Do I need a Registered Agent for My Syndication Business Entity?
This is a question I get all the time, and it is one of the easiest to answer. Yes! Every single State in the U.S. mandates that you have a registered agent for your entity. Period. If you don’t, the consequences are severe as you will lose your ability to conduct business in the State and more importantly, lose the asset protection benefits of your business entity.
There are only two (2) real requirements to be a registered agent. First, the registered agent must be located in the State where the entity is formed. If the entity has registered to do business in another State, then another registered agent must be located in that State as well. Second, the address must be a real address with a real person. No P.O. boxes or mailboxes.
So what is a registered agent and what do they do for you?
They serve one function, and one function only: to receive “service of process” when your entity gets sued. This is just a fancy way of saying your registered agent must be available to receive legal documents that have been filed against you in a lawsuit. By receiving the legal documents, your entity is considered to have received proper notice of the lawsuit or proceeding and the clock begins to tick.
The registered agent’s address is also the place where, most likely, the State will send your tax letters and annual State renewal reminders and violation notices. Note, that the registered agent’s address is not the formal address of your company. It can be, but that typically requires a separate mail forwarding service with the registered agent and you will have to pay for that service.
Can I have a friend or relative, who lives in the State of Formation, act as a registered agent?
Legally yes. The best practice is to avoid this. Why? Because if your friend or family member, or any registered agent, for that matter, fails to do their job, it can have dire consequences for your business entity. For example, if your business gets sued, and the registered agent fails to notify you of a summons to appear in court to respond to the lawsuit, then when the case goes to trial, no one will appear to defend your company and you would lose the lawsuit by default. Pleading to the Judge that it was your buddy’s fault for not letting you know about the lawsuit, will not get you anywhere with the Judge.
Can I act as my own registered agent?
If your entity is located in a State other than the one you live in, then the answer is simple: no. If you live in the same State, then the answer is yes; it is possible for you to act as your own registered agent. The real question is should you? Here at Premier Law Group, we always recommend hiring a professional registered agent. But in order to answer this question for yourself, lets look at the pros and cons of this do-it-yourself approach.
The pros: There is really only one (1) pro: You save the $100-$125 annual registered agent fee that most reputable registered agents charge.
The cons: There are several. The first is that the name and address of the registered agent are a matter of public record. So the question you have to ask yourself is how comfortable are you letting the entire world know where you live? How happy are you going to be when some random guy knocks on your door during dinner to hand you a bunch of legal papers? If you are not home when they come, they will wait outside for you, and trust me, eventually, they will serve you and they don’t care about being inappropriate or showing up at the most inopportune time. They just want to get the job done.
Second, if you are not around when the process server comes to your home because you are on vacation or simply away for an extended period of time, it is possible that you may not receive important legal papers to appear in Court. Yes, the process server is supposed to leave a copy of the legal papers and mail you copies, but if he doesn’t, it is your word against his. Finally, the law requires that the registered agent be at the address during normal business hours. So if you don’t spend much time at the address, it is akin to having a P.O. Box or mailbox, which is legally insufficient.
In short, most of the time, you won’t have the option and your out-of-state entity will need a professional registered agent. But in those cases where you have the option, resist the urge to save a few bucks and make sure you use a professional to ensure you receive all critical documents.
This blog post is intended to provide general information and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship with Premier Law Group.
Mauricio Rauld Esq.
About the Author
Mauricio is the Founder of Premier Law Group, and the premier syndication attorney in the country that helps real estate syndicators stay out of jail. He is one of a few lawyers that actually speaks English, regularly traveling around the country speaking to real estate syndicators about how the legal piece fits into the overall syndication puzzle. He has also shared the stage with the likes of Robert Kiyosaki, Ken McElroy, Brandon Turner (host of the Bigger Pockets Podcast), and The Real Estate Guys.