A registered agent is required for all businesses, but are they outdated? How can I become a registered agent? Should I serve as my own registered agent for my LLC?
Anyone who has or wants to start their own business is required to have a registered agent. That agent must reside within the state your business is registered and be available during business hours, on business days, at the registered address.
There has been very little scientific research into the effectiveness of registered agents. Existing literature suggests that the registered agent system is outdated, but what other options are there?
Becoming a registered agent has no concrete requirements. Many entrepreneurs think serving as their own agent is a great way to save money … But is it? What do you get from hiring an outside agent over serving as your own? Read on to find out!
Be sure to click on our ‘Read More’ links for further information, check our references below to test our credibility, and read the attached Methods and Procedures PDF to see how we found our results!
Read More: What is a Registered Agent?
Our key findings are as follows:
1. Spending on registered agents in the U.S. is similar to the amount spent annually on paper clips.
2. If a registered agent makes errors handling your taxes, you may still be personally liable.
3. There are three kinds of agency failure: Agent failure, client failure, and mutual failure.
4. There are no specific qualifications needed to become a registered agent.
5. You can act as your own registered agent, but you probably shouldn’t.
U.S. spending on registered agents similar to paper clip budget
In 2020, The Journal of Corporation Law published a study investigating the use of registered agents. They sought to show that the registered agency system was flawed and that clients could be better served by an electronic delivery service: email. They argued that using an individual was not foolproof.[1] With important documents, emails can be used to ensure that the documents have been delivered, received, and opened.
The authors claim that the registered agent system is outdated and in need of a modern overhaul, pointing out that the amount the U.S. spends on registered agents (~$250 million) is similar to the budget spent on paperclips (~$110 million).[1]
While it is true that human beings are fallible, electronic delivery systems like email can be as much or more dangerous. According to Forbes: 92% of companies had an email-related data breach, nearly 1 in 5 email cyberattacks were successful, and that smaller companies were most likely to be victims.[2]
Protect yourself from mishandled documents
If a registered agent makes errors handling your taxes or other sensitive documents, you may still be personally liable. According to the IRS, the penalties for mishandled tax documents are the same, no matter who does the mishandling.[3]
If a professional service mishandles your taxes or other documents, they should take all necessary measures to rectify the situation on your behalf. This ensures you that they have the best intentions, it was an honest mistake, and that they are a reliable service to use in the future.
Unfortunately, many times these companies are not required to make any amends. Protect yourself from this becoming your situation by carefully reading the contract you signed when hiring a tax preparer. If you suspect any errors were made purposefully, you’ll need to file a 14157-A form to report fraud or misconduct to the IRS.[4]
The 3 types of agency failure
On the topic of how registered agents can make mistakes, there are three types of agency failure: Agent failure, client failure, and mutual failure.
In agent failure, the person or company hired to be the registered agent drops the ball. The agent might accept correspondence or documents and neglect to pass them on to the client. Even the best organized registered agent is not immune to human error, but larger agencies may provide more protection against this type of error due to errors-and-omissions or malpractice insurance.
The second type of agency failure is called ‘mutual failure.’ As the name implies, this is where both the client and the registered agent make mistakes. Common examples of mutual failure are if a company changes its name, address, or hires a new registered agent without informing its current registered agent of the changes.
For example, a client moves its principal location to a new address but fails to inform their registered agent. The registered agent receives correspondence for their client, but forwards it on to the old address. Here, both parties are at fault, as the client failed to update the address, but the agent didn’t follow up to ensure the documents were received.
Finally, there’s client failure. This type of failure is also pretty straightforward. Client failure is when the agent or agency does their due diligence to ensure everything is delivered to the client in a timely manner, but the client fails to act and a default judgment has been entered in the courts.[1]
Who can become a registered agent?
Despite the importance of a registered agent’s duties, there are no specific qualifications needed to become a registered agent. Different agencies will want different qualities and experience from their agents, but having the following is a good place to start if you’re interested in this field:
- Degree(s) or experience working in legal affairs
- Detail oriented
- Highly organized
- Always available, on location, M-F from 8am-5pm
Now, this doesn’t mean you will be working all these hours, but you will need to be available in case any important paperwork needs relayed to your client.
This can be a great job for someone who wants to test working in the legal field, or more experienced workers looking to for a lighter workload. Compensation for a registered agent role varies by location, but an average salary is between $20-30 per hour.[5][6][7]
Read More: How to Become a Registered Agent
Should I serve as my own registered agent?
While legally, you can serve as your own registered agent, the benefits of hiring an outside service are far worth the nominal fee. The only requirement you need to serve as your own registered agent is an address within the state your business is registered.
If you use your home address, this becomes a matter of public record, and anyone can find this information easily. This leaves your home and family open to be found by any disgruntled employee or angry customer.
You also have to be available at home M-F from 8am-5pm to receive government documents and other important correspondence. When running your own business, time is your greatest resource. Sitting home during prime business hours can hamper your productivity and cut directly into your profits.
Speaking of cost, registered agents generally only cost around $100-150 per year, with more expensive services topping out at around $300 per year. When you measure that cost against all the opportunities, you’ll miss by sitting at home all day, the benefits are clear.[8][9]
Read More: Can I Be My Own Registered Agent?
Conclusion
We hope this report has been informative and helpful on your journey to start a new business, run your existing LLC, or form a plan of action around securing a registered agent.
If you’d like to know how we came to our conclusions, please check our sources below or look at the attached Methods and Procedures document. For more information, click our ‘Read More’ articles and check out all our registered agent resources on our blog!
Are you a current or prospective business owner looking to secure reliable registered agent services? Please reach out to us on Facebook, Twitter, or contact us directly for more information!
References
[1] Jennings, A. Notice Risk and Registered Agency. The Journal of Corporation Law. 46(1). https://link.gale.com/apps/doc/A648015533/ITBC?u=lincclin_mcc&sid=bookmark-ITBC&xid=712228d3 [2] Segal, E. How and Why Businesses are Vulnerable to Email-Based Cyberattacks: A New Study. Forbes. https://www.forbes.com/sites/edwardsegal/2022/11/10/how-and-why-businesses-are-vulnerable-to-email-based-cyberattacks-new-study/?sh=1509ca02ae0f [3] Penalties and Regulations. IRS.gov. https://www.irs.gov/payments/tax-preparer-penalties#penalties [4] Nachbaur, C. What Happens if a Tax Preparer Messed Up Your Return? Ageras. https://www.ageras.com/blog/what-happens-if-tax-preparer-messed-up-taxes [5] U.S. Bureau of Labor Statistics. Filing Specialist. https://data.bls.gov/search/query/results?q=filing%20specialist [6] Registered Representative – State Farm Agent Team Member. ZipRecruiter. https://www.ziprecruiter.com/jobs/suzanne-bodlovic-state-farm-agent-f4a220ab/registered-representative-state-farm-agent-team-member-base-salary-commission-21e3e3fe?lvk=jCMKyrlGLBxZFGbtxAJzeA.–Mb3zFmvXZ [7] What is the Average Registered Agent Salary by State. ZipRecruiter. https://www.ziprecruiter.com/Salaries/What-Is-the-Average-Registered-Agent-Salary-by-State [8] Haman, E. How Much Does it Cost to Have a Registered Agent? LegalZoom. https://www.legalzoom.com/articles/how-much-does-it-cost-to-have-a-registered-agent [9] How Much Does a Registered Agent Cost? TRUiC. https://howtostartanllc.com/registered-agent/how-much-does-a-registered-agent-cost
