Incorporation of companies limited by shares
The objective of this paper is to help anyone hoping to incorporate a Company in Sri Lanka to understand the steps and procedure of incorporating a Company in Sri Lanka. If the applicant or its shareholders are non- Sri Lankan shareholders they need to be mindful of the restrictions on business areas. This is dealt separately in the last part of this Paper.
Step 1
Name Approval
The required name must be filed in the name approval form and handed over to the counter of the Registrar of Companies with Rs. 560/- (with taxes). (Approximately US$ 5)
The official website of the Registrar of Companies http://www.drc.gov.lk will have a list of existing names of Companies which would help an applicant to decide on a suitable name. A name which is similar to that of another Company cannot be registered. Certain names referred in the Companies Act must be registered only with special approval of the Minister.
The Name Approval would be available in 2-3 working days. This approval is only valid for a period of 3 months from the date of application. If you are unable to incorporate the company within which time, you should request for a renewal for a further period of 3 weeks.
Step 2
Incorporation
Once the name approval is received the following documents should be sent for incorporation.
- Articles of Association - This not mandatory. It is possible to adopt First Schedule to the Companies Act. This should be produces in duplicate. If a separate Articles of Association is filed it need not necessarily have objects. However, if the promoters are non Sri Lankan it is beneficial to have the objects to illustrate that they are not violating any exchange control laws. This is discussed in greater detail in the last section of this Paper
- Form for Registration of a Company - Form 1 needs to be signed by all the initial directors, initial shareholders and the Secretary.
- Consent of Directors - Form 18 needs to be filed in the prescribed format which includes;
-
- Full name
- Residential address
- Occupation
- NIC/Passport and Nationality
- Signature
- Consent of Secretary - Form 19 needs to be filed to state the consent of the Secretaries.
All the above forms and documents need to be type written/printed on the specific forms available in the Registrar of Companies website. A total of Rs 10,000/- (US$ 77) and Rs. 500/- for each form (eg:- if there are 3 directors and one Secretary Rs.2000/-) excluding taxes needs to be paid. The tax is at 12%.
Step 3
Certificate of Incorporation
Once the above mentioned documents are filed the Registrar of Companies shall issue a Certificate with the Registration number of the Company.
Step 4
Public Notice
Within 30 working days from the date of incorporation section 9 notice would have to be made in the Gazette and Newspapers in all three languages. This notice must state the name of the Company, Registration number, Registered Address and the principal place of business if it differs from the registered address of the Company.
Registration of a Guarantee Limited Company
When registering a Guarantee Limited Company the promoters must produce a draft Articles of Association stating the objects of the Company for the approval of the Registrar soon after receiving the name approval. Once the draft Articles are approved the following will be sent to Registrar of Companies
- Approved Articles of Association in duplicate.
- Form 5 (Form of Registration similar to Form 1 produced for companies limited by shares).
- Form 18 - Appointment of Directors
- Form 19 - Appointment of Secretary
A total of Rs 15,000 + Rs.500/- for each director and secretary will be the official fee (excluding taxes).
Within 30 working days of receiving the Certificate of Registration, the Company should publish the details under section 9 as stated above.
Registering an Association
The registering process is similar to the Registration of a Guarantee Limited, however certain elements must be noted.
- The Articles of Association will have to state certain mandatory clauses. These clauses can be obtained from the Registrar of Companies.
- Once the Articles of Association are approved, the objects must be sent for public notice in a newspaper in English. The incorporation documents will have to be sent only after 21 days have lapsed after such public notice.
- When receiving the Certificate, you will also receive another certificate certifying that the Company is approved under section 34 of the Companies Act.
Within 30 working days of receiving the Certificate of Registration, the Company should publish the details under section 9 as stated above.
The Essential Characteristics of a Company
Directors
A public company has a minimum of two (2) directors and a private
company has a minimum of one (1) director. The first directors of
the company are nominated by the subscribers to the Articles of
Association and any subsequent appointments and retirements are
governed by the Articles of Association. The retiring age is 70
years.
Shareholders
There must be at least one (1) shareholders in the case of a
private or public company. Where a share is transferred by a
resident person to a non-resident person, the non-resident
person's name cannot be entered in the register of members
without the permission of the Central Bank unless the investment is
made through a Securities Investment Account (SIA).
Non citizens of Sri Lanka - Concerns when incorporating
If the shareholders of the proposed company consists of non Sri Lankans it is recommended that they carefully peruse the exchange control laws and regulations prior to incorporation. The following list of restrictions apply for foreign investments to Sri Lanka.
Areas Totally Reserved For Sri Lankans
Foreign investment is not permitted in the following areas:
- Money lending, other than in the business of acting as margin providers under Securities Exchange Act.
- Pawn broking
- Retail trade investment with a capital of less than One Million US Dollars
- Coastal fishing
- Provision of Security Services
Areas Subject To Automatic or Conditional Approval
Foreign investments in the areas listed below will be approved limited to 40%. Foreign ownership in excess of 40% will be approved on a case-by-case basis by the BOI.
- Production of goods where Sri Lanka's exports are subject to internationally determined quota restrictions
- Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and spices
- Mining and primary processing of non renewable national resources
- Timber based industries using local timber
- Fishing (deep sea fishing)
- Mass communications
- Education
- Freight forwarding
- Travel agencies
- Shipping agencies
Regulated Areas
Foreign investments in the areas listed below will be approved by the respective Government agency or Board of Investments Sri Lanka ("BOI") (upto the percentage of foreign equity specified by BOI). The BOI assists potential investors by referring applications to the appropriate agency and approval is usually straight forward.
- Air transportation
- Coastal shipping
- Industrial undertaking in the Second Schedule of the Industrial Promotion Act No. 46 of 1990, namely any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircraft and other military hardware any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous or carcinogenic materials any industry producing currency, coins or security documents
- Large scale mechanized mining of gems
- Lotteries
As a matter of administrative ease it is recommended that prior approval of Board of Investments (BOI) is obtained when non citizens of Sri Lanka are to incorporate Companies. Although this is not strictly essential and legally necessary in all circumstances, this will help to solve many administrative difficulties when incorporating and obtaining other approvals necessary from Government Authorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
