Everything you need to know about forming a company in Sri Lanka

Anyone can start a business and form a company in Sri Lanka. Although the procedure for incorporation might seem stressful at a glance, once you break it down you really understand why each step is necessary. But it certainly is a lot of work — so only get into it once you’re serious about you business.

Here’re three important reasons why you should incorporate:

  1. Limited Liability: If anything happens to the company, its members are not personally affected; members are only liable for unpaid shares.
  2. Your (company) name cannot be used by anyone; and you could be taken seriously by clients and suppliers. Most importantly corporate clients.
  3. It assures business continuation since the business is it’s own entity.

Here’s a breakdown of the costs involved before we get started with procedure:

ProcedureApprox. Cost
Name search and reservationLKR 1120
Cost of registrationLKR 16,800
Public Notice of Incorporation~LKR 8000
Stamp Duty for issued shares0.5% of the total stated capital in multiples of LKR 5
Company secretaryvaries largely (expect above LKR 15,000/year)
Other forms (& registration)~ LKR 4000 (Forms 18, 19 and 6 and the articles of association)
APPROXIMATE TOTAL COSTLKR 31,000 + Company Secretary fee
In my experience you could hire a consulting firm to register your company for you and act as your company secretary for roughly LKR 35,000 as an initial fee and about LKR 20,000 annually for document filing and other services rendered.

If you’re looking for less paper work, and less time wasted sitting at registration offices, then a consulting firm is the way to go. It’s a serious load off you mind since they can have everything you need for the company done and couriered to you in about a week.

The procedure:

(To register a Private Limited Company)

  1. Find out if your company name is available, and reserve it online at www.drc.gov.lk (it’ll be reserved for 3 months).
  2. You need a company secretary prior to incorporation to sign the secretary content on Form 19. The secretary must sign stating that he/she agrees to be the secretary for the newly formed company. The forms you need (printed or type written only)

Form 1 – REGISTRATION OF A COMPANY
Form 18 – CONSENT AND CERTIFICATE OF DIRECTOR
Form 19 – CONSENT AND CERTIFICATE OF SECRETARY / SECRETARIES
Form 6 – ISSUE OF SHARES

All other forms / alternate links: http://www.drc.gov.lk/App/comreg.nsf
5. Register at the Department of the Registrar of Companies
This includes form 1, 18, 19 and any Articles of Association.
The Articles of Association could either be newly drafted or you could adopt the standard Articles of Association from the Companies Act of Sri Lanka (Companies Act, No. 07 of 2007).
7. Issue Public Notice of Incorporation 1. In the Government Gazette
2. In any daily newspaper in all three languages (English, Sinhala and Tamil) Both notices should specify the registration number, name of the company, date of incorporation, and address of the registered office. The proof of publication should then be filed with the Registrar of Companies.
9. Register with the TAX authorities and for VAT with the Inland Revenue Department (You can put this off if you are in a pre-revenue stage or don’t qualify)
11. Pay stamp duty on the issued shares at the Stamp Duty Branch of Inland Revenue Department
13. To complete the process give notice to the Department of Registrar of Companies regarding the issue of shares by filing Form 6 along with the stamp duty slip to show the initial shares issued.

While all this happens you also need to get your company seal made, and you could also apply for a company bank account and etc soon after.

All things considered should you register a company?

You should only consider incorporating if it’s either legally necessary or you are extremely serious about your business. By that I mean you need to have a solid business plan and the time and resources to run it.

You can’t just register and forget about a company. You need to maintain proper records, file annual returns and of course there are the recurring costs associated with any business. If you’re going into business with a partner you need to think about ‘buy back’ agreements (so they don’t quit and sell their shares to just anybody) and how you might resolve any conflicts, and don’t ever forget that the business owners can be sued personally for negligence.

This is not to put you off, but just to give you a taste of what you’re getting into. It’s also always a good idea to have a good attorney at your side for counsel.

But you know “If you’re not a risk taker, you should get the hell out of business.” — Ray Kroc

Sources and resources used to compile this guide: www.doingbusiness.org & www.drc.gov.lk

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