Doing Business in Virginia

In Virginia, a foreign (existing or organized in another state or jurisdiction) limited liability entity must obtain a certificate of authority or certificate of registration from the Virginia State Corporation Commission.[1]

In order to qualify to do business in Virginia, a foreign corporation must obtain a certificate of authority from the State Corporation Commission (SCC).[2] A foreign limited liability company (LLC) or foreign limited partnership (LP) must obtain a certificate of registration.[3]

There are several activities which do not constitute “transacting business” and do not require the certificate,[4] including 1) maintaining or defending any legal proceeding, 2) soliciting business from outside the state, if acceptance of (agreement on) the contract is outside the state, 3) maintaining bank accounts, 4) selling through independent contractors, or 5) an isolated transaction that is completed within 30 days is a portion of repeated transactions.[5] Required annual registration fee forms are available at the SCC website.[6] After qualifying to do business, the foreign limited liability entity must pay the annual fees or risk an automatic revocation of its certificate.[7]

Though maintaining any proceedings in Virginia is not considered, in itself, “transacting business,” a foreign limited liability entity without the proper certificate will not be able to maintain any proceeding in a Virginia court until it obtains a certificate. It may, however, initiate a proceeding.[8] A court can “stay” any legal proceeding initiated by a foreign limited liability entity to determine whether a certificate of authority is required[9] and if so, until it is acquired.[10] If any officer, director or employee knew that a certificate was required, those officers could be personally penalized between $500 and $5,000.[11]

Note that while an out-of-state company cannot sue without the proper certificate, it can still be sued.[12] Other parties can get legal remedies from an out-of-state company, and any foreign limited liability entity doing business without a certificate, can be served legal papers by serving the Clerk of the SCC.[13] The Clerk of the SCC will simply mail the legal papers to the “last known address” of the defendant, provided by the plaintiff. This means that the defendant sometimes does not receive actual notice of the lawsuit.

Transacting business in the Commonwealth without a certificate does not invalidate any “corporate acts” and does not invalidate any contracts entered into, or prevent the foreign limited liability from defending a lawsuit.[14]

Material Supplier Deliveries

As discussed above, there are a large number of exceptions to the requirements for a certificate of authority. Isolated conduct shorter than 30 days in duration is permissible or selling through an independent contractor. This would allow many material deliveries by many out of state suppliers.

However, the Virginia exceptions do seem narrower than in some nearby states. The “interstate commerce” exceptions in Maryland and DC, discussed below, are broader and clearly apply to the typical construction material supplier. In Virginia, the supplier would have to use an independent contractor to deliver, or make sure the “contract” is accepted out of state, or the sale is not a part of repeated transactions.[15] The typical construction material supplier in Maryland that regularly delivers material with their own trucks in the DC metropolitan area may not need to qualify to do business in DC, but may need to in Virginia.

Virginia Contractor Licensing Requirements

Court case law is sparse on this question. But you probably need a contractor’s license if you are on the construction site and provide any labor or install any material.

The Code of Virginia defines contractor broadly, stating that “any person, that for a fixed price, commission, fee, or percentage undertakes to bid upon, or accepts, or offers to accept, orders or contracts for performing, managing, or superintending in whole or in part, the construction, removal, repair or improvement of any building or structure permanently annexed to real property owned, controlled, or leased by him or another person or any other improvements to such real property.[16]”

Virginia case law provides a broad definition as to what constitutes an "improvement" to real property. The term has been interpreted to comprise any addition or other change in the structure of a building calculated to add to its useable value.[17]

These definitions seem to mean that any general contractor, construction Manager or subcontractor providing any labor or installing any material needs a construction license. The Virginia Code provides an exception for material suppliers. However, the exception only applies to “any material supplier who renders advice concerning use of products sold and who does not provide construction or installation services.”[18]

Consequences & Penalties

In Virginia, "a contract made in violation of a police statute enacted for public protection is void and there can be no recovery thereon."[19] A claimant is unable to enforce the contract, if the claimant is unlicensed and was aware that they were violating the statute.[20] There is an exception to this rule if the contractor substantially performs the contract and did not have actual knowledge that a license or certificate was required.[21]

A claimant without a required contractor’s license will be unable to enforce a mechanic’s lien.[22] There is apparently no exception to this rule if the contractor mistakenly believes they complied with the statute. Accordingly, a contractor that substantially performs the contract and did not have actual knowledge that a license or certificate was required may be able to enforce the contract in order to obtain judgement, but will not have mechanic’s lien rights. If the contract debtor is insolvent, this lack of security may mean that the unlicensed contractor cannot collect.

