Choosing a Resident Agent for Your Business

November 7, 2012

California business owners who decide to incorporate their business routinely overlook a very important decision amidst all of the registration paperwork. When organizing as a business entity in California, as in most states, the business entity is required to designate a Resident Agent for Service of Process. Business owners commonly list themselves or a trusted employee as their Resident Agent. But is this a wise decision? Most California business attorneys would say no.

If we are to explore why this Resident Agent designation is so crucial, it is important to begin with some terminology. A Resident Agent is a person (or sometimes a corporate entity) who is entrusted with the receipt of "process" arising from litigation in which the business entity is involved. "Process" is merely the term for the documents that initiate the litigation, such as a complaint for a law suit. "Service of process," therefore, refers to the manner in which the litigation documents are delivered to the attention of the business entity. If one is designated as a Resident Agent for a business entity, he or she is, in essence, the one who can certify to the court that the business entity is aware of the suit brought against it.

While technically there is nothing wrong with a business owner or an employee being designated as a Resident Agent, there are some considerations that may make the prudent business owner inclined to appoint a California business lawyer as the Resident Agent for the business. First and foremost, business owners and their employees, as a general rule, are not as well-versed in the legal process. They may be unaware of the existence of strict deadlines or of an obligation to respond to or to deny allegations in a complaint. Failure to recognize these deadlines and obligations could jeopardize the business's ability to prevail in the law suit.

Secondly, law suits against a business entity may contain sensitive or even sensational allegations whose disclosure could negatively impact the reputation of the business or its owners or employees. California business attorneys are accustomed to protecting the confidentiality of such materials, and understand that dissemination of the allegations can be harmful.

Finally, appointing an attorney as a Resident Agent establishes an existing relationship with the attorney, and can streamline the process in the event that the attorney might be consulted to litigate the case. If not, the attorney is far more likely to know of a reputable colleague who would be better suited to handle the case. This existing dialogue between the business and the attorney could very well save time and lessen the likelihood that the business would fail to meet one if its aforementioned legal deadlines or obligations.

California business lawyers routinely offer Resident Agent services for a modest annual price, and most businesses would say it's well worth it. When incorporating your business, consider designating a lawyer as your Resident Agent. A licensed professional should handle your most sensitive legal documents, especially when your bottom line is at stake.