Law Firms Put Themselves at Risk Acting as a Registered Agent

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State law requires businesses to designate a Registered Agent or Statutory Agent to receive service of process and federal/state documents. Many corporate law practices offering business formations and other corporate legal services, also provide registered agent services by acting as their clients’ registered agent. When law firms elect to act as the registered agent for their clients, many times they do so without taking additional considerations. Firms rarely charge for this service, rarely check with their malpractice insurance about coverage, and rarely understand the full breadth of their responsibility.

Firms understand the duty of the Registered Agent is to ensure all necessary documents are forwarded in a timely manner, however, what happens when the firm moves, the client is no longer a client, or the attorney who is listed as the registered agent is no longer with the firm? What happens when a service of process is delivered to the mailroom and the clerk doesn’t understand the urgency? How about when a service of process is put on an attorney’s desk and that attorney is out of the office for an extended time?

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Whether your firm is managing registered agent service for many or a handful of clients, the responsibilities that come with being a registered agent can be time consuming and costly without the right resources. Here’s what you should consider when offering registered agent services.

ADDRESS CHANGES MUST BE FILED

As firms grow or as leases come up many law firms move to increase space or to help reduce costs. States require business entities to keep information regarding their registered agent up to date. Changing the address for a registered agent requires a formal state filing and often a fee paid to the state. In every case I’ve heard, the client expects the firm to update the Secretary of State and to pay for any state fees associated with the filing. That’s tough to swallow especially if you aren’t charging for the service in the first place or when some of these entities are no longer clients. Failure to update your address with the state, could result in a service of process not being received. Without diligent, organized record keeping, and quick filings with the state, your clients could face a default judgement against their business entity for failure to respond to the process.

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MANAGING ENTITY COMPLIANCE IS A BIG UNDERTAKING

In a recent survey, corporate legal professionals identified their top concerns, and 74 percent of respondents stated that “regulatory and governmental changes” are critical issues. It can be difficult to keep up with regulatory requirements and compliance deadlines in all states and jurisdictions where a company does business. If a business entity fails to file required paperwork, it will be subject to penalties, fines and could lose its good standing with the state and a company that isn’t in good standing with the state has additional exposure.

SERVICE OF PROCESS MANAGEMENT

If you’re handling Registered Agent services internally, you are likely dedicating an individual’s time and resources to distributing service of process paperwork and documents to your clients. Often, this person is either unqualified to handle this task or extremely overqualified, leading to lost revenue. What processes and technology are you utilizing to ensure you can prove service of process was delivered and received? The question I asked earlier about a mailroom clerk about not handling service of process with urgency was from a real-life example. It only takes one mistake to create a costly endeavor for the firm.

INSURANCE COVERAGE

Default judgments against clients could result in a suit against the law firm if the entity claims it did not receive the SOP. Make sure to check your Professional Liability Insurance policies because in most cases they either explicitly exclude coverage for registered agent activities or the language is vague. This can lead to malpractice insurers denying coverage involving registered agent services and therefore exposing you to risk. Corporate attorneys help clients reduce risk wouldn’t it be expected that you limit your own as well?

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Law firms can avoid many of these risks by outsourcing registered agent services to third party commercial providers whose core business is to provide professional registered agent services. Look for a Commercial Registered Agent that utilizes technology to manage service of process and state notifications. Look for a registered agent that reduces your risk but not your visibility to your clients’ important legal documents. By outsourcing to a technology-driven Commercial Registered Agent service, law firms reduce risks, and gain back valuable time and resources without losing visibility. Steve Sowers

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Comments 1

  1. Jeff Garner says:

    I wonder if my current registered agent is aware of this. I sure hope they don’t move – I’d be screwed!
    I wish I used a company instead of an individual. The individual never gave me my binder with all my incorporation material – lesson learned!

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