15 Nov The Hidden Importance of Your Registered Agent
A Note on Wording: A business is commonly referred to as a “company” in the non-legal world. However, the word “company” can be confusing when talking about legal entities, because it can be interpreted to only refer to a limited liability company or LLC. Texas permits businesses to be structured in many different ways, including corporations, partnerships, and limited liability companies, among others. To avoid confusion, this article will use the word “entity” to refer to a business, in order to cover all types of business structures.
Registered agents provide a key role in being an entity’s front-line point of contact for service of process. A previous article looked at the nature of the role, and who can be appointed to serve. Many entities do not routinely review their registered agent information, which can result in their registered agent’s name or location being outdated or inaccurate. This article discusses the business risks of letting mistakes or errors in an entity’s registered agent information go uncorrected.
The Missing Registered Agent
As discussed in the prior article, the Texas Business Organizations Code (the “BOC”) requires most entities doing business in Texas to designate a registered agent, and that agent’s registered office, for the Secretary of State. The information must be “continuously” updated with the Secretary of State. Despite this requirement, it is not uncommon for the Secretary of State’s records to become inaccurate, and no longer reflect the correct information. Common situations include:
- The registered agent moves, and fails to update the Secretary of State with their new contact information;
- An individual registered agent passes away, or an entity designated as the registered agent is wound up, terminated, or loses its right to transact business in Texas;
- An individual registered agent separates from the entity, and is no longer employed by or affiliated with the entity; or
- The registered agent resigns, and the entity fails to designate a replacement registered agent.
In any of these situations, when someone is trying to contact the entity – either to send important documentation or for serving legal process on the entity – then they will not be able to do so. The person or group attempting contact will either not have a person or address to send correspondence to, or they will send their correspondence to the wrong recipient, not knowing that the information in the Secretary of State’s records is wrong. In such events, the result is that the entity does not timely receive the information that it needs.
If an entity is sued or other legal process is taken against it, and the entity’s registered agent cannot be located “with reasonable diligence,” then the person or group trying to serve the entity is authorized to serve the entity by delivering the process, notice, or demand to the Texas Secretary of State. Delivery to the Secretary of State in this manner is considered to be appropriate service on the entity, and thus any applicable deadlines will begin on the date the Secretary of State is served – even though the entity may still have no actual knowledge of the issue.
The Secretary of State will mail all documents that it receives to the last address for the entity that it has on file. This address may itself be outdated, but the Secretary of State does not verify the address information in its records. The Secretary of State also does not hand deliver or use expedited carrier service for its mailings. Accordingly, the entity may receive the documents with little to no time to appropriately respond.
Outsourcing Your Registered Agent
Entities commonly hire a third party to serve as their registered agent, rather than choosing to appoint one of its owners, governing persons, or officers to fill that role. There are generally five reasons why an entity would choose to have a third-party individual or entity serve as its registered agent:
A third-party registered agent will, as part of its business practices, ensure that its information is promptly updated and kept current in the Secretary of State’s records. If that agent ever moves, they will know to update their address with the Secretary of State. Too often, when an entity’s insiders serve as the registered agent, updating the registered agent information is neglected, as there are so many other day-to-day tasks in running the business that take priority.
Items served on an entity’s registered agent frequently have a strict deadline within which to respond. This deadline is either fixed, or it is a span of time that begins on the day the registered agent is served. If one of the entity’s business leaders serves as the registered agent, then it is possible for the item to be lost among the regular day-to-day communications and paperwork, or for it not to be readily identified as an item of utmost importance. With a third-party registered agent, the registered agent can recognize the urgent nature of communication, and make sure that the business leaders of the entity understand and appreciate the urgency and are aware of any associated deadlines.
If an entity uses its own office address as the “registered office,” with one of its business leaders as the registered agent, then any official personnel wanting to serve the registered agent will come to that office, such as sheriff’s constables issuing service, or city personnel delivering formal notices. These items could be innocuous to the business (such as a notice from the Texas Attorney General to withhold child support from an employee’s paycheck), but the presence of a government representative in the business office can be disruptive and distracting to the entity’s operations.
No Physical Address
In the modern economy, many businesses do not have a formal business address. This could be because they are just getting started, or it could be by design, as a result of remote workers, cloud-based services, etc. Entities with this type of business operation may need a third-party registered agent to provide the required fixed registered office address.
A registered agent must be able to be served, “with reasonable diligence,” at the entity’s registered office address, during regular business hours. If an entity has irregular or non-standard business hours, it may not be able to have a business leader serve as its registered agent, as the business leader will not be present during most regular business hours.
Lawsuits can pose unique and critical business risks, and not timely receiving important legal filings impairs an entity’s ability to address and minimize those risks. An entity’s registered agent is frequently the “first point of contact” for a lawsuit or similar communication, and it is vital that the registered agent be available to receive the service of process and to understand its importance for the entity.
Although an entity can appoint an “insider” such as an employee, officer, or owner to serve as its registered agent, there is a risk that their ordinary responsibilities – or even their future separation from the entity – would interfere with their ability to serve as a registered agent, through neglecting to keep their information current in the state records to overlooking the importance of a document served on them. The consequences of missing an important filing, or only receiving it too late to address it, cannot be understated. We here at Rapp & Krock, PC are ready to answer any of your questions about your appointed agent or to help you analyze your registered agent options.
Copyright © 2021 by Kieran Wheeler. All rights reserved.