diff --git a/pyproject.toml b/pyproject.toml
index 7fde7e8..3cf496b 100644
--- a/pyproject.toml
+++ b/pyproject.toml
@@ -1,6 +1,6 @@
 [project]
 name = "uipath-mcp"
-version = "0.1.3"
+version = "0.1.4"
 description = "UiPath MCP SDK"
 readme = { file = "README.md", content-type = "text/markdown" }
 requires-python = ">=3.11"
@@ -49,6 +49,7 @@ dev = [
     "filelock>=3.20.3",
     "virtualenv>=20.36.1",
     "numpy>=1.24.0",
+    "pytest-asyncio>=1.3.0",
 ]
 
 [tool.ruff]
diff --git a/src/uipath_mcp/_cli/_runtime/_runtime.py b/src/uipath_mcp/_cli/_runtime/_runtime.py
index 788f902..e1ae42a 100644
--- a/src/uipath_mcp/_cli/_runtime/_runtime.py
+++ b/src/uipath_mcp/_cli/_runtime/_runtime.py
@@ -197,7 +197,7 @@ async def _run_server(self) -> UiPathRuntimeResult:
                     raise UiPathMcpRuntimeError(
                         McpErrorCode.REGISTRATION_ERROR,
                         "Folder NOT FOUND. Invalid UIPATH_FOLDER_PATH environment variable.",
-                        "Please set the UIPATH_FOLDER_PATH or UIPATH_FOLDER_KEY environment variable.",
+                        f"The folder '{folder_path}' was not found. Please verify that UIPATH_FOLDER_PATH is set to a valid folder path, or use UIPATH_FOLDER_KEY instead.",
                         UiPathErrorCategory.USER,
                     )
 
diff --git a/tests/__init__.py b/tests/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/tests/cli/__init__.py b/tests/cli/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/tests/cli/test_runtime.py b/tests/cli/test_runtime.py
new file mode 100644
index 0000000..8808a71
--- /dev/null
+++ b/tests/cli/test_runtime.py
@@ -0,0 +1,49 @@
+from unittest.mock import MagicMock, patch
+
+import pytest
+from uipath._utils.constants import ENV_FOLDER_PATH
+
+from uipath_mcp._cli._runtime._exception import UiPathMcpRuntimeError
+from uipath_mcp._cli._runtime._runtime import UiPathMcpRuntime
+
+
+@pytest.fixture
+def runtime():
+    with patch("uipath_mcp._cli._runtime._runtime.UiPath"):
+        rt = UiPathMcpRuntime(
+            server=MagicMock(),
+            runtime_id="test-runtime-id",
+            entrypoint="test-entrypoint",
+        )
+        rt._uipath = MagicMock()
+        return rt
+
+
+@pytest.mark.asyncio
+async def test_folder_path_missing_raises_error(runtime):
+    """Error when UIPATH_FOLDER_PATH is not set at all."""
+    with (
+        patch.object(runtime, "_validate_auth"),
+        patch.dict("os.environ", {}, clear=True),
+        pytest.raises(UiPathMcpRuntimeError) as exc_info,
+    ):
+        await runtime._run_server()
+
+    assert "Please set the UIPATH_FOLDER_PATH" in str(exc_info.value)
+
+
+@pytest.mark.asyncio
+async def test_folder_path_not_found_raises_error(runtime):
+    """Error when UIPATH_FOLDER_PATH is set but the folder doesn't exist."""
+    runtime._uipath.folders.retrieve_key.return_value = None
+
+    with (
+        patch.object(runtime, "_validate_auth"),
+        patch.dict("os.environ", {ENV_FOLDER_PATH: "NonExistent/Folder"}, clear=True),
+        pytest.raises(UiPathMcpRuntimeError) as exc_info,
+    ):
+        await runtime._run_server()
+
+    error_msg = str(exc_info.value)
+    assert "NonExistent/Folder" in error_msg
+    assert "not found" in error_msg.lower()
diff --git a/uv.lock b/uv.lock
index 9a543d8..2025561 100644
--- a/uv.lock
+++ b/uv.lock
@@ -1774,7 +1774,7 @@ wheels = [
 
 [[package]]
 name = "uipath-mcp"
-version = "0.1.3"
+version = "0.1.4"
 source = { editable = "." }
 dependencies = [
     { name = "mcp" },
@@ -1813,6 +1813,7 @@ dev = [
     { name = "pre-commit", specifier = ">=4.5.1" },
     { name = "pytest", specifier = ">=7.4.0" },
     { name = "pytest-asyncio", specifier = ">=0.23.0" },
+    { name = "pytest-asyncio", specifier = ">=1.3.0" },
     { name = "pytest-cov", specifier = ">=4.1.0" },
     { name = "pytest-mock", specifier = ">=3.11.1" },
     { name = "ruff", specifier = ">=0.9.4" },