Company Registration Global Registration

Everything you need to know about Registration procedure of Company in Sri Lanka

Whenever a person wishes to start a business, it usually begins by opening a company because of the security it provides to the promoters in protecting their personal assets and its importance in the further growth of the business. Being a separate legal entity, the process of starting a company is called incorporation of a company. Every country has its own set of laws and structures in the ways they conceive a company’s structure should be like. This article discusses the very process of incorporation of a company in Sri Lanka delineating the laws and the necessary requirements for any person to open a company in Sri Lanka.

Sri Lanka is considered to one of most liberalised economies in South Asia which has the reputation of attracting the investors due to the preferential tax rates it offers, the highly educated skilled workforce, cent percent repatriation of profits, constitutional guarantees on investments. All of these incentives and a robust regulatory framework makes Sri Lanka an ideal place to start a business by incorporating a company.  

What are the benefits of opening a company?

A business undertaking done in the form of a company is a body corporate that has a separate legal entity capable of suing and being sued. Following benefits are associated with the opening of a company:

1. It helps in protecting the personal assets of the promoters by shifting the onus on the company which is in itself a separate legal entity.
2. Banks are keener to extend loans to a registered company than to a unregistered person.
3. It becomes easy to obtain licenses and permits in the name a registered company.
4. It becomes helpful in gaining tax exemptions and registrations with the Inland Department and other tax authorities.
5. Helpful in opening dedicated company accounts with the government.
6. Helpful in brand building at the time of marketing the product of a company.    

Different structures of a company in Sri Lanka

Following are the three types of structures that Sri Lankan Company law provides for an entity to form a company in Sri Lanka:

1. Limited Company: This is a business entity that issues shares and the holders of such shares are liable to contribute to the assets of the company if the Articles of Association (AoA) of the business entity permit so.
2. Unlimited Company: This is a business entity which issues shares and the holders of such shares have an absolute liability towards the assets of the entity under its AoA.
3. Company Limited by Guarantee: A business entity which does not issues shares but the members of which are responsible for contributing to the assets of the entity in the event of the entity is being taken for liquidation but only upto the amount mentioned under the AoA of the entity.

The most sought after company structure adopted by the promoters among the above mentioned is the Limited Company because of the reason of limited liability that the promoters are exposed to in the event of any liquidation or for any other event. The personal assets of the promoters cannot be taken to set off the liability of the company.

There are two types of Limited Company in Sri Lanka that are incorporated in the Registrar of Companies (RoC):

1. Private Company
2. Off-shore company  

Separate rules have been framed by the statute in regulating these different companies.

Incorporation of a Company in Sri Lanka

I. Apart from the Company limited by guarantee, any person or group of persons can apply to the Registrar of Companies (RoC) via an application in the prescribed format with the signatures of the initial shareholders. Along with the application form following documents need to be submitted to the Registrar:

1. Declaration stating that the name of the company is not identical or similar to any of the already registered company.
2. Signed document of AoA of the company
   1. They can either use the model AoA given in the schedule of the act OR
   2. The entity can draft its own AoA. The promoters need to submit at least two copies of the AoA to the RoC.
3. Consent from each of the initial directors of the company.
4. Consent of the initial secretary to act as the secretary of the company.

It must be noted that a public limited company will have a minimum two shareholders except of the following entities:

1. An individual
2. A body corporate
3. Secretary to the Treasury holding shares on behalf of the Sri Lankan government.   

II. Once the prescribed form is submitted along with the necessary documents, the Registrar does the following:

1. The particulars of the company are entered in the Register of the company.
2. A unique number is assigned to the company as its company number
3. A certificate of incorporation  is issued to the company
4. To notify the general public about the incorporation of the company, a notice will be published in a daily newspaper that is published in three languages of English, Sri Lanka^[1] and Tamil. This task must be completed within a period of sixty working days from the date of incorporation of the company. This notice shall bring into the notice the following details of the company:
   1. The company’s  name
   2. The registration number of the company
   3. The company’s registered office’s address.

It must be remembered that the newspaper must be circulated within the area of business where the company wishes to do its business.

III. Once all the above formalities are completed, the Registrar issues the certificate of registration to the company. 

Post Incorporation compliances for a company in Sri Lanka

Obtaining the certificate of registration of the company does not mean that the company can initiate the business. Some other formalities are also to be fulfilled by the company before moving ahead with their business. These are the requirements that need to be followed:

1. Obtaining of TIN: Once the company gets its registration number, the next step that the company is supposed to is to obtain is its Tax Identification Number (TIN). For obtaining this number, the company needs to submit the necessary documents to the department in the prescribed form.
2. Obtaining VAT number: The companies that have crossed over a prescribed limit of turnover are supposed to obtain a VAT number from the Inland Revenue Department to file in the returns and receive the input credits for the sales made by them.
3. Registration with the Labour Department: The company must get itself registered with the Labour department regarding the Employee Provident Fund (EPF) and in the eligible cases Employee Trust Fund (ETF) for the monthly contributions. These are applicable where the strength of the employees is below 15 in number. Further in cases of hazardous factories, the entities have to obtain special permissions to ensure the safety of the employees.
4. Miscellaneous obligations: Some of the other obligations that the companies need to follow are the following:
   • Maintenance of the records of the company
   • Regular inspection of the records maintained by the company
   • Maintenance of the financial statements and accounting report
   • Conduct of annual audit by the company. 

Conclusion

According to a recent support by the Indian Chambers of Commerce, positive signs have come forward calling Sri Lanka a strong resilient economy with supportive government policies, educated and adaptable workforce. The social infrastructure, location and connectivity, access to key markets and fast developing infrastructure are additional factors in providing a vibrant business environment for foreign investors to choose Sri Lanka as an investment destination. Further, the investment protection and double taxation coupled with quality of life can be solid reasons for anyone to make investments in Sri Lanka.

Read our article:Offshore Company Incorporation in Malaysia: A complete Procedure