Registered Agent Services

Every state in the U.S. offers business owners some form of limitation on liability if they operate through a business entity such as a corporation or LLC. One of the requirements for all business entities is to maintain a "registered agent." A registered agent is a person or other entity within the state where the entity is formed that maintains a physical address within that state. The purpose of a registered agent is to receive service of process on behalf of the business entity. If a registered agent is not identified, a business entity cannot be formed in any state; if an entity ceases to maintain a registered agent, the business will immediately cease to be in good standing with that state.

While almost anyone can be a registered agent, many companies offer this service for a fee.  In my experience, the following complaint about commercial registered agents constantly resurfaces: "I want to cancel my registered agent services, but I keep getting billed or told I have to pay a huge fee to cancel!" Hopefully, this post explains why this situation arises and what to do about it.

This problem is most often faced by someone who has purchased a new business entity, usually an LLC in a different state from where they live, and decides that they don't need the entity any more. Maybe they intended to start a business and it didn't work out, or maybe an advisor recommended setting up an entity or many entities that proved to be overly costly to maintain.

From the registered agent's perspective, as long as the business entity lists it as agent, it is bound to maintain the registered address and be prepared to forward any service of process it receives to the business owner. The only way the registered agent can be relieved of its obligation to provide these services is if (1) the agent resigns, (2) the business owner switches agents, or (3) the entity is dissolved, either voluntarily or involuntarily. With the exception of involuntary, or "administrative," dissolution, each option requires a document to be submitted to the state in which the business entity is formed. This requires time and a fee that is paid to the state, and the registered agent is unlikely to want to take these steps unless compensated by the business owner.

As a specific example, if you own a business entity and LegalZoom.com is your registered agent, the terms of service state, "If you no longer wish to use the Registered Agent Services in any jurisdiction, you must assign another registered agent in that jurisdiction, and must pay all fees related to changing your agent.... If, however, you no longer wish to use the Registered Agent Services because you are discontinuing your business operations (voluntarily or otherwise), you must properly dissolve, cancel, withdraw, or otherwise properly terminate your entity.... If you fail to [do this and submit proof,] you will continue to incur charges for Registered Agent Services until such proof is provided."

To complicate matters further, nearly every business owner must pay an annual fee to the state for every entity they own in order to keep the entity in good standing with the state. If the annual fee to the state is not paid, the entity will go on inactive or default status until all annual fees (including late penalties) are paid. In most states, if an entity is in default, no filings may be made with respect to that entity. After an extended period, at least three years in most states, the entity will be administratively dissolved.

LegalZoom.com maintains a registered office in Nevada, and all other states, so that it can serve as a registered agent. (As an interesting side note, on October 1, 2013, a new Nevada law went into effect requiring any registered agent with 10 or more represented entities to register with the Secretary of State, which LegalZoom.com has not yet done. This means that all of its represented entities are on administrative hold and will be unable to file annual reports until LegalZoom fixes the problem. If your entity is charged late fees in Nevada because you couldn't file your annual report, LegalZoom should be responsible for those late fees).

Continuing the Nevada example, entities in that state must pay $325 to the state each year (not including registered agent fees, which normally range from $100-$200). If a business fails to file the necessary reports, a $175 late fee per year is imposed. What this means is that if someone set up a Nevada entity, never did anything with it, forgot to file annual report for two years and wants to stop being billed $100-$200 each year for registered agent services, they must first bring the entity back into good standing (which would cost at least $1,000 in state fees alone), then pay the $100 fee to the state to dissolve the entity, and only then will the registered agent be released from its obligations and be able to close the account (perhaps only after receiving payment for the past years of registered agent services). That can add up quickly for a business that never did anything but briefly exist.

If you have a business entity but haven't done anything with it, didn't keep it in good standing, and want to close it down, my best advice is this: Ask your registered agent to resign as your agent. There will be a fee for this, but it will be significantly less because a registered agent can usually resign from entities that are not in good standing. In other words, if you were to dissolve the entity yourself, most states would require you to first pay all past due annual fees and late fees and then pay to formally dissolve; if your registered agent simply resigns its position, most states do not require the entity to be in good standing. This is by far the easiest and cheapest option, and most registered agent companies don't offer to do this up front, so you have to ask and try and negotiate.

If this doesn't work, and you happen to have a personal relationship with your registered agent, you may be able to simply let them know you are abandoning the entity and letting it administratively dissolve and they may cancel your account and stop billing you. Usually, this is not an option, however. Your only other viable option is to pay the state to bring your entity back into good standing if it isn't, and file Articles of Dissolution. Provide proof to your registered agent and then ask if they will give you a break on any past-due agent fees.

Posted in: LLC