Private Limited Company

Byverticeinc

A Private Limited Company is a popular business structure in Sri Lanka, particularly suited for small to medium-sized enterprises. It offers a balance of flexibility, limited liability, and ease of operation.

Key Features:

  1. Limited Liability:
    • Shareholders’ liability is limited to the amount unpaid on their shares. This means personal assets are protected in the event of company insolvency.
  1. Number of Shareholders:
    • Minimum: 1
    • Maximum: 50
    • Shares are privately held and cannot be offered to the public.
  1. Directors:
    • Minimum: 1 director
    • Directors need not be shareholders.
    • Directors must be natural persons (not corporations).
  1. Company Secretary:
    • It is mandatory to appoint a company secretary.
    • The company secretary ensures compliance with statutory requirements.
  1. Capital Requirements:
    • There is no minimum capital requirement.
    • Share capital can be in any form of assets, including cash and property.
  1. Name of the Company:
    • The name must be unique and not identical or similar to any existing company name or any registered overseas company.
    • Must end with “(Private) Limited” or “(Pvt) Ltd.”
    • The words “Chamber of Commerce” cannot be included in a company’s name unless the company has been granted a special license under section 34 to register without the word “Limited” in its name.
    • Certain words require the Minister’s consent, considering the national interest. These include:
      • Government-related Words: Words such as “President,” “Presidential,” or any terms that suggest a connection with the President, the Government, or any Government Departments.
      • Municipality-related Words: Terms like “Municipal,” “incorporated,” or any words that suggest a link to any Municipality, local authority, or bodies incorporated by an Act of Parliament.
      • Co-operative Terms: Words such as “Co-operative” or “Society.”
      • National Terms: Words like “National,” “State,” or “Sri Lanka,” or any terms that suggest a connection with the Government or any Government Departments.
  1. Taxation:
    • Required to file annual tax returns and financial statements.
  1. Annual Requirements:
    • Annual General Meeting (AGM): Must be held each year.
    • Annual Returns: Must be filed with the Registrar of Companies, including financial statements and other required information.
    • Financial Statements: Must be audited and submitted annually.
  1. Advantages:
    • Limited liability protects personal assets.
    • Separate legal entity: The company can own property, enter contracts, sue, and be sued.
    • Perpetual succession: The company continues to exist despite changes in ownership or management.
    • Easier to raise capital through private placements.
  1. Disadvantages:
    • More regulatory requirements and formalities compared to sole proprietorships and partnerships.
    • Shares cannot be freely transferred, which may limit liquidity.

    Incorporation Process:

    • Name Approval: Submit a name approval request to the Registrar of Companies.
    • Articles of Association: Prepare and submit the Articles of Association, outlining the rules for the company’s operations.
    • Form 1 (Application for Registration): Provide details about the company, directors, and shareholders.
    • Form 18 (Consent and Certificate of Director): Signed by each director, consenting to act as a director.
    • Form 19 (Consent and Certificate of Secretary): Signed by the company secretary.
    • Identity Verification Documents: Copies of National Identity Card (for Directors/Shareholders) / Copies of Passport (For Foreigners)
    • Payment of Fees: Pay the required registration fees.

        Steps to Incorporate a Private Limited Company:

        1. Choose a Unique Name:
          • Check the availability of the proposed company name.
          • Reserve the name with the Registrar of Companies.
        1. Prepare Documents:
          • Draft the Articles of Association.
          • Prepare and complete the necessary forms (Form 1, Form 18, and Form 19).
          • Provide Identity Verification Documents (NIC/Passport)
        1. Submit Documents:
          • Submit the completed forms and Articles of Association to the Registrar of Companies.
          • Pay the registration fee.
        1. Obtain Certificate of Incorporation:
          • Once the Registrar is satisfied with the submitted documents, a Certificate of Incorporation will be issued.
        1. Post-Incorporation Requirements:
          • Obtain a company seal.
          • Open a corporate bank account.
          • Register for taxes (e.g., VAT, PAYE) if applicable.
          • Maintain statutory registers and records.

        Important Considerations:

        • Compliance: Regularly comply with statutory requirements to avoid penalties and maintain good standing.
        • Governance: Establish a clear governance structure and define roles and responsibilities of directors and officers.
        • Documentation: Keep detailed records of all company activities, including minutes of meetings and resolutions passed.