- The legal risks of being a registered agent
- The opportunity costs of being a registered agent
- What are the best alternatives?
Q: What are the risks of being a registered agent?
A: Being your own registered agent puts you at direct risk of government fines and potential legal consequences. It also takes time away from your other important functions as a business owner. The direct risks and opportunity costs make being your own registered agent a highly inefficient strategy.
Do you know the risks of being a registered agent?
Many business owners imagine being their own registered agent as an easy way to save a bit of money and optimize their spending.
But if you aren’t careful, you can face heavy legal fees and lose your LLC’s liability coverage.
You may also end up less productive and stunt your business’s growth.
If you want to grow your business, there are plenty of modern business solutions to help. But you shouldn’t take on your registered agent duties without first understanding what’s at stake.
- What are the direct legal risks of being a registered agent?
- What are the opportunity costs of being a registered agent?
- What are the alternatives to being your own registered agent?
- Which solution is the least risky and most effective?
Can You Legally Be Your Own Registered Agent?
Before we dive into the risks, can you legally serve as your own registered agent?
The answer is – probably.
There are a few universal requirements for serving as a registered agent.
For starters, you have to be older than 18. Minors can’t serve as registered agents anywhere in the country.
Additionally, you need to have an address within the state of your LLC. For most business owners, this won’t be a problem.
Since registering your LLC requires you have a business address within the state, business owners will already have an address that should allow them to meet this criterion.
That said, each state has its own legislation surrounding registered agents, so it’s important to check your state’s specific requirements.
Finally, all registered or resident agents are required to be available at the listed address during the business’s listed hours of operation.
This is the trickiest part for remote business owners. Since you work remotely, it can be difficult to be available at the listed address.
That said, failure to do so can be catastrophic, as we’ll see later on.
In some states, someone else can be available at the address in your stead.
Again each state has its own rules surrounding this, so you’ll need to check with your state’s department of commerce before proceeding.
Some states also have specific stipulations that go beyond these three basic requirements.
When it comes to handling business, some states are better than others, and each will have its own approach.
What You Have to Do Before Being Your Own Registered Agent
Before you list yourself as your own registered agent, you need to make sure you have a thorough understanding of your state’s requirements.
Some states allow registered agents to serve remotely so long as someone else is there to forward government documents and summons. Some do not.
If you list yourself as the registered agent before knowing your state’s stance on this, you may land yourself in hot water down the line.
You’ll also need to have a strong idea of the work and responsibility being a registered agent places on you.
Many small business owners assume serving as a registered agent is a trivial matter. They take on the responsibility thinking it won’t have much impact on their workflow, well-being, or business growth.
But the risks of being a registered agent are heavy.
Before answering the question, “should you be your own registered agent?”, you need to fully grasp the potential consequences of your decision.
While it can work in some instances, there are a number of reasons why you shouldn’t be your own registered agent.
The Risk of Missing Important Deadlines
When you take on the role of registered agent, you are directly responsible for receiving all incoming government correspondences.
Among the most common pieces of government mail you’ll receive are information about deadlines.
These deadlines may be for information you need to provide the state or fees you must pay to finish registering.
When you’re an exceptionally busy business owner, it’s easy to let your mail sit in a drawer for a few days or miss it altogether.
It’s completely understandable. But that doesn’t mean it won’t hurt your business.
If you don’t respond promptly to these pieces of mail, you risk missing essential state deadlines.
These deadlines often result in unappealable fees.
With small businesses facing smaller payrolls post-COVID, every dollar counts.
Fees like this can add up quickly, eating into your bottom line and preventing you from reinvesting in your business.
In the best-case scenario, this slows your growth. In the worst case, it can lead to your competitors outpacing you and your business failing.
The Risk of Missing Court Orders
There are even more serious risks of being a registered agent, though.
If you aren’t present to receive a court summons, you may never know that someone is suing your business.
If this happens, the court will usually find it in the prosecutor’s favor automatically. This can be absolutely devastating to your business.
Not only will you potentially lose a lot of money, but your business’s reputation may be irreparably tarnished.
If a consumer sues you for a serious product defect and wins because you didn’t know about it, that information will be on your business’s record.
Even if the entire claim was fraudulent, they will have legally won the case. Your future consumers might learn that information and choose not to buy from you.
And while this may sound like a very unlikely event, it’s unfortunately happening more often.
Many lawyers have built entire businesses around suing small business owners on fraudulent cases.
Because they can sue for large sums, they only need a very small fraction of their claims to succeed.
They count on small business owners missing the summons or making other errors to make their money.
As a small business owner, you need your registered agent to be diligent, as these types of scams can hit any business.
Even without the rise of cases, there’s still serious risk involved for registered agents who miss summons.
If your business is sued on more legitimate grounds, knowing about it early gives you the time you need to prepare a defense.
That time can be the difference between you maintaining your business’s revenue and watching it leave in a lump sum.
The Risk of Losing Your Limited Liability Coverage
When you serve as the registered agent for LLC purposes, you are directly responsible for ensuring the LLC meets all the criteria to stay legally sound.
If you are your business’s registered agent, a minor mishap can cause a lapse in your LLC’s coverage.
As we discussed above, this often means you’ll face government fines and late fees. But things can get significantly worse.
If your LLC lapses, your personal assets can be drawn into your business debts.
That means if your business takes a hit, the government can seize your personal wealth.
This is particularly worrisome because a lapse in your LLC coverage is likely going to result in fines.
Your business will cease protecting you, right as you’re hit with significant fees.
