representative. The registered agent is designated by language such as “The name and address in the State of California of this LLC’s initial agent for service of process are John Jones, 123 Elm Street, San Francisco, California 94107.”
Your state of organization may use a term other than registered agent. In addition to registered office or resident agent, typical equivalents include agent for service of process and local agent.
The agent can be you, a family member, an LLC officer, an attorney, or a professional company that specializes in corporation and LLC support services. With millions of corporations and LLCs in America, professional resident agent services are big business. The registered agent’s name is a public record; if you desire anonymity, then hire a professional to perform this service. The agent must have a physical address in the state of organization. Thus, if your business does not operate in the state of organization, you will need to hire a registered agent in that state. You must consider this additional expense when organizing out of state. Such services typically range from $50 to $350 per year.
Using an attorney or professional firm as your agent has advantages, if you don’t mind the cost. The primary role of an agent is to receive service of legal papers; an attorney or a professional firm is likely to maintain a consistent address and is likely to understand the nature of any legal papers served. The agent will also receive important state and federal mail such as tax forms, annual report forms, legal notices, and the like.
▼ Expert Tip
Professional Registered Agents Can Help. If you are organizing your LLC yourself, registered agents can be valuable sources of information about the state in which you are filing. Because most registered agents work so closely with the secretary of state’s office on behalf of many companies, they become experts in dealing with the secretary of state’s office. Remember: paid resident agents want your business, the yearly fees, so they won’t mind answering a few questions free. You might confirm with them the amount of the filing fees to include with your articles of organization or you might ask for a free sample of articles of organization that they recommend.
Note that most secretary of state offices where you file your LLC organization papers will not check to see if you have properly secured the services of a registered agent. If you do not select a registered agent properly, the secretary of state will simply mail to the registered agent’s address any documents that you submit with your articles of organization. If you do not select a registered agent properly, you will not receive them. Thus, you should hire your registered agent either before or when filing your articles of organization.
▼ Expert Tip
Don’t overpay for resident agent services. The prices vary widely. If you are paying more than $75, you did not shop around enough. In Delaware, the cheapest and best is Harvard Business Services ($50 per year, www.delawareinc.com). In Nevada, use Resident Agents of Nevada ($90 per year, www.nevada.org). (These two states are popular choices for incorporation, for reasons discussed later in this chapter.) In all other states, I use Business Filings, Inc., which offers resident agent and formation services in all 50 states. Check www.bizfilings.com.
On the next page you’ll find a sample letter.
MEMBERSHIP INTEREST: THE LLC EQUIVALENT OF CORPORATE STOCK
We need to begin our discussion of “LLC stock” by examining some differences in terminology between corporations and LLCs. Let’s begin by discussing corporate stock. Then we’ll see how the concept and the terminology adapt to the legal structure of LLCs.
▼ Expert Tip
Don’t use a PO box as a resident agent address. First, some states don’t allow it. Second, any correspondence sent to a registered agent is likely to be important; with a PO box you may not receive the correspondence as quickly.
Sample Letter to Registered Agent Accompanying Articles of Organization
Michael Spadaccini
123 Elm Street
San Francisco, CA 94107
415-555-1212
March 21, 20__
Harvard Business Services, Inc.
16192 Coastal Highway
Lewes, DE 19958
To Whom It May Concern,
I have enclosed a copy of articles of organization I am filing today. As you can see, I have used you as our registered agents in the state of Delaware.
Please use the following contact information:
17 Reasons, LLC
c/o Michael Spadaccini
123 Elm Street
San Francisco, CA 94107
I have enclosed a check for $50.00 to cover the first year’s services.
Yours truly,
Michael Spadaccini
A corporation issues shares of stock to its owners as part of the organization process. Shares of stock represent the ownership of the corporation; shareholders are the owners.
LLCs, on the other hand, issue membership units, membership shares, or member’s interest. There are other, less used terms, such as percentage interest, percentage share, or LLC share—all proper terminology. In this sense, the ownership terminology of LLCs is more akin to the terminology of partnerships, where the ownership is expressed in terms of percentage interest or percentage share, rather than in a defined number of shares of stock. In the business world, you might hear the phrase “LLC stock.” That phrase is not necessarily incorrect; it simply is not used often. It is better to discuss LLC ownership in terms of percentage or share. Throughout this book, we’ll use several terms for LLC shares.
Now, you won’t issue any membership shares until after your articles of organization are filed. You cannot have owners until you have a legal entity that they can own. You may wish to designate more than one class of ownership shares; this designation must be made in the articles of organization. Such a designation can be made with the filing of your articles or it can be made by an amendment any time after the original filing, with a bit of paperwork. You should have a good road map of your ownership structure early in the organization process, because you must set forth that structure in the articles of organization.
Classes and Types of Membership
All LLCs must have at least one class of ownership with voting rights. Without at least one class of voting ownership shares, an LLC’s owners could not vote and therefore the LLC would be powerless to take any legal action. The overwhelming majority of LLCs, especially small LLCs, have only one class of ownership with voting rights. Typically, you won’t need to overtly claim a voting class of ownership in your
