ESTABLISHMENT OF AN ENTITY IN SRI LANKA

Sri Lanka is ranked highly among the South Asian countries that offer ease in terms of establishing an entity. The country has a well documented and established procedure of setting up a business.

Foreign ownership restrictions

• Limited Liability Company
  

  As far as foreign ownership constraints are concerned, there are restrictions sector wise. For example, in shipping and freight forwarding, the foreign ownership was limited to 40 percent. Foreign shareholding (irrespective of the extent of the shareholding) in a Limited Liability Company that engages in retail trade is only permitted if a minimum investment of USD 1 million has been made. There are, however, no other minimum capital requirements. Additionally, the foreign party or entity is required to establish a Securities Investment Account (SIA) with a licensed commercial bank in Sri Lanka, and remit its investment in the Limited Liability Company through the SIA.



• Branch Office
  

  The Foreign entity may establish a branch office in Sri Lanka without restriction, provided it invests USD200,000. If the branch is proposing to engage in retail trade in Sri Lanka, then a further investment of USD 2,000,000 must be remitted. There are no other minimum capital requirements but as in the case of the Limited Liability Company, the foreign entity is to establish a SIA and remit its investment in the branch through the SIA.

Minimum/maximum number of shareholders

• Minimum – 1 shareholder


• Maximum – 50 shareholders

The branch will not be constituted as a body corporate. Therefore, it will not have share capital.

Financial Statements

• The Limited Liability Company ‘s Financial statements must be filed with the Registrar of Companies every year.


• The annual financial statements of the parent company and the consolidated financial statements of the branch office must be filed with the Registrar of Companies annually.

The minimum number of directors, employees and other legal representatives for a Limited Liability Company are as below:

• Minimum number of Directors: Limited Liability Company must have at least one Director


• Minimum number of Employees: A minimum number is not prescribed


• Other legal representatives: Limited Liability Company may appoint legal representatives in accordance with its articles.

In the event the Director does not reside in Sri Lanka, it may be necessary to appoint an authorized person in Sri Lanka (either as an Alternate Director or an Attorney) to act on behalf of the Limited Liability Company.

As far as the branch office is concerned, the facts are as below:

• Directors – Not applicable as the branch is not a body corporate.


• Employees – A minimum number is not prescribed


• Other Legal Representative – The branch is required to appoint an authorized person in Sri Lanka to act on behalf of the Parent Company under a duly registered Power of Attorney authenticated under the seal of the Overseas Company.

The minimum number of directors, employees and other legal representatives for a Limited Liability Company are as below:

Local residency requirements for directors / Company secretaries / legal representatives

• Directors do not have to reside in Sri Lanka. Secretaries must reside in Sri Lanka. Legal representative (if appointed as aforesaid) must reside in Sri Lanka.


• The duly appointed Attorney (appointed by Power of Attorney) must reside in Sri Lanka.

What annual reporting obligations are there (for example, filing of an annual return etc)?

• Circulation of Annual Report to shareholders of Limited Liability Company.


• Filing of financial statements and Annual Returns at the Department of the Registrar of Companies.


• For a branch office, the annual Financial Statements of the Parent Company must be filed at the Registrar of Companies.

Physical place of business

• Physical place of business is required and the Limited Liability Company may use its Company Secretary’s office address. Supporting documentation is not required


• Place of business in Sri Lanka must be provided at the time of registering the Branch Office. Regulation against converting from an overseas company (or branch) to a Limited Liability Company is not applicable. The branch cannot be converted to a Limited Liability Company.

This is only an overview of the applicable law, and should not be relied upon as legal advice or recommendation by D. L. & F. De Saram, a leading law firm in Sri Lanka. If you require our advice, please be good enough to contact us on [email protected]