Doing Business in Virginia: Cheap Registration Fee v. Costly Failure to Register
Amanda Morgan is Of Counsel to Gentry Locke’s Lynchburg office, where she focuses on municipal, civil, and business litigation.
Companies formed in states other than Virginia (known as non-Virginia or “foreign companies”) must register with the Virginia State Corporation Commission (“SCC”) before transacting business in Virginia. Registration involves completing an annual form and paying a nominal fee (which varies depending on the type of company) to the SCC along with appointing a registered agent in Virginia to accept service of any lawsuit papers or other legal notices.
Companies that merely own real estate or other assets in Virginia generally are not considered to be transacting business in Virginia. Similarly, merely attempting to collect a debt in Virginia is not considered the transaction of business. However, when a foreign company does transact business in Virginia (either directly or through a subsidiary or agent) and attempts to collect a debt or obtain a judgment in a Virginia court without first registering with the SCC, it risks incurring legal expenses with nothing to show for it.
Virginia law requires that foreign companies register with the SCC before maintaining a lawsuit in any Virginia state court. Virginia courts have generally said that these laws do not prevent a non-registered foreign company from filing a lawsuit; instead, the foreign company must simply be registered before a judgment or final order is entered. This means that as long as a non-Virginia company doing business in Virginia registers with the SCC sometime between the beginning and the end of a lawsuit, it can get a judgment in its favor.
Failing to take this simple, inexpensive step recently cost a foreign company $2.35 million dollars.
In World Telecom Exchange Communications, LLC, et al., v. Sidya, the Supreme Court of Virginia took away from a foreign company the verdict it obtained at trial because it transacted business in Virginia and did not register with the SCC before the judgment was entered.
Additionally, the members, managers, officers, directors and/or employees of a foreign company who conduct business in Virginia could be liable for a penalty of up to $5,000 if they know that the company should be, but has not yet, registered.
Non-Virginia companies doing business in Virginia can easily avoid these risks by completing the simple registration process. If there is any doubt whether the company’s acts constitute the transaction of business, the company should consult with a Virginia attorney.