For many people, the role of the “resident agent” in Panama is a bit of a mystery. To some extent, it represents passive income for local attorneys. But, as we will see below, current compliance requirements are making way less “passive” than it was in previous years.
But what if things aren’t working out with your resident agent, and you want to make a change?
This article is going to tell you everything you need to know. So, let’s dive in!
Understanding the Role of a Resident Agent
What does a resident agent even do? Is this just passive income for the lawyers? This seems like bullshit.
Before delving into the intricacies of replacing a resident agent, let’s talk about what we mean when we refer to a resident agent.
In short – the resident agent is a figure that exists to ensure that there is always a designated and official point of contact available on behalf of the company. That means every company in Panama is required by law to maintain a resident agent. And the position must be held by an authorized Panamanian law firm or attorney.
For example, let’s consider the “sociedad anónima” or S.A. This is by far the most popular type of corporate entity for partnerships, businesses and real estate holdings in Panama. And one of the main reasons it is so popular is that it offers liability protection and privacy (or “anonymity”) for its shareholders.
So, the anonymous nature of the S.A. means that there is no way to identify the shareholders of the company as a matter of public record. Sure – you can see who are the directors and the officers (President, Secretary, Treasurer) in the Public Registry. But these are not necessarily the shareholders. While the directors and officers have certain powers and authority, they don’t own the company. And they may not even be in Panama answer for the company.
So what happens when an official, legal notification has to be delivered to the company? Or in a situation where somebody needs to show their face and answer for the company and its activities?
This is the role of the resident agent. They are the one real person who lives and works in Panama, who is by definition part of the local business community, who knows what’s going on, and who will generally be available to answer for the company in an extraordinary situation.
When It’s Time for a Change
Why might someone want to change the attorney serving as the resident agent for their company?
This usually comes up based on the following reasons:
Reason 1 – Poor Communication:
Your attorney takes too long to respond to emails and calls, or he/she may not answer at all. Or you get a canned email response that doesn’t really speak to your question. You can’t tell if the attorney didn’t understand the question, or if he/she is trying to deflect for some reason. Maybe the lawyer desperately needs to hire some additional staff – or the law firm has gotten too big and always seems to be pitching your file to a different incoming associate or paralegal.
Actually, this is a good reason to work with a boutique firm like The Independent Lawyer that is purposefully small and founded on the principal of personalized service! #NoBSJustResults
Reason 2 – Compliance Requirements
Like most of the world, the Panamanian government is becoming more interconnected, efficient and meddlesome. Know-Your-Client. Risk Matrices and Mitigation. Measures for the Prevention of Money Laundering, Terrorism Financing and Financing of Proliferation of Weapons of Mass Destruction.
Updated compliance requirements has become a pain for attorneys in Panama as well as their clients. And deep due diligence is increasingly becoming a major part of the day-to-day operations of even small law firms.
I even know of attorneys who have stopped practicing altogether – instead, shaping their business around consulting to help other lawyers keep up with the latest compliance standards.
Let’s go back to our example of the “sociedad anónima” or S.A. There is now an obligation for all companies to maintain at least an internal registry of any income or expenses. It doesn’t even matter whether the company is engaged in any commercial activity or is otherwise obligated to file a tax return. For some people, this may mean paying another few hundred bucks per year to an accountant.
And your resident agent has a responsibility to keep these reports – which means they have an obligation to chase you to send these reports in order to avoid potential hefty fines. This can be kind of off-putting for many clients who don’t understand or appreciate the pestering.
Reason 3 – Unexplained, Sudden Price Hikes
As I have mentioned, being a resident agent has become kind of a headache. And depending how many clients a law firm maintains, some firms may even need to hire additional staff just to keep up with it all.
So, over the last couple of years many attorneys have increased the fees they charge to serve as resident agent. We’re talking 2x, 3x or sometimes even 4x the fees they were charging just a few years ago.
And some law firms have even stopped offering the service altogether. Which means their clients have to go out and find a new attorney (and hopefully at an affordable rate).
Yeah, whatever. So, can I fire my Resident Agent?
