Why Do Small Businesses Need a Registered Agent?

Business.com / Starting a Business / Last Modified: February 28, 2018
Image credit: Wolfilser/Shutterstock

A registered agent acts as the state’s means to communicate with a corporation or LLC. Here's why you need one, and how to choose the best person for the role.

When an entrepreneur first starts their business, they have a checklist loaded with items that need to be crossed off. Before opening up shop, some of the areas they’ll need to cover include filing for a DBA (Doing Business As name), registering for trademark protection, applying for the right business licenses, and finding a registered agent.

Wait, what’s that last one again? If you’re not familiar with the term “registered agent,” it’s time to get up to speed with what makes an RA important and what their role is in relation to your business.

What is a registered agent?

A registered agent (RA) acts as the state’s means to communicate with a corporation or LLC. They accept legal and official documents on behalf of your business, including franchise tax forms, annual reports, renewal reminders, and legal notices that can range from a court summons to lawsuit paperwork.

What makes a registered agent so valuable?

One of the biggest immediate benefits to working with an RA is getting an extra layer of privacy. Remember when I mentioned that your business could be served with lawsuit documents? Rather than risk having this happen in front of everyone and damage your reputation, a registered agent steps in to receive service of process for your business during any legal action. From there, they take these documents, organize them, and privately pass them along to the business owner. This ensures that your business maintains separation from the public while staying on track with paperwork.

Speaking of paperwork, registered agents serve as a helpful point of contact. An RA will forward documents and notices to the corporation or LLC, and also provide a service that reports on whether or not the legal entity is in good standing with the state.

Who can be a registered agent?

Good question! Typically, registered agents are either individuals (usually corporate officers, directors, lawyers, or CPAs) or third party organizations. Both are required to have a physical street address within the state (a P.O. Box is not accepted), availability during general business hours, and must be a resident of the state.

Some business owners opt to become their own registered agents in an effort to save a bit of money. However, it is generally advised that entrepreneurs work alongside a third party business. Common issues that comes with being your own RA include trying to figure out which physical address to designate, determining whether or not you’ll be available during general business hours to receive documents, and the security in knowing that unexpected visitors won’t drop by your place of residence or business location. A third party RA is reliable, understands what they are doing, and helps keep track of legislative changes and requirements in the state.

What happens if my business doesn’t have a registered agent?

If your business has incorporated as an LLC or corporation, it is required that they have a designated RA in order to remain complaint with state law. Failing to maintain a registered agent can lead to a domino effect of trouble for your company, including incurring penalties and having the jurisdiction revoke your legal status.

Rather than risk it all, make sure that “designating a registered agent” is added onto your entrepreneurial checklist early on when starting your business. The peace of mind, extra privacy and added security will take you and your small business a long way.

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