Avoiding the Registered Agent Trap (Part 1): What is A Registered Agent?

I’m a business attorney who advises small companies and startups.  In this capacity, I frequently encounter clients who have used an online service such as LegalZoom to organize their California business entity.  Although many of these services offer a low upfront price for performing no-frills tasks such as filing a company’s Articles of Incorporation or Organization with the California Secretary of State, they then push their customers toward optional add-ons that include registered agent services.  Many people are unfamiliar with what a registered agent does or may be intimidated by the requirements of maintaining a California business entity and, as a result, they will opt to have the online service act as their new company’s registered agent.  I tend to think of this as “the registered agent trap.”  Falling into it can become a costly error that unnecessarily drains cash from a new business where every dollar can count.  Prices can change, but at the time of writing, registered agent services from LegalZoom cost $250 per year, Northwest Registered Agent $125 per year, and CT Corporation a whopping $436 per year.  Busy entrepreneurs have little time to worry about what they may initially see as a one-time fee. Yet, because the registered agent service is typically renewed year after year, it can add up to hundreds or even thousands of dollars in potentially unnecessary costs for the business.

As a small business owner with a California company, what if you could save money by avoiding the cost of a third-party registered agent?  The good news is that you can do so in many instances simply by acting as your own.  This series of three posts ill start by explaining what a registered agent does as well as the requirements for acting as a registered agent.  The second post will will next explain how to designate yourself or another trusted individual as a registered agent.  The third and final post will explain what to do if you must designate a new registered agent and the overall importance of keeping your registered agent’s information current.   Please note that this article only applies to small businesses organized and operating in California.  There will be a separate article in the future addressing Delaware and Delaware registered agents, where the rules and recommendations are quite different.

Let’s talk about what a registered agent actually is.  Simply stated, a registered agent is a person who will accept service of process on behalf of your California company if it is sued.  They will also receive official communications from the California Secretary of State on behalf of your company.  You will only need a registered agent if you operate your business through a business entity such as a limited liability company (LLC), general stock corporation, or public benefit corporation (non-profit).  Sole proprietors -even those operating under a fictitious business name- do not need to designate registered agents, as there is no legal distinction between the business and the sole proprietor in their individual capacity. 

At this point, a few questions may arise from most business owners.  “I don’t want my business to get sued, so why should I make it easier for a process server to find me or my business?” they might wonder. The truth is that no matter what, California law, as set forth in Cal. Corp. Code § 1502(b) and Cal. Corp. Code § 17701.13(c), requires your business entity to have a valid registered agent so you have no choice but to pick someone.  Also, the majority of small businesses are (fortunately) sued fairly infrequently, so the number of times that a process server will actually show up to deliver papers is extremely limited. 

The follow-up question from a creative small business owner may be, “Why do I have to name myself or someone else as my California registered agent?  Can’t I just use a different company I own or control?”  The answer here is that you may designate a general stock corporation you control (but not an LLC) to act as your business’s registered agent but that California law then imposes additional requirements on that corporate registered agent, as set forth in Cal. Corp. Code § 1505.  These requirements mandate that the corporate registered agent file a certificate with various items including “[t]he name of each person employed by it at each such office to whom it authorizes the delivery of a copy of any such process,” thus ensuring that there is no way for a small business owner to hide behind a separate entity.

If your registered agent is going to be a human being and not a corporation, the requirements for serving as a registered agent in California are extremely basic.  California law simply mandates that a registered agent be “residing” in California. See, e.g., Cal. Corp. Code § 1502(b) and § 17701.13(c).And, while an entirely different article could be written on the ins-and-outs of state residency, the easiest rule of thumb is that anyone who lives full time at their home in California is a California resident.  In addition, it is advisable for both practical purposes and for avoiding potential legal complications that the individual acting as a company’s registered agent in California be at least eighteen years old, although this age requirement does not appear directly in the relevant statutes.  Thus, any small business owner who is a California resident can, in most circumstances, act as their own business’s registered agent.  You may also designate a trusted officer or employees of your company to act as your business’s registered agent, or even a neighbor or friend, assuming they reside in California and agree to serve in this capacity.   Just be sure to pick someone who is both actually present at the California address your business will provide to the Secretary of State, as well as someone who is reliable.  Failing to promptly forward on to you those documents that have been served on your business’s registered agent can lead to major legal headaches for you and your business.

The information contained herein is for informational purposes only.  Marlles Law, PC expressly disclaims all liability for anything the reader chooses to do or to omit doing in reliance upon the contents of this document.  Posting and receipt of this information are not intended to create, nor do they create or constitute, an attorney-client relationship between Marlles Law, PC and the reader.  No reader should act or refrain from acting on the basis of any matter contained on this website without seeking appropriate legal or other professional advice based upon the particular facts and circumstances at issue.