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d. giving financial assistance to purchase company

COMPANY LAW 03
shares;
TYPES OF COMPANIES
e. payment of remuneration/making of a loan or
A) PRIVATE COMPANIES any other benefit to a director;

S 27 lays down 02 mandatory requirements to be included in f. entering into a contract between an interested
articles of association of a private company; director and the company.

o They are prohibited from offering shares or

securities to the public, and ▪ Though the Act has liberated private companies from
o limit the number of shareholders to fifty (with strict procedures, there are safeguards too.
certain exceptions).
For example, where a distribution is made by a company by
They are allowed more informality e.g. need not keep an unanimous agreement
interest register (a record disclosing the interests of the and, as a result, the company fails to satisfy the solvency test,
Directors). such distribution shall be deemed not to have been made
validly and
Minimum of 1 director and 1 shareholder. the Act has a mechanism for recovering the distribution from
the shareholders unless
Unanimous Shareholder Agreements
o the shareholder can prove that he received the
distribution in good faith and without
Unanimous Agreement of Shareholders
knowledge of the company's failure to satisfy
▪ This is a new provision introduced under the new Act to the solvency test or
simplify the administration process of a private company
o the shareholder has altered his position relying
and to facilitate easy decision making without resorting
on the validity of such distribution; and
to lengthy procedure.

▪ Thus, if all shareholders agree to a certain action in o it would be unreasonable in view of the
writing, the company can do away with the lengthy circumstances, to require repayment in full or at
procedures and act even contrary to the articles. all.

S 31 2017 Oct Q 1) (ii)

(1) Where all the shareholders of a private company agree
in writing to: B) COMPANIES LIMITED BY GUARANTEE
o any action that has been taken/is to be taken, by the
company, Do not issue shares but members will contribute specified
o the taking of that action is deemed to be authorized amount to assets upon liquidation; generally used for
by the company, charitable or public purposes which are not for profit.
o notwithstanding anything to the contrary in the
articles. S 32 – two or more persons can apply to form this type of
company, by submitting Articles, consent of initial directors,
(2) Without limiting the matters which may be agreed on a objects and amounts of contribution undertaken by each
unanimous agreement, the Act specifies matters for member.
which a private company can unanimously agree to
concur - S 33 – Company Limited by Guarantee must have articles
a. issue of shares;
(1) CLG shall have articles which sets out –
b. making a distribution; a) The objects
b) The amount which each member undertakes to
c. repurchase/redemption of shares;
contribute to the assets, in the event of
liquidation.
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(2) Nothing in the above section should prevent a CLG S 261(1)- any company can apply to be registered as an off-
from providing in its articles, that specified clauses of shore company in Sri Lanka.
the model articles shall apply to the company.
S 261(2)- Application must include: -
(Thus, CLG may distribute profits to its shareholders).
- certified copy of its constituent documents in
English,
S 34 – Power to dispose with "limited" in the name
- list of directors with full names, address, occupation,
(1) Where ROC is satisfied that an association about to be
and offices they hold,
formed as a company is to be formed with the objects
to promote commerce, art, science, religion, charity, - names & addresses of one or more persons resident
sport, or any other useful object, and & citizen of SL authorized to represent company,

- Intends to apply its profits, if any, or other income in - Full address of principle office & an office in SL,
promoting its objects, and to prohibit the payment
of any dividend to its members - a certified copy of certificate of incorporation.

- ROC can license to omit the word “limited” from

the name; S 262 - registrar may, having regard to the national
interest/economy of SL issue a certificate of registration to an
(2) Also, an existing CLG can restrict its objects to those off-shore company for carrying out business outside Sri
specified in Subsection 1 and by satisfying the RGC that Lanka.
the above requirements are fulfilled can change its
name accordingly by way of a special resolution. S 262 (1) - subject to payment of the prescribed fee & a
certificate from a bank that:
(3) A license granted under this section may be subject to
- a prescribed sum is deposited in the name of the
terms and conditions to ensure that the association
off-shore company,
conforms to the requirements in (1).
- for the expenses of the off-shore company.
(4) No alteration in the articles of such a company be
made without prior written approval of the Registrar. S 262 (2) -
a certificate of registration issued to an off-shore company
(5) S 6 doesn’t apply to CLG under this section. shall exempt the company from all other provisions of this
Act.
(6) RGC may cancel the license granted if the CLG fails to
comply with the requirements of (1) & (3).
S 263 - An off-shore company which intends to continue of
business should produce to the Registrar every calendar year
2016 Oct 1 (i) & (ii) - proof of payment of the prescribed feed,
&
2018 Oct 4 (i) & (ii)
- proof of deposit of the prescribed sum in the name
of the off-shore company for company expense.

C) OFFSHORE COMPANIES (261- 265) S 264 - Offshore company can carry on any business outside
SL but NOT in SL.
Part XI of the Act makes provision for registration of offshore
companies in SL. They offer advantages including reduced tax S 265 - An off-shore company may cease carrying on business
liabilities, simplicity of operations and fewer compliance and by giving notice to the Registrar.
reporting requirement. Therefore, such companies are
usually used for tax planning and asset protection purposes.
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D) OVERSEAS COMPANIES S 497 - An application may be made to the court for the
winding up of an overseas company.
S 488- An overseas company means any company
incorporated outside SL that established a place of business
within SL.

S 489 - Every overseas company:

• must register within 1 month of establishing a business in

SL; &

• must deliver the following documents to the Registrar: -

o certified copy of its constituent documents in
English,

o list of directors with full names, address, occupation,

and offices they hold,

o names & addresses of one or more persons resident

& citizen of SL authorized to represent company,

o Full address of principle office & an office in SL

o a certified copy of certificate of incorporation

S 489 (5) - upon receipt of all necessary docs, the Registrar of

can issue a certificate of reg as a registered overseas
company.

S 489 (7) imposes a restriction on an overseas company in

establishing a place of business and being registered as an
overseas company where the business does not conform with
Exchange Control Act.

S 490 - Overseas companies have the power to hold lands like

any other company (however, they cannot own land).

S 492 - Overseas companies shall prepare & deliver financial

statements to the Registrar every year.

S 493 - The rules regarding names of companies extends to

overseas companies.

S 494 - Overseas companies are required to display their

names on every prospectus inviting subscriptions, business
letters, notices, bills of exchange, cheques, invoices, receipts.

S 496 - Must immediately notify Reg when the company

ceases business in SL.