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Author: Richard Chapo Article source: http://www.articlealley.com/. Used with author's permission.
When businesses decide to incorporate, there are a lot of issues to confront. One of them is designating the agent for service of process. The problem is most people don't know what this is!
A corporation is a formal business entity. Under long established law, it is considered an "person" independent of its shareholders. In human terms, this means it acts alone much as a person would in business. It must file taxes. It can be sued. If it is sued, its shareholders cannot be named as defendants. This "corporate shield" from personal liability is the big benefit of incorporating.
To gain the protection of a corporation, the business must be run in a particular way. This is known loosely as corporate compliance. If the entity is in compliance, the corporate shield protects the shareholders. If it is not, the shield can fall and the personal assets of the people involved can be exposed to liability. There are a lot of factors that go into corporate compliance. A simple, but misunderstood, one is the designation of a resident agent for service of process.
There is a legal fiction that is in place when it comes to corporations. Although they are considered to be a "independent person" for legal purposes, they obviously are not flesh and blood. This causes a conflict with other areas of law. For instance, a person can only pursue a lawsuit if they serve the lawsuit on the defendant. This is typically accomplished by walking up and handing them the lawsuit papers. This is a bit difficult to accomplish with a corporation since there is no physical body.
To resolve these conflicts, the position of the agent for service of process was created. Essentially, a living person is chosen to act on behalf of the corporation. If someone wants to file a lawsuit, they deliver it to the agent for service of process. The agent is not a defendant in the lawsuit, just the person who officially receives it.
So, who can act as the agent? Well, it depends on the state you are incorporating in. Generally, it can be just about anybody so long as they live in the state and are willing to have their name and address listed in public records. Often, the attorney forming the entity will act as the agent, but not always.
If you are considering incorporating, you need to take the time to figure out who will be designated as the agent for service of process. If you fail to do so, your incorporation documents will be rejected by the Secretary of State for your jurisdiction.
Richard A. Chapo is with SanDiegoBusinessLawFirm.com - providing California incorporation services.
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