This is an easy thing to avoid for a registered professional agent. But as a busy business owner, you can easily miss an envelope.
The results of such a minor mistake can hit both your business and your personal bank account.
What is Opportunity Cost?
Not only does a registered agent have to be a person with solid organizational skills and a reliable workflow, but they also have to be someone who has time to handle things properly.
Many business owners don’t consider opportunity costs when taking on their registered agent duties.
Opportunity cost is the loss of potential gain that occurs when an alternative is chosen.
For example, imagine you are invited to go to the movies by one friend and invited out to dinner with another.
If you choose to go to the movies, your opportunity cost is the dinner you would have had with the other friend.
Many business owners don’t think in terms of opportunity cost. But opportunity cost poses a significant risk to your business growth.
The Direct Opportunity Cost of Being a Registered Agent
When you take on the work of being your own registered agent, you are inevitably sacrificing other things you could be doing with your time.
As a busy business owner, you are responsible for everything in your business. From marketing to payroll to product design, you need to use your time and energy to ensure things run smoothly.
When you have to spend time receiving, reading, and responding to government correspondences, that time eats into your day.
As a result, you have to spend less time building your business and helping it grow.
You may not realize it, but this slows your business’s growth in the long run.
To understand, let’s look at a hypothetical example of two businesses.
A Hypothetical Case Study
Two businesses selling vitamins launch at the same time. One is called Vitamin House, and the other, Vitamin Factory.
Vitamin House’s owner lists themselves as the registered agent. Vitamin Factory’s hires a registered professional agent instead.
In the first few months, both businesses grow at roughly the same pace. Vitamin Factory’s owner is able to do a bit more market research though, as they have more time to devote to it because they aren’t busy responding to government mail.
That research allows them to make just a few more sales than Vitamin House in the first few months.
Vitamin Factory reinvests that money into their marketing and continues to use their extra time to do market research.
6 months in, Vitamin Factory has dialed in their target demographic and is now significantly outpacing Vitamin House in sales.
Vitamin House is struggling, as their market is finding Vitamin Factory much more appealing.
One year in, and Vitamin Factory is now completely outcompeting Vitamin House. They’ve been able to lower their prices because they can buy in larger quantities.
Vitamin House reaches fewer people in the market and offers a less competitive price.
This all happens because Vitamin House only looked at the gross cost of hiring a registered agent.
The opportunity cost of not hiring an agent turned out to be far higher than the modest fees Vitamin House would have paid.
The Risk of Stress and Burnout as a Registered Agent
Some business owners try to solve opportunity costs by simply working more hours.
They take on their registered agent duties and extend their workdays to accommodate them. This, they think, will allow them to get the best of both worlds.
But there is a significant risk here too. When you overwork yourself, you increase your stress levels.
Not only does this subjectively hurt your quality of life, but it also impacts your business.
Stress lowers your ability to concentrate, diminishes your creativity, and ultimately reduces your productivity on the whole.
When you add the stress of being a registered agent onto your already-full plate, you may quickly find yourself unable to focus.
You may even start making mistakes that impact your business. This can be in your registered agent duties, or in the other areas of your business that you oversee.
As a result, you may run into the negative consequences discussed above. You may also hamstring your own growth by preventing your most creative and successful ideas from coming to life.
What Are the Alternatives?
With all the direct and indirect risks laid out, it’s clear that being your own registered agent isn’t the optimal solution. What are the alternatives?
One common solution is to pass the duty off to a friend or family member.
While this may seem like a great way to save money and avoid the risks mentioned above, it’s often even riskier.
Even with the best intentions, your personal contacts probably aren’t going to be as invested in your business’s success.
They are often even more likely than you to make mistakes, especially if you aren’t paying them.
This means you’ll likely face the negative repercussions of missed deadlines or court summons.
You also risk complicating your personal relationship. If your registered agent is a friend or family member, you’re bringing that person into your business operations.
This is ill-advised on its own. But when you consider the consequences of even a minor slip-up, it becomes obvious that you probably shouldn’t do this.
The other option is to hire a professional registered agent service.
A registered professional agent has the expert knowledge you need to keep your business completely legal and ensure you don’t lose your LLC coverage.
A registered professional agent will also help you respond to any government mail in a timely, efficient manner. This means you’re pulled away from your other tasks as little as possible.
As a result, you can grow your business faster and experience less stress than you would in other registered agent situations.
Finally, with the help of a professional, you can rest easy knowing your legal correspondences will be handled promptly and correctly, every time.
The Best Professional Registered Agent Services
While there are a host of options on the market, the best-registered agent services for small businesses are Anderson and Inc Authority.*
Both providers have extensive networks across the country, making it simple for you to find a registered agent in your state.
Their networks also mean that each agent has access to a host of insight and support. This means your registered agent will provide the most beneficial service to your business.
With solid standards in place and a wealth of industry insight, Anderson and Inc Authority offer the best-registered agent services on the market.
*Alliance Virtual Offices is an affiliate partner with Anderson and Inc Authority and may receive a payment if you make a purchase using the links in this article.
Wrapping Up: The Risks of Being a Registered Agent
Being your own registered agent brings with it a lot of risk.
The slightest slip-up can result in hefty fines and lapses in your LLC coverage. You may even lose lawsuits without knowing about them.
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Instead of handling your registered agent duties yourself, you should hire a professional.
A professional registered agent ensures you never face unnecessary legal issues while freeing you up to grow your business.
The best services on the market are Anderson and Inc Authority.
Both providers have extensive experience in the industry, ensuring your business stays legal, and you’re free to invest your time and money into your growth.