Mistake #4: 

Failure to Use a Qualified Statutory Agent.

1520367Acting as statutory agent for your company can have devastating consequences if you do not properly respond to legal notices that are served on the company from time to time.

Anne had no delusions of grandeur when she started her cooking school.  Anne organized her business as a limited liability company.  She set up a separate bank account for the business, rented a location for the school, and began holding classes.

Three years later, Anne was thrilled that she could make a secure living doing what she enjoyed most.  Anne could not believe how successful her little school had become.

The school’s success made it all the more perplexing when she was unable to make a purchase using the school’s debit card.  Anne had made a sizable deposit the day before, so she knew that the account had more than enough money to pay for the purchase.

When she called the bank, Anne was stunned to learn that the account had been garnished.  Anne panicked: the next day was payday.  In addition, Anne had just mailed checks to her vendors, and they would be cashing the checks in the next few days.

After several hours of investigation, Anne learned why the account had been garnished.  Miranda, the school’s receptionist, had failed to pay her credit card bill.  The creditor sued, and obtained a default judgment against Miranda.  The creditor then attempted to collect the judgment by serving a garnishment on Miranda’s employer, the school.

Unfortunately, the process server left the garnishment papers with Miranda.  Embarrassed by the situation and unwilling to face her problem, Miranda shredded the garnishment papers.  Because the school did not respond to the garnishment papers, the creditor eventually obtained a judgment against the school.

Anne promptly hired an attorney, who was able to have the garnishment released and the judgment set aside because of Miranda’s subterfuge.  Though the attorney worked quickly, she was unable to get the garnishment set aside in time for Anne to make payroll. In addition, Anne spent hours on the telephone with her vendors explaining why her payments to them had been returned by the bank.  When the invoice from her attorney arrived, Anne tried not to think about the cruise she had to cancel to pay her attorneys’ fees.

How to Avoid Mistake #4  

Arizona law requires that every corporation or limited liability company identify a statutory agent to receive certain legal notices, including certain legal notices in litigation and notices from the Arizona Corporation Commission.  If your company fails to respond properly to a document served on your statutory agent, it may be subject to devastating legal consequences.

Anne thought she was being frugal when she identified herself as the statutory agent for the school, but she was actually laying the ground work for legal difficulties.  You should not serve as the statutory agent for your business.  Rather, identify a statutory agent who is available to receive service of process and who knows what to do when it is served with legal notice.

If you have further business related questions, please call our office at 480-733-6800 and ask to speak with Scott Gibson. Scott, an AV rated attorney, handles employment law, trade secrets and restrictive covenants, commercial litigation and intellectual property. He brings with him 27 years of experience and a unique combination of compassion, patience, intelligence, listening ability and commitment.