The short answer is – YES. As a client you can unilaterally change the resident agent if your company any time you want. Actually, the process is fast, straightforward and inexpensive. You will just need to have your new attorney register a deed affecting the change in Panama’s Public Registry.
But keep in mind that the process does involve a bit of work for your new attorney. So he/she will probably want to charge you something to make the change.
Potential Hurdles in the Process
Changing your resident agent in the Public Registry is easy enough. But how about if there are pending bills owed to the current resident agent?
This happens pretty oftent – especially if the client is making the change because they are unhappy with the increased fees. In some cases, they may owe a year, or two, or three of fees to their current lawyer. And I have seen this get a little complicated when the attorney or law firm is holding key documents or information related to the client’s company.
Let’s go back to our example of the “sociedad anónima” or S.A. If you are the sole shareholder of an S.A., then you should have in your possession:
- The original Pacto Social (the Articles of Incorporation) for the company;
- Your stock certificate;
- The share registry demonstrating a complete history of the ownership of the company;
- The NIT for the company: and
- Any public deeds executed on behalf of the company (such as the acquisition of any real estate properties).
However, very often the sole shareholder of an S.A. does NOT have these documents in his/her possession. Often times, these docs are sitting in a filing cabinet in their law firm’s office.
Now, a law firm shouldn’t hold these documents hostage based on a pending bill from the client. But we shouldn’t disregard human nature. If you have been ignoring requests from your attorney for updated Know-Your-Client (“KYC”) information and ignoring requests to pay your bill, then you may be perceived as uncooperative. And if you have been voicing repeated complaints, then you might even be perceived as a “problematic client”. And now you have decided to take your business elsewhere.
So when emails start coming in from an uncooperative or problematic client who has now decided to take his/her business elsewhere, the reality is that some firms may tend to assign those emails a lower priority. As we said – they may not have been the organized and best communicators anyway.
All of this can generally be worked out by your new resident agent. But it will involve some some additional work, time, expenses and legal fees. Plus your new attorney may be wondering if he/she is also going to have to chase you for information and payments.
What About if Your Resident Agent Fires You?
As I said – updated compliance requirements has become a pain – both for shareholders as well as attorneys serving as resident agent. And as a Panama attorney, I can tell you that we spend quite a bit of time chasing clients to please send back the KYC forms…. and just asking clients to pay the annual resident agent fee.
Which brings me to my next point. Yes you can unilaterally fire your resident agent, but your resident agent also can fire you. Well, I guess it would be more appropriate to say that your resident agent can resign from the position. And it happens all the time.
And if your resident agent resigns, you are still legally required to maintain someone in this position. So, now you find yourself approaching a new attorney. And the new candidate is probably sort of wondering what happened with the previous attorney.
In this situation (and in most situations), I think it makes sense to be honest and straightforward with the new attorney. Just explain what happened.
Also – future business can be a nice incentive for the new attorney to want to work with you. The truth is that nobody is getting rich off of their resident agent role. But the new attorney will probably be interested in building a relationship with you if they can hope to also represent you in your next real estate transaction, new business, the drafting of your will, etc.
Bottom Line?
If you have an S.A. or other corporate entity in Panama, then you have to keep a local attorney as resident agent. There is no way around that. Not only that – you have an obligation to keep your resident agent up to date as to what is going on with your company. And you also have an obligation to pay the (usually annual) fees you have agreed to pay your resident agent.
At the same time, nobody is getting rich off of their resident agent role. So you should try to be patient and kind with your attorney when it comes to providing updated information and paying the fee.
But your attorney should also respect you as a client. He/she should return your calls and respond to your emails. And the law firm shouldn’t be retaining key documents or information related to your company unless you have specifically requested it.
And if things aren’t working out, then you can easily change your resident agent to a different attorney with whom you have a better vibe. Sometimes this is best for everybody.
Was this article helpful? If you have questions that weren’t addressed here, then you can email us at info@theindependentlawyer.com.
And if you enjoyed the semi-self-deprecating tone of this article about attorneys, then be sure to check out some some of the other content on our blog. For example, here is one called Why to Panamanian Attorneys Give Conflicting Legal Advise that I think is an interesting discussion.
