Time to Check If Your U.S. Entity Was Stricken

Many companies with operations outside of the U.S. have a U.S. limited liability company (LLC) or U.S. corporation as part of their corporate structure. For example, if U.S. venture capitalists (VCs) are involved in funding a start-up, a “Cayman Sandwich” might be recommended by the shared tax advisor. From the founder’s perspective, the U.S. entity is another box to check on the path to obtaining funds to launch her company. However, there is housekeeping associated with this entity that must not be ignored.

Registration Agent

The founder’s U.S. tax accountant will prepare any necessary state and federal tax returns. It is not normally the tax accountant’s role to monitor the status of the U.S. entity. Frequently, the lawyer who drafts the documents to form the U.S. entity on the founder’s behalf will engage the services of a professional Registration Agent to file the documents drafted to form the U.S. entity. The Registration Agent will also likely be listed in the state filing as the person to accept legal documents in the future (e.g., someone who files a lawsuit against the U.S. entity will serve court papers on the Registration Agent who will in turn send the documents to the founder).

In the U.S. an entity registered with a state’s Secretary of State must list an address to receive service of process. If the founder does not have any operations or employees in the U.S., using a Registered Agent can be a convenient solution. The first invoice for the Registered Agent’s services might be included in the lawyer’s invoice. This may result in the founder not realizing the Registered Agent must be paid an annual fee to continue providing the service of being the Registered Agent listed on the U.S. entity’s state registration.

If the Registered Agent’s annual invoice is not paid, the Registered Agent will remove its company name from the U.S. entity’s state registration. The U.S. entity is no longer in good standing because it has failed to follow local law. Either immediately or after a designated period of time, the U.S. entity will be stricken by the Secretary of State.

Revival

To revive the U.S. entity, it is necessary to follow the rules on the Secretary of State’s website. The best first step is to contact your former Registration Agent, pay the overdue fees, and request their assistance in reviving the entity. It is also possible to contact a different Registration Agent in the state where your entity was formed. Registration Agent’s will be able to provide you fees for each required task.

You can also go directly to the Secretary of State’s website to see how much the Secretary of State charges if you deal with their office directly. However, you can only achieve the end game of revival if you have an acceptable address for your registration.

Next Steps

You should do two things this week which do not cost you any fees:

1. Go to the Secretary of State website for your registration state and find the name search page. Even if you have an LLC rather than a corporation, you will go to “Division of Corporations”. Search your U.S. entity’s name. Every state will provide at least minimal information that shows whether your U.S. entity is still in existence and who the agent is. Make this registration check part of your annual tax preparation. Delaware is a popular state for entity formation. This link will take you to the name search page.

2. Determine who the internal contact point is for your Registered Agent. If this person has left your company, contact the Registered Agent to ensure they have an updated email address. This is important to ensure your Registered Agent invoice is promptly paid and that the Registered Agent can send time sensitive legal documents to your company.

For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.