Business Registration in Sri Lanka: The Simple Handbook

 Starting a new business in Sri Lanka is an exciting opportunity. This handbook is crafted to be your go-to resource, guiding you through the necessary steps, legal aspects, and practicalities of business registration in Sri Lanka. Whether you’re just kicking off your entrepreneurial journey or you’re a well-established SME ready to formalize your operations, understanding the business registration process in Sri Lanka is key to setting up a solid base for your success. With insights from Simplebooks, this guide aims to make the complicated elements understandable, empowering you to make smart choices.

If you’re looking for personalized help and a smooth online registration experience, consider exploring the services offered by Simplebooks. Visit the Simplebooks Dashboard to learn more.

Chapter 1: Introduction to Business Registration in Sri Lanka

1.1 Why Register Your Business?

Getting your business officially registered in Sri Lanka isn’t just a box to check; it’s a savvy step that lays a strong foundation for your venture and unlocks some significant benefits. Here are a few key perks:

• It Makes You Official & Protects You: Registering your business gives you legal recognition, which safeguards your business name and how you operate. (Just a quick note: if you’re a sole proprietor using a name that’s different from your own, you’ll need to register your business in Sri Lanka!)
• Boosts Trust & Helps Get Funding: Being registered boosts your credibility with customers, suppliers, and especially banks and investors when you’re looking for loans or trying to attract investment.
• Keeps You on the Right Side of the Law: This ensures you’re compliant with Sri Lankan regulations, helping you steer clear of fines or issues that can arise from running an unregistered business.
• Offers Stability & a Future (Especially for Companies): Certain structures, like private limited company registration in Sri Lanka, can keep operating even if ownership changes, providing stability and a chance for long-term success.

Registration provides a stronger, more secure foundation for your business to operate and grow.

1.3 Getting Started: Key Initial Questions

Before you jump into the business registration process in Sri Lanka, take a moment to think about these key questions:

• What kind of business do I want to start? (like a sole proprietorship, partnership, or private limited company)
• What are the legal and financial aspects of each option?
• What are my short-term and long-term goals for the business?

For a comprehensive of the initial steps before registration, such as generating a business idea and market research, you can refer to the guide on How to Start a Business in Sri Lanka. 

Chapter 2: How to Choose the Right Business Structure

Deciding on the best business structure is a significant decision influenced by a variety of factors. Here are some things to consider:

Number of Owners:

• One owner: Sole proprietorship is the most suitable option.
• Two or more owners: Partnership or a Private Limited Company.

Liability:

• Willing to accept unlimited personal liability: Sole proprietorship or partnership.
• Prefer limited liability to protect personal assets: Private Limited Company.

Capital Investment:

• Limited personal funds, no immediate need for external equity: Sole proprietorship or partnership.
• Planning to raise significant capital from investors: Private Limited Company is more suitable as incorporated companies can raise capital from outside investors, which sole proprietors cannot.

Complexity and Cost of Setup & Maintenance:

• Prefer simplicity and low cost: Sole proprietorship.
• Willing to handle more complex compliance for benefits like limited liability: Private Limited Company.

Future Plans & Scalability:

• Small-scale, local operations: Sole proprietorship might suffice in the beginning.
• Plans for significant growth, seeking external investment, or establishing a national/international presence: Private Limited Company is generally better.

Tax Implications:

• Taxation differs based on the structure. For example, in a sole proprietorship, business profit is taxed as personal income, which can be advantageous if profits are low but may lead to higher taxes than a private limited company if profits are high.

Industry Regulations: Registering a business has never been this easy! – Simplebooks. Some industries may have specific requirements or preferences for business structures.

Consulting with legal and financial professionals is highly recommended to ensure you make a decision that’s right for your individual circumstances. Simplebooks offers free advice and support regarding business registration in Sri Lanka, including for sole proprietorship registration, partnership registration, and private limited companies.

Chapter 3: Types of Business Entities in Sri Lanka & Their Registration

Choosing the right business structure is a crucial first step. In Sri Lanka, you have a variety of entities to choose from, each bringing its own legal and financial considerations, along with unique registration processes. The main options include Sole Proprietorships, Partnerships, and Private Limited Companies.

