Business contracts often contain notification provisions that must be met in order to take certain actions under the contract, such as extensions or terminations. Appointing a professional service company to serve as the agent for contracts can provide the same peace of mind as appointed a professional Registered Agent with the state.
What Is an Agent for Service of Process?
The main role of the agent for service of process is to receive legal documents—such as a summons and complaint—and other official notices, and forward them to the companies for which it serves as agent. Most business owners, managers, and counsel are familiar with the concept of an agent for service of process. That’s because every corporation, LLC, and other statutory business entity must appoint and maintain one in its state of formation and in every state where it is qualified to do business.
The agent for service of process appointed under a state corporation, LLC or other business entity statute is generally called a Registered Agent.
Many companies appoint a professional (a.k.a. commercial) Registered Agent. This a corporation in the business of acting as an agent for service of process and providing other services to help business entities of all sizes comply with various state requirements.
What Is the Difference between a Statutory Registered Agent and a Contractual Agent?
State law requires that entities formed or registered in that state appoint a Registered Agent. There are penalties for failing to comply; often these can be very significant. The Registered Agent’s name and address are included in the formation document and annual report and are accessible to the public. The legal obligation to appoint a Registered Agent and the penalties for failure to do so are the most significant differences between a Registered Agent and a Contract Agent.
While it is never state-mandated, many times parties to the contract want to make sure that any critical communications between them are handled promptly and professionally. For this reason, an agent for service of process can also be appointed by a company in its private contracts or agreements. This is generally referred to as a “contract agency”.
In a contract agency, the parties to a contract appoint an agent for service of process. (There may be one appointment for all the parties to the contract or a different agent may be designated for different parties). The appointment may be set forth in the contract, or in a separate agreement. The parties agree that any process arising out of the contract may be served on the appointing party by serving its agent for service of process at the agent’s address.
A contract agency clause will often be included in conjunction with a forum selection clause. In a forum selection clause, the parties agree that any proceedings arising out of, or in connection with the contract, will be brought in a specific jurisdiction. Examples of the actions covered are litigation for breach of contract or for specific performance, as well as notification of extension or termination of the agreement. The contract will then state that process may be served in that jurisdiction upon the agent for service of process.
This is a private agreement among the parties to the contract. The appointment of the agent for service of process is not required by state law and the appointment is not on any public record. The agency is limited to proceedings brought arising out of the contract.
Why Have a Contract Agency Clause?
A contract agency clause can be included in any contract or agreement. However, it is commonly seen in loan agreements, guarantees, indentures, and franchise agreements. It is a fairly standard practice for lenders or guarantors to require that the borrowers appoint an agent for service of process in the loan or guarantee agreement.
One main reason the parties include a contract agency clause is the same reason other clauses, such as choice of law or choice of forum, are included: it provides predictability and helps avoid litigation over procedural issues. In conjunction with a choice of forum clause, it also assures that any lawsuit proceeds in a jurisdiction favorable and receptive to businesses.
Who Should Be Appointed as Contractual Process Agent?
Often the contracting parties will appoint a professional or commercial Registered Agent as their contractual agent for service of process. They do so mainly for the same reasons they want professionals to act as their statutory Registered Agent. The appointing party may not have an office, employees, or any other agent in the chosen jurisdiction.
More importantly, they want an agent for service of process that is experienced in handling litigation documents and can do so quickly and accurately. Some professional Registered Agents may provide extra benefits such as the imaging of process documents.