Obtaining the proper license after the fact (i.e after the proposal is submitted and payment is accepted) will not satisfy the license requirements of the statute or permit recovery when the contractor was aware of the requirements.[23]

Under the Virginia Code, operating without a contractor’s license is also a class one criminal misdemeanor.[24] The punishment for which is either a fine of no more than $2,500 or confinement in jail for no more than 12 months or both.[25] Depending on nature of the complaint or the activity, there can be multiple counts of violating the statute, which would increase the penalties further. These penalties have a statute of limitations of one year, the time limit for the state to bring a case.[26]

There are also civil penalties that can be in addition to the criminal penalties. There are DPOR civil penalties of $500 per day per day of doing work, per violation (per contract).[27] The statute of limitations for filing a complaint is 3 years, so fines can be backdated to that extent.[28] Operating without a required contractor license would also be a violation of the Virginia Consumer Protection Act, which carries a separate potential $2,500 fine and entitles the customer claimant to attorney’s fees.[29] The DPOR board itself can levy additional fines, require remedial education classes, or revoke/suspend the license of a licensee for violations.[30] DPOR can also ask the Commonwealth’s Attorney to seek criminal penalties.

A secondary concern is Contractor Classification. Having an inadequate license is a problem, similar to having no license. Contractors are divided into three classes, A, B, and C, depending on the type of work and overall value of the project. If the actual costs for the project inadvertently exceeded the monetary cap of the applicable license, the contract will still be unenforceable.[31]

“Class A contractors” perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is $120,000 or more, or (ii) the total value of all such construction, removal, repair, or improvements undertaken by such person within any 12-month period is $750,000 or more.

"Class B contractors" perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is $10,000 or more, but less than $120,000, or (ii) the total value of all such construction, removal, repair or improvements undertaken by such person within any 12-month period is $150,000 or more, but less than $750,000.

“Class C contractors" perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is over $1,000 but less than $10,000, or (ii) the total value of all such construction, removal, repair, or improvements undertaken by such person within any 12-month period is less than $150,000. The Board shall require a master tradesmen license as a condition of licensure for electrical, plumbing and HVAC (heating, ventilation and air conditioning) contractors.

[1] Va. Code Anno. §§ 13.1-757, 919, 1059, 1249; 50-73.61 (Michie 1950).

[2] See Va. Code Anno. § 13.1-757 (Michie 1950).

[3] See Va. Code Anno. § 13.1-1051 (LLC); § 50-73.53 (LP) (Michie 1950).

[4] See Va. Code Anno. § 13.1-757 (Corp); § 13.1-1059 (LLC); § 50-73.61 (LP) (Michie 1950).

[5] Whether activities constitute “transacting business” is a fact-intensive inquiry for a court. See Hitachi Sales Corp. v. Long, 9 Va. Cir. 473 (Va. Cir. Ct. 1982); Thaxton v. Commonwealth, 211 Va. 38; 175 S.E.2d 264 (1970); Western Gas Company v. Commonwealth, 147 Va. 235; 136 S.E. 646 (1927). This is often dispositive of whether qualification is required. See Continental Properties, Inc. v. The Ullman Company et al., 436 F. Supp. 538, 539 - 542 (E.D. Va. 1977) [An out of state corporation took preparatory steps to build a plant in Virginia, including signing a purchase agreement for the land for the plant hiring a real estate broker. When financial problems ended the project, the broker sued for damages. The court stated that “contacts” necessary to constitute “transacting business” for penalties must be stronger than the “minimum contacts” required for personal jurisdiction. The contacts here were merely “preliminary” to doing business. They had nothing to do with the defendant’s actual business trade, but only the purchase of property facilitating its move into Virginia. Business transactions within the state which are not a part of its ordinary business, are insufficient to constitute transacting business pursuant to” the qualification statute. Other courts have looked at whether there was a principal-agent relationship between a foreign corporation and local “agents,” such as dealers or distributors. “Business may be done by a foreign corporation in one of two ways. It may engage the service of a local agent, whose acts may constitute the doing of business by the principal, though the act of appointing the agent is itself not sufficient to constitute doing business. Or, the foreign corporation may do such acts on its own part as amount to doing business.” After thoroughly reviewing the unregistered foreign corporation’s activities, including “assigning conditional sales contracts,” making shipments of consigned goods, and sending agents into the state to handle delinquent accounts, the court concluded that no agency relationship had established, and that the foreign corporation had not been “doing business” in Virginia for the purposes of the qualification statute.] See also Rock-Ola Manufacturing Corporation v. Wertz, 249 F.2d 813, 816 - 817 (4th Cir. 1957).