2.1 Sole Proprietorship

A sole proprietorship is an easy-to-understand business structure that’s owned and operated by a single person. In this case, the law doesn’t make a distinction between the owner and the business; they’re seen as one and the same. This setup allows the owner to enjoy all the profits and make decisions quickly, but it also means they face unlimited liability. This is a big deal because it means the owner’s personal assets could be used to pay off any business debts. Plus, the income from the business is taxed as part of the owner’s personal income, and the business typically lasts only as long as the owner does.

Registration Process & Key Details for Sole Proprietorship:

1. Business Name: If you’re planning to operate under a name that’s not your full legal name (like a fictitious name), you need to register that business name. This step is crucial for establishing your brand. 

2. Preparation of Documentation: This is a critical stage. Key forms and documents required generally include:

• Application form for business name registration.
• Grama Niladhari certification (which then needs certification by the divisional secretariat).
• A copy of your National Identity Card (NIC).
• Documents to prove ownership of the business premises (e.g., Deed, Lease agreement, Consent letter, Varipanam assessment notice – one of these is usually required).
• An affidavit confirming the initial capital of the business.
• It’s important to note that additional documentation might be required depending on the specific nature of your business (e.g., certifications for Ayurvedic businesses, Gem and Jewellery, Pharmacies, etc.).

3. Submission to Relevant Authority: Sole Proprietorships typically register with the respective Provincial Council or Divisional Secretariat based on the owner’s residential address.

4. Payment of Fees: Registration involves paying prescribed fees to the divisional secretary.

5. Obtaining Registration Certificate: Upon successful registration, the Divisional Secretary will issue a Certificate of Registration of Business Name, which should be displayed at the place of business.

Advantages:

• Simple to register and maintain.
• All profits belong to the owner.
• Freedom to make decisions independently.
• A good starting point for new entrepreneurs.
• Fewer regulatory requirements and reporting compared to companies.

Disadvantages:

• Unlimited personal liability for the owner.
• Difficulties in raising substantial capital.
• Lack of continuity; the business may cease if the owner passes away or retires.
• Ownership can be difficult to transfer as it requires selling the entire business.

This type of business structure is often perfect for those starting small, low-risk ventures, freelancers, or anyone who values having complete control with minimal hassle in setting things up. If you want to dive deeper into this option, you can learn more about sole proprietorships in Sri Lanka and how they function. For detailed information on forms, refer to the guide on Business Registrations Forms In Sri Lanka.

2.2 Partnership

Thinking about starting a business partnership? That’s essentially what it is – two or more individuals (or even companies) coming together to share the financial highs and lows while working towards a shared business vision by combining their resources, skills, or unique talents. It’s important to understand that, in most cases, a partnership isn’t viewed as a completely separate entity from its owners legally. 

This is crucial because it usually means that partners face “unlimited personal liability.” In simpler terms, if the business racks up debt, your personal assets could be on the line. That’s why having a solid partnership agreement – think of it as your team’s playbook – is vital to outline how everything will function. It’s highly advisable to create this with a lawyer’s assistance. Typically, all partners share the responsibility for the business’s debts, both as a group and individually.

Registration Process & Key Details for Partnership:

1. Business Name Registration: The partnership will need to register its business name.
2. Preparation of Documentation: Key forms and documents required generally include:
   • Application form for partnership registration.
   • Grama Niladhari certification (certified by the divisional secretariat).
   • Copies of National Identity Cards (NICs) for all partners.
   • Documents to prove ownership of the business premises.
   • An affidavit confirming the initial capital of the business.
3. Submission to Relevant Authority: Partnerships typically register with the respective Provincial Council or Divisional Secretariat.
4. Payment of Fees: Registration involves paying prescribed fees.
5. Obtaining Registration Certificate: Upon successful registration, a Certificate of Registration of Business Name for the partnership is typically issued.

Advantages:

• More financial muscle: With more people contributing, you can usually pull together more starting money than if you were going it alone.
• Shared brain power and effort: You get to share ideas, skills, the workload, and the big decisions.
• Simpler start-up: Generally, it’s less complicated to get a partnership up and running compared to a private limited company.

Disadvantages:

• Personal assