Risks of Being a Registered Agent: Liability Explained

An LLC, or a Limited Liability Company, is a legal entity allowed in the US that is able to operate a business and hold assets of its own. It is considered to be a highly appealing option for small and medium-sized business owners as LLCs exhibit hybrid characteristics and benefits from other types of business structures such as sole proprietorships, partnerships, and corporations. There are different roles involved in the operation of an LLC such as the registered agent. Since practically anyone can become a registered agent for an LLC, it is important to discuss the risks associated with being a registered agent.

Generally, the role of the registered agent holds no liabilities towards the LLC as is the nature of the LLC for most people involved. However, a registered agent can indeed be liable for financial damage that the LLC may incur due to default judgment if the registered agent was found to fail in their primary duties. There are additional risks for negligence when the individuals acting as the registered agents are licensed professionals such as attorneys. Aside from negligence in their duties towards the LLC, registered agents can also be liable when they fail their duties towards the state.

What is an LLC?

An LLC, or a Limited Liability Company, is a business structure used in the United States. While businesses can always run unregistered such as sole proprietorships and partnerships where the owners are the business themselves, forming a separate entity for commerce can confer several benefits. The main advantage of forming an LLC is that the members – the owners of the LLC – are provided with some degree of limited liability protection. This means that in the event that the LLC is in debt or financially burdened, the personal belongings of the owners such as their property, cars, and bank accounts are not risked.

Limited liability protection is extremely appealing for business owners and allows them to operate confidently, allowing commerce to thrive. Another significant appeal with forming LLCs is that business owners get pass-through taxation. Unlike a corporation that has to pay corporate tax, the owners pay for the business’ taxes through their own personal tax return.

There are different people involved in the formation and operation of an LLC. Aside from the members who essentially run the business, an LLC also requires the individual or entity responsible for the technical formation of the LLC: the organizer.

The Organizer is primarily tasked with submitting the Articles of Organization – the legal documents necessary for the formation of the LLC. They are also responsible for making sure everything is in accordance with state law and act as the liaison between the state and the LLC at the formation period.

What is a Registered Agent?

While the organizer acts as the point of contact between the state and the LLC during the technical formation of the LLC, the organizer ceases to exist once the LLC is approved and established. From then on, the individual or entity responsible for acting as the point of contact between the state and the LLC is the registered agent.

Practically all states require LLCs to have a registered agent – an official contact person tasked with receiving official mail from the state on behalf of the LLC. The registered agent would typically be responsible for receiving service of process notices, government correspondence, and compliance-related documents.

The role of the registered agent can be mantled by almost anyone and state limitations are typically restricted to individuals who are at least 18 years old. Aside from individuals, entities such as third-party companies can also provide the service as a registered agent for an LLC.

Registered agents are also usually required to provide their address, also known as a registered office. The registered office must be located in the state where the LLC is formed. The registered agent must also be reachable at the registered office during normal work hours to make sure that the state can reach the LLC in the even of legal action.

Risks of Being a Registered Agent

Due to the nature of LLCs, most people involved in the business are not personally liable for many scenarios that the LLC might find itself in. However, there are ways where a registered agent can actually be liable.

Since the main task of the registered agent is to deliver important legal documents to the LLC, the registered agent can be personally liable when a default judgment is made against the LLC due to the failure of the registered agent in their duties.

A registered agent can be responsible for financial damage that an LLC can incur due to their inability or negligence in making a timely transfer. This can be especially damaging to the registered agent if they are an attorney as this can possibly leave them vulnerable to a malpractice claim.

However, if the registered agent fails in the transfer of pertinent information to the LLC due to no fault of their own (e.g., if the LLC fails to update the registered agent regarding a change in their address, contact information, etc.), then the registered agent will generally accept no liability.

Aside from risks involved with the registered agent’s failure to perform for the LLC’s sake, a registered agent can also be liable when they fail to meet the responsibilities towards the state. To be able to provide the LLC with documents and information from the state, they must be available to receive such documents and information.

There are many scenarios where an individual serving as a registered agent opens an LLC to more risk when compared to having a company serve as a registered agent. Aside from being able to receive parcels from the state, registered agents are also responsible for updating the state in the event that they change their address to make sure that the LLC will be able to receive whatever the state sends.