The Dangers of Not Properly Registering Your Company in Virginia

The Supreme Court of Virginia has overturned a $2.35 million verdict for a telecom company because the company was not properly registered with the Virginia State Corporation Commission (“SCC”). The ruling of the Court means that in order for a company to prevail in its lawsuit, it must have the necessary certificate with the SCC before the entry of the final judgment.

In this specific case, Tulynet FZ, LLC, a company of Dubai, had a subsidiary company, World Telecom Exchange Communications LLC (“WTXC”), which had its prin­cipal place of business in Virginia. The companies filed lawsuits in the Fairfax County Circuit Court against their former employees, alleging that they conspired to put WTXC out of business by divulging trade secrets and interfering with WTXC contracts.

After a jury trial in 2015, the jury awarded the companies $4.864 million (which was later reduced). The defendants argued that Tulynet FZ, LLC could not proceed because it did not have the necessary SCC certificates of authority and/or registration. The trial court found that the party has until the judge signs the final order to obtain the necessary certificates.

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Companies ranging from one person in a home office to multinational corporations are at risk if they fail to properly register.

The Supreme Court of Virginia, however, wasn’t as merciful and found that because Tulynet FZ, LLC did not have the necessary certificates at an earlier point in the process, it could not prevail in the trial. The ruling thus stripped Tulynet FZ, LLC of all monetary awards.

The purpose of enforcing the requirement of SCC certificates is ultimately a public policy issue. By not having the necessary certificates, a foreign company may be able to avoid paying Virginia taxes. Likewise, it may prevent the consumers from being able to sue the deeper pockets of the international company. If the international company is going to reap the benefits of conducting business in Virginia, it should have to register with the SCC just like any other company.

What does this mean for you? If you are a company that does business in multiple states, it is of utmost importance to ensure you are registered with the SCC (or equivalent entity) in each state and that all registration information is up to date. By failing to do so, you may leave yourself open to liability without any recourse. If you have questions about this or other issues related to your business, please reach out to the team at PJI Law by calling (703) 865-6100. We look forward to helping you.

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