YOUR STATUTORY AGENT
COMPLIANCE PARTNER AND FIRST LINE OF DEFENSE AGAINST RISK
In the final analysis, companies may find that the consequences of inadequate risk protection to be extremely costly over time.
When forming a business entity in Arizona, business owners must designate a resident of that state (an individual or an entity) as an agent for service of process. The statutory agent must be named in the formation documents. A.R.S. § 29-604.
By law a statutory agent is designated to receive important legal and tax documents, including franchise tax forms, annual report forms, and service of process. Service of process refers to the delivery of a summons and complaint, which is required to initiate a lawsuit. Generally a state will have personal jurisdiction over a party only if that party is first served with the summons and complaint within the geographical boundaries of the state.
By naming a statutory agent in Arizona the entity is in effect consenting, in advance, to the State’s assertion of personal jurisdiction over the entity in the event of a lawsuit in Arizona. To sue an entity in Arizona a plaintiff must serve the summons and the complaint on the resident agent, who then delivers a copy of the legal documents to the entity.
Many companies that provide incorporation services also serve as agents for purposes of service of process. The fees charged vary, but on average cost approximately $300 per year.
Attorneys who form corporations and limited liability companies may also act as agents for service of process. Attorneys sometimes charge a somewhat lower fee for serving as the registered agent because the likelihood that they will generate business if process papers are served that may require legal action.
Other states (e.g., New York, but not Arizona) allow the owner to name the Secretary of State’s office as the resident agent.
Avoiding Risk By Designating A Registered Agent
Arizona requires the appointment of a registered agent to satisfy entity registration requirements. Registered agents, also known as statutory or resident agents, are commonly perceived as a representative that receives and forwards service of process and official state notices. While the appointment itself is fairly simple and straightforward, the simplicity of this task can conceal the important issues at stake when selecting a registered agent.
The registered agent can and should perform other vital roles in assisting with regulatory compliance. First, your agent should help businesses avoid default judgments by facilitating a rapid response to service of process. Second, your agent should manage required compliance filings and licenses thereby helping businesses maintain their legal rights to do business in the states in which they are duly organized or qualified. Third, your agent should proactively warn your business about legislative updates and other communications from the jurisdictions that may impact the conduct of business.
What’s at Stake?
As noted above, some entity requirements are complex – some legal professionals have even described them as convoluted and obscure. The twist on the old adage, “what you don’t know can hurt you,” is especially pertinent in the area of compliance.
- Reliable and Efficient Handling of Service of Process. The consequences of default judgments can be severe and costly. A default judgment means that the party suing the business has won its case without the business filing a defense. A business will have to spend a great deal of money, time and effort in legal fees to have the default judgment overturned. The business may also be responsible to pay the claims made against it.
- Maintaining Good Standing A business loses its entity status or its authority to conduct business in a state when it fails to make required filings such as annual report or franchise tax filings. When the business is no longer authorized to conduct business or is involuntarily dissolved, restrictions are serious. These include losing the abilities to initiate law suits, to enforce contracts and to secure financial loans in that jurisdiction. Reinstating an entity’s good standing is also a costly and time-consuming process. Arizona has its own unique requirements for staying compliant with its laws. Companies doing business in Arizona are required to comply with Arizona statutes and regulations, and can quickly be overwhelmed with the complexity of learning and following these statutes. Corporations, limited liability companies, nonprofit corporations, limited partnerships and limited liability partnerships can have additional requirements for Arizona State filings, liabilities, operational requirements and taxation status.
- Maintaining Uninterrupted Business Operations. Arizona’s business laws and regulations can, and often do change frequently. However, even large national businesses have been reluctant — or simply unable — to incur the high costs of maintaining a legal staff to routinely track legislative updates and assess their impact on the business. More typically, communications from the states go to different departments within the organization, such as legal, tax and audit. Without a central organization, businesses can be out of compliance in Arizona without knowing about it. The consequences can be disruptions to business operations at best, to criminal liabilities in some jurisdictions at worst.