The risks of being your own registered agent

Nearly every corporation, LLC, or LP is required to appoint and continuously maintain a registered agent in its state of formation and in every state in which it is qualified to do business as a foreign entity. This is an agent to whom a summons, complaint, or other initial litigation documents can be served. The registered agent also receives official communications on behalf of the company.

A plaintiff does not, in general, have to serve the registered agent. The service of process rules typically allows an officer, managing agent, general agent, or certain other persons authorized by the company or law to receive process documents.

However, plaintiffs often prefer to serve registered agents for two main reasons:

• A registered agent is easier to locate. The plaintiff need only check the Secretary of State’s records to find the name and address. Locating an in-state officer, managing, general or other agent can be much more difficult.
• Serving a person other than the registered agent can result in costly and time-consuming disputes over whether the person served was authorized by the defendant to receive process on its behalf.

CT tip: In general, a person may be considered a “managing agent” or “general agent” for service of process purposes if that person’s position, rank, and duties make it reasonably certain that the defendant will be apprised that service of process occurred. This determination is within the court’s discretion and is decided on a case-by-case basis. The outcome can be hard to predict.

The appointment of a registered agent

The initial registered or statutory agent for a corporation, LLC, or LP is set forth in the entity’s formation document that is filed in its domestic state. When a company qualifies in a foreign state, the name and address of its registered agent located in that foreign state is set forth in its application for authority.

The choice of registered agent, like the choice of entity type, formation state, and entity name, is one of the earliest and most important decisions that a business entity's owners can make.

Unfortunately, the choosing of a registered agent is not always given the appropriate level of attention that’s needed - which can end up being a costly mistake.

Individual vs. corporate registered agents

In general, a corporation, LLC, or LP's owners will make one of the following choices:

• They will appoint an individual such as an attorney, owner, member, partner or manager.
• They will appoint a company in the business of providing registered agent services - which is sometimes known as a “professional registered agent” or a “commercial registered agent”.

There are a number of factors to consider in deciding whether to appoint an individual or a professional registered agent. One major factor is that there are risks involved in appointing an individual. Below are some of the risks to be aware of before deciding to appoint yourself or another individual as registered agent.

Risk 1: An individual will not be in the office

There is the risk that you or the individual you have designated as the registered agent may not be at the office location registered with the state when process is delivered. This can result in a couple of problems.

Risk of default judgment because of “substituted service”

One problem is that in some states, an unsuccessful attempt at serving the registered agent allows a court to order “substituted service”, such as by serving the Secretary of State or by posting or publishing the process documents. Substituted service is not as reliable in providing actual notice of litigation as direct service (such as in-person delivery or certified mail, return receipt requested). This, in turn, can result in the company failing to respond in time, which can result in a default judgment. The following case illustrates this point:

The Texas Court of Appeals affirmed the default judgment against two LLCs, finding that service of process on the Texas Secretary of State was valid where the plaintiff’s process server was unable to serve the individual listed as the LLCs’ registered agent because he was no longer located at the address listed on the state’s records. The court noted that the Texas Business Organizations Code provides that if a registered agent cannot, with reasonable diligence, be found at the registered office, the Secretary of State is deemed agent for service of process. The LLCs failed to articulate any excuse for their failure to update their registered office information as they were required by statute to do, and it was their own negligence that caused their failure to respond to the lawsuit. Huffman Asset Management, LLC v. Colter, 2023 Tex. App. LEXIS 8429

Legal documents were left with another person

There is another problem with the registered agent not being in the office when the process server or mail carrier arrives. The documents may be left with another person at the office or signed for by someone other than registered agent. This sometimes results in neither the registered agent nor counsel receiving notice of the lawsuit in time to respond. Take for example the following case. The US Bankruptcy Court upheld a $785,000 default judgment against a Kansas LLC. Process was served by certified mail, return receipt requested to the registered office and was signed by an unknown individual with the Agent box checked. The LLC’s counsel conceded that the registered office was never staffed and proffered no evidence showing excusable neglect of why it failed to staff the registered office. The court noted that under Kansas law, a Kansas LLC is required to have and maintain a registered office and resident agent in the state and a Kansas LLC that disregards these statutory requirements does so at its own peril. Andover Senior Care LLC v. Called to Care Invs. Kan. LLC (In re Andover Senior Care LLC) 2024 Bankr. Lexis 634.