What You Should Know About Registered Agents for Your Out-of-State LLC

What You Should Know About Registered Agents for Your Out-of-State LLC

4 min read
Scott Smith

Scott Royal Smith is an asset protection attorney and long-time real estate investor. His law firm, Royal Legal Solutions, helps thousands of real estate investors and entrepreneurs in all 50 states protect more than $1.2 billion in assets. Since 2014, he has published over 1,000 posts and articles on BiggerPockets and has appeared on hundreds of podcasts.

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Scott fell in love with real estate when his commercial property investment allowed him to graduate from Albany Law School debt-free. He immediately began practicing at the trial and appellate court with the district attorney, placing him in the top 1 percent of lawsuit attorneys in the county in terms of professional experiences. He also worked in private practice, suing insurance companies for denying valid claims (which is surprisingly common!).

After his friend lost $3 million in real estate from a single lawsuit, despite having ample insurance, Scott dedicated himself to educating real estate investors on the importance of affordable asset protection, specifically when it comes to folk knowledge and misconceptions that still exist in the investment and legal community. The solutions Scott recommends for his clients are the same ones he originally created for himself and has been refining on his mission to help people protect themselves from frivolous lawsuits.

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This article does not constitute legal advice. We recommend you seek the counsel of an attorney familiar with your specific situation and market to ensure you make the best decisions within your real estate business.

It’s not at all uncommon for real estate investors to form LLCs to protect their assets and streamline their business operations. But not everyone lives in a state that is friendly to small businesses. Savvy investors often get around the limits of their home state laws by forming an LLC in a state that is more favorable to LLCs. But did you know that if you do this, you are legally obligated to have a registered agent? Read on to learn what a registered agent is, what role they play in your business, and what your options for fulfilling this obligation are.

What Is a Registered Agent?

You can think of your registered agent as the face of your LLC. This is the person who will be the go-to for business matters in the state where your company is formed. He or she is also the person accountable when it comes to matters of law. Your agent will be legally responsible for all of your LLC’s legal and tax documents.

Related: The Pros & Cons of Using a New LLC for Every Property Purchase

So, let’s say you live in North Carolina, but decided to form your LLC in Delaware for the many judicial, operational, and tax advantages provided there. To stay on the right side of the law, you are going to need somebody (and it can be literally anybody) who is a resident of Delaware to assist you. This person is your registered agent, and you will be trusting him/her to take on the responsibilities mentioned above.

Exceptions to this legal requirement do exist, but aren’t the norm. For instance, some states will allow the LLC itself to serve as its own registered agent. In these cases, the LLC is treated like its own person and is considered a resident based on its business presence in the state alone. In legalese, this concept is known as “corporate personhood.” Corporate personhood means that in the United States, an entity like an LLC can have the same rights and responsibilities as an actual human being.

Another exception to the registered agent requirement is if you have a physical address in the state in which your LLC is formed. And for all my fellow loophole lovers out there, beware of getting slippery with this requirement. Don’t think you can satisfy this by springing $20 for a P.O. box. It has to be a real deal property to count. We can’t blame anyone for wanting to try that, but all you’ll get is points for creativity. A P.O. box does not a registered agent make.

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Can I Be My Own Registered Agent?

Yes, you sure can! But, of course, there are some details you’ll need to be clear on. First of all, if you plan to go this route, you need to be sure that you can satisfy all of the requirements listed above. Residency can get tricky if you split time between states. Next, but equally importantly, be sure you’re competent to do the job. Remember, the registered agent is legally responsible for all legal correspondence and tax obligations. If you are a lawyer or CPA, then you may well be best served by being your own registered agent. However, if you have any doubt about your ability to know and satisfy your legal requirements, it’s time to ask for help.

And, in fact, there can be some benefits to having another person, ideally a professional, serve as your registered agent. The most obvious of these is that it’s not all on you—you won’t screw up your business because you missed a piece of mail while down with the flu. But there are other benefits as well. Perhaps the most important of these is that you will receive some liability protection by designating another party as your registered agent. That person then assumes the legal liability, and this confers asset protection benefits back to you.

If you’re on top of your real estate game, you’ve probably already assembled a dream team of an attorney, CPA, and deal maker. So you may be thinking the last thing you want to do is hire yet another person. But hiring a registered agent is actually surprisingly cheap. In fact, $45-$95 a year will get the job done. Figure in the benefits mentioned above, and the cost is absolutely worth it.

Related: 3 Benefits of Holding Your Properties in an LLC

What Happens if I Don’t Get a Registered Agent?

If you don’t get an agent, you’re going to have a bad time. “Bad time” here means anything from brutal fines to exclusion from the court system, which will make it very difficult (and very illegal) to run your business.

And it can get worse than that.  Some states will go as far as filing criminal charges if they bust you operating out-of-state without a registered agent. So, you definitely want to spring the $45-$95. You know, unless you like the look of black-and-white stripes and don’t mind having a cellmate named “Big D.” The small expense of hiring an agent is absolutely nothing compared to the cost of dealing with the fresh legal hell that awaits you if you fail to register an agent. To learn more, check out my video on the importance of having a registered agent for each of your LLCs.

That’s all for our primer on registered agents for your LLC. If you’re still lost, or would like to add any additional points to the conversation, leave any questions or comments below. Thanks for reading, and I hope you found this information helpful. Go forth and form your LLC!

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Savvy investors often get around the limits of their home state laws by forming an LLC in a state that is more favorable to LLCs. But did you know that if you do this, you are legally obligated to have a registered agent?