By John Eden and Steve Sowers
When modern lawyers think about registered agent services (“RA services”), they often assume the service should be provided by a law firm. And the logic is easy to appreciate: If a law firm is in charge of a providing a particular service, then that service will be undertaken with less legal risk. As attractive and intuitive as this logic appears, it’s not actually true. In fact, there are a number of reasons the modern law firm should utilize software powered RA services to protect their clients’ interest.
The first principal reason firms are not in the best position to serve as registered agents comes from a general principle of good lawyering: Lawyers who specialize in an area of law are generally much better versed than lawyers who do not specialize in that area. Most lawyers simply do not focus on the complexities of regulatory requirements for registered agents. There are a number of reasons this is the case. RA services have become commodities and as such, there is not a great deal of money to be made billing by the hour to provide them.
Yet the legal risk associated with providing RA services is significant for a number of reasons. For example, if a law firm acts as a registered agent but fails to appropriately forward a service of process (“SOP”) notice to the client, the client could be subject to a costly default judgment. As a result, that client could try to hold the firm accountable for the legal and financial impact of not receiving the notice. In that connection, the firm’s professional liability insurance might not cover the firm’s failure to properly forward a SOP notice. In that case, the firm would be liable for the full cost of the default judgment. But even if the firm wins such a lawsuit, the reputational damage could be severe. A law firm could even face a broad roster of clients if a failure to properly serve a SOP notice were to become publicly known.
In a nutshell, law firms who provide RA services without becoming subject matter experts in all states they serve run the risk of being successfully sued by their clients — even in cases where the firm is not at fault for the underlying mistake.
The second principal reason law firms should not act as registered agents for their clients is that RA services are best undertaken through automation. As a general matter, law firms will only act as a registered agent in states where they have a physical location. More importantly, an automated RA service addresses a number of key risk types more effectively than a firm. For starters, automated RA services — which use software to process, store and forward legal notices to clients — ensure that all state-based regulatory notices reach the appropriate parties.
This is incredibly important. States have very specific, sometimes byzantine, filing and regulatory requirements with which clients need to comply. If a tiny, oddball requirement isn’t met, the state in question can suspend a client’s right to conduct business in that state. Hence the importance of having comprehensive knowledge of how all states govern the provision of RA services.
Automated RA services have another key benefit: By keeping the provision of RA services separate from the provision of substantive legal advice, law firms are actually better able to serve the strategic legal interests of their clients. Modern law firm clients want the very best legal advice, which often means lawyers need to have access to highly sensitive information about the client’s business plans, tax strategies, M&A interests and other corporate contingency plans.
This mission-critical information is often highly sensitive; in the government’s hands, this information could provide the basis for various civil and criminal actions. So, the very best lawyers need to place an impenetrable wall around the information they collect in order to provide legal advice. Relying on an automated RA service makes it much easier for firms to create and maintain such a wall. In fact, it is arguably the only way for firms to ensure that the attorney-client privilege is never broken by state laws designed to provide easier access to sensitive client information.
Law firms perform a number of invaluable services for their clients. These services are most efficiently provided when lawyers can focus on their core competencies, leaving adjacent legal tasks — especially registered agent services — to be performed via automated software platforms like Legalinc.
If you are interested in automating your registered agent or business formation services, click here to register and create a free account.