Virginia Contractor General Practice Test

What is required when changing the form of entity from a sole proprietorship to a corporation?

1. File an amendment

2. Obtain a new license

3. Register the new entity

4. Notify clients

The correct answer is: Obtain a new license

When transitioning from a sole proprietorship to a corporation, it's necessary to obtain a new license. This is because a sole proprietorship and a corporation are distinct legal entities, each requiring separate legal recognition and licensing. A sole proprietorship operates under the owner's personal name or a trade name, whereas a corporation has its own legal identity and must adhere to different regulations, which often includes acquiring a corporate business license and possibly a different tax identification number. While there are other important steps involved in this process, such as registering the new entity and notifying clients, these actions do not replace the need for a new license. The change in entity form can significantly affect liability, taxes, and operational structure, which is why a new license specific to the corporate entity is essential.