What Is the Penalty for Not Having a Registered Agent?
A registered agent can set your LLC up for success by promptly handling all legal correspondence with the state. However, not having one can cause administrative problems that may lead to legal action.
As a Mergers and Acquisitions specialist, I learned the importance of appointing a registered agent for my clients' businesses. After consulting with our team of legal professionals, we'll share our insights on the consequences of not having a registered agent for your LLC.
Quick Summary
- The penalty for not having a registered agent is disapproval. The state will not allow your LLC to operate without a registered agent.
- Operating without a registered agent would lead to fines and penalties, loss of good standing, and eventual dissolution of the company.
- According to the National Business Association, over 60% of small businesses utilize third-party registered agent services for efficient and private handling of legal documents.
- I emphasize that new business owners carefully designate a reliable registered agent since they act as the main communication point for the company.
What Is A Registered Agent?
A registered agent is a person or business appointed to receive legal documents and communications on behalf of the business (such as an LLC).
According to a survey by the National Business Association, over 60% of small businesses use a third-party registered agent service to ensure timely and confidential handling of legal correspondence.
The agent is responsible for promptly delivering these time-sensitive documents to the LLC members pertaining to governmental, fiscal, and legal matters.
You can choose a trustworthy friend or family, an employee, your lawyer, or even yourself as your registered agent if you meet the state's requirements for being one.
While you can designate yourself as your own statutory agent, it makes more sense to use a third-party service as your agent to receive official legal documents on your behalf.
One of the requirements for being a registered agent is having a physical address. The registered agent's location must be in the same state your LLC is transacting business.
The LLC registered agent must provide an actual address (not a P.O. Box) and show up in person during regular business hours at this address.
7 Types of Penalties for Not Having a Registered Agent
Registered agents are important to run your business legally in any state. However, if you do not name a registered agent for your business, you could face certain legal issues, including the following:
1. Inability to Register Your LLC
During LLC formation, the state mandates you to name a registered agent service for the company. You'll need to share the registered agent's contact information, including the business name, email, and physical address.
Without a designated registered agent, the state will reject your formation documents, and you'll not be able to register your LLC.
2. Losing Status of Good Standing
Every state provides a certificate of good standing to firms, which effectively acts as a declaration from the government approving your ability to conduct business.
It states that you have adhered to the necessary procedures, submitted the correct paperwork, and are not owing the state any fees.
One of the requirements for staying in good standing with the Secretary of State is designating a state-approved registered agent service for your business during the registration.
If you don't have an agent, your business breaks the compliance rules, and it risks falling out of good standing.
In my experience, losing good standing with the state will result in loss of trade naming and trademark rights, liens, difficulties obtaining LLC funding, the inability to bring legal action, fines and penalties, and severe personal accountability to the LLC owner.
3. Fines and Penalties
If you fail to appoint a registered agent, your company will not receive notifications from the state and its agencies. The state can impose penalties and fines for failure to comply with the requirements of the Secretary of State and the IRS [1]. According to the IRS, penalties for non-compliance can range from 5% to 25% of the total tax liability, depending on the jurisdiction and the severity of the violation.
Not having a registered agent makes it more difficult for crucial documentation to be sent and accepted, including LLC annual reports, notices of dissolution, and other relevant paperwork.
4. Inability To Expand To Other States
Your LLC will not be allowed to operate in other states because a registered agent is required to legally form the company.
If your LLC loses its status of good standing, the company won't be able to obtain additional funding to grow your business. For my clients who wanted to expand their businesses, I advise them to employ a registered agent service to ensure that the company remains compliant.
For example, if you want to expand your Texas-based business into Florida, you must appoint a Florida-based registered agent who will be the contact point between your new LLC and the Florida SOS.
"If you don't have a registered agent, the foreign state will automatically decline your foreign LLC application, preventing you from expanding your business into new areas."
- Jon Morgan, CEO, Co-Founder & Editor-in-Chief of Venture Smarter
5. The Loss of the Right to Due Process Notices
Serving as a point of contact to receive service of process is one of the primary duties of a registered agent.
Service of process is the delivery of a lawsuit against the company or one of its members. If the document was not received, the party involved in the lawsuit will not be able to respond.
Without a registered agent, your company may be sued without your knowledge because there would be no one to contact.
If you don't answer, serious consequences might occur, including entering a default judgment against your organization.
6. Personal Liability
If you don't have a registered agent, you risk losing your certificate of good standing, which might lead to various legal implications, including (but not only) personal liability.
If your company remains without a registered agent, and loses its status of good standing, the state may no longer recognize the existence of your business entity. I warn my clients that at this point, they may lose limited liability protection of the company since it's no longer officially recognized in the state.
7. Dissolution Risks
The most severe consequence of not having registered agents is the risk of administrative dissolution by the state.
When a domestic LLC has accumulated violations against the state, the Secretary of State's office may eventually revoke the operating rights of the company through administrative dissolution.
FAQs
Can I Change My Registered Agent?
You can change your registered agent if the person leaves the company, resigns, or passes away. File a Certificate of Amendment to update your Articles of Organization and the records of the SOS.
Is It Advisable to be My Own Registered Agent?
It is advisable to be your own registered agent if you own a small business that does not feature heavy legal correspondence. However, if you cannot commit to regular business hours, it is better to employ or appoint one.
References:
- https://www.irs.gov/individuals/how-do-you-report-suspected-tax-fraud-activity
