. If a business entity fails to make the required filing or payment, it will be subject to penalties. Moreover, the entity will not be in good standing with the state, which could impede business transactions. In these situations, the business entity may claim it did not receive its official notice and seek to hold the attorney acting as registered agent accountable for this harm.

Business entities are also required to keep the state’s information about their registered agent and registered office up to date. So, if a law firm acting as registered agent relocates, a change of registered office document has to be filed with the state. The clients may expect the law firm to do it and to pay any filing fees. Penalties for not updating this information can include administrative dissolution or revocation. Furthermore, any documents delivered to the old address will not be getting to the lawyer acting as registered agent, or the clients, in a timely manner.

Acting as registered agent is time consuming

Acting as registered agent is deceptively complex and can be very time consuming. Just handling all of the documents properly directed to the client for which the law firm was appointed as registered agent, and that was properly served on the law firm, is time consuming enough. But registered agents also have to deal with a variety of problems involving the documents delivered to them as registered agent. These include the following, among others:

• Summons and/or complaints that name the registered agent as the defendant instead of the company for which it acts as registered agent.
• Subpoenas directing the registered agent to provide documents or testimony instead of the company for which it acts as registered agent, or subpoenas that do not name any company at all.
• Notices from government agencies that do not name the entity to which the notice is to be forwarded. (For example, code enforcement officers will often send violation notices to the registered agent without naming the property owner).
• Service of legal documents naming several parties but with no indication of which party service is directed to.
• Service of documents with missing or illegible pages.
• Documents served for companies that have another registered agent in the state or that are delivered by email if you do not wish to accept service of process by email, or delivered to another office you have in the state which is not the registered office address.

Addressing these problems and solving them to make sure your clients are properly served takes effort and time. There will also be times where your client receives a default judgment and you will be required to provide an affidavit or testimony explaining the circumstances surrounding the service of process to which they did not respond. Investigating the circumstances is another time consuming task taking your law firm away from providing legal services to its clients.