[6] See http://www.scc.virginia.gov/clk/formfee.aspx. The contents of the corporate certificate of authority application are outlined at Va. Code Anno. § 13.1-759; those for the LLC certificate of registration are at Va. Code Anno. § 13.1-1052; and those for the LP certificate are at Va. Code Anno. § 50-73.54 (Michie 1950).

[7] See Va. Code Anno. § 13.1-768 (Corp); § 13.1-1056.1 (LLC) (Michie 1950).

[8] See Va. Code Anno. § 13.1-758 (Corp); § 13.1-1057 (LLC); § 50-73.59 (LP) (Michie 1950). See also, Video Eng'g Co. v. Foto-Video Elecs., 207 Va. 1027, 1029; 154 S.E.2d 7, 8 (Va. 1967) (The Virginia Supreme Court interprets “the word 'maintain' to mean a continuation of the proceeding already begun, and compliance with the requirements of the statute before judgment is sufficient to entitle the corporation to continue its prosecution").

[9] See Va. Code Anno. § 13.1-758 (Michie 1950).

[10] See Va. Code Anno. § 13.1-758 (Michie 1950).

[11] See Va. Code Anno. § 13.1-758 (Corp); § 13.1-1057 (LLC). A limited partner of a foreign LP is not liable as a general partner for transacting business in Virginia without a certificate of registration under Va. Code § 50-73.59 (Michie 1950).

[12] See Va. Code Anno. § 13.1-758 (Corp); § 13.1-1057 (LLC); § 50-73.59 (LP) (Michie 1950).

[13] See Va. Code Anno. § 13.1-758 (Corp); § 13.1-1057 (LLC); § 50-73.59 (LP) (Michie 1950).

[14] See Va. Code Anno. § 13.1-758 (Corp); § 13.1-1057 (LLC); § 50-73.59 (LP) (Michie 1950).

[15] Va. Code Anno. § 13.1-757 (Michie 1950).

A foreign corporation may not transact business in the Commonwealth until it obtains a certificate of authority from the Commission.
The following activities, among others, do not constitute transacting business within the meaning of subsection A:
Selling through independent contractors;
Soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this Commonwealth before they become contracts;
Conducting an isolated transaction that is completed within 30 days and that is not one in the course of repeated transactions of a like nature;
The list of activities in subsection B is not exhaustive.

[16] Va. Code Anno. § 54.1-1100 (Michie 1950).

[17] See Sellers v. Bles, 198 Va. 49, 55; 92 SE.2d 486, 490 (1956) [The Supreme Court of Virginia defined "improvement" to be "a comprehensive term, which includes in its meaning any development whereunder work is done and money expended with reference to the future benefit or enrichment of the premises."].

[18]Va. Code Anno. § 54.1-1101 (Michie 1950).

[19] See F.S Bowen Elec. Co. v. Foley, 194 Va. 92, 100; 72 S.E.2d 388, 393 (1952).

[20] Va. Code Anno. § 54.1-1115 (Michie 1950); see e.g., Bacigalupo v. Fleming, 199 Va. 827, 832; 102 S.E.2d 321, 324 (1958) [Enforcement of the contract is denied to the unlicensed contractor as a penalty for his failure to comply with the registration laws].

[21] Va. Code Anno. § 54.1-1115(c) (Michie 1950) [C. A construction contract entered into by a person undertaking work without a valid Virginia contractor's license shall not be enforceable by the unlicensed contractor undertaking the work unless the unlicensed contractor (i) gives substantial performance within the terms of the contract in good faith and (ii) did not have actual knowledge that a license or certificate was required by this chapter to perform the work for which he seeks to recover payment] See Dodson Roofing Co. v. Johnson, 32 Va. Cir. 400, 401-402 (City of Richmond 1994) [Va. Code Anno. § 54.1-1115(c) did not punish a contractor who was aware of the general licensing requirements of the statute, but not the substantive ones, and believed he was in compliance because he had an employee with a contractor’s license); See also J. W. Woolard Mechanical & Plumbing, Inc. v. Jones Dev. Corp., 235 Va. 333, 335-336 367 S.E.2d 501(1988)[The legislative history and the case law together evidence an intention to strike a balance to penalize those whose violations of the statutory scheme are knowing, but to excuse those who perform in good faith and whose violations are inadvertent].

[22] Va. Code Anno. § 43-3 (D) (Michie 1950) [D. A person who performs labor without a valid license or certificate issued by the Board for Contractors pursuant to Chapter 11 (§ 54.1-1100 et seq.) of Title 54.1, or without the proper class of license for the value of the work to be performed, when such a license or certificate is required by law for the labor performed shall not be entitled to a lien pursuant to this section].

[23] See Tuggle Masonry, Inc. v. Dailey, 80 Va. Cir. 219, 220-221 (Hanover County 2010) [Contractor had a Class C license when submitting the proposal but obtained a proper Class A after receiving payment for work performed; court held that the statute did not have a saving provision for contractors who come into compliance after the fact and therefore the contract entered prior to the acquisition of the class A license was void].

[24] Va. Code Anno. § 54.1-1115 (Michie 1950).

[25] Va. Code Anno. § 18.2-11 (Michie 1950); There are cases where the Commonwealth has decided to level criminal charges. Haley v. Commonwealth of Virginia, No. 2023-98-4, 2000 WL 29989 (Va. Ct. App. Jan. 18, 2000) (appealing conviction for contracting without a state contractor license); Sams v. Commonwealth of Virginia, No. 1007-96-2, 1997 WL 147445 [appealing conviction of two counts of unlawfully and feloniously practicing a profession or occupation without first obtaining a valid license or certificate]; McCary v. Commonwealth of Virginia, 42 Va. App. 119, 128, 590 S.E.2d 110, 115 (Va. Ct. App. 2003) [McCary’s failure to obtain a license is probative of his fraudulent intent].

[26] Va. Code Anno. § 19.2-8 (Michie 1950). The statute of limitation for misdemeanor generally is one year. However, this statute later says prosecution of any misdemeanor violation of professional licensure requirement must commence within one year of the discovery of the offense by the complainant, but in no case later than five years from occurrence of the offense.

[27] Va. Code Anno. § 54.1-1115 (Michie 1950).

[28] Va. Code Anno. § 54.1-307.1 (Michie 1950).

[29] Virginia Consumer Protections Act (Virginia Code Va. Code Anno. §59.1-196 (Michie 1950). Under Va. Code Anno. §54.1-1115 (Michie 1950), operating without a valid Virginia’s contractor license or certificate when one is required or operating without the proper class of license as defined in §54.1-1100, is a violation of the Virginia Consumer Protections Act if it involves a consumer transaction. This statute authorizes a fine of no more than $2,500 per violation found. In addition, the statute authorizes the Commonwealth/Attorney General to recover expenses incurred by the state in investigating and preparing the case not to exceed $1,000 per violation and Attorney’s Fees. This has a civil statute of limitations of two years per Va. Code Anno. §59.1-204.1 (Michie 1950).

[30] The DPOR could theoretically assess the $500 per day for each violation and $2,500 for each violation of the licensing statue over the one to five years. An individual Complainant could seek only actual damages and/or individual penalties.

[31] See Daniel Jones Remodeling, L.L.C v. Johnny Cheng-The Chiu, Et Al. CL-2007-14511 (Fairfax County Cir. 2008)[The statute creates no exception for a contractor innocently or otherwise exceeding the monetary limits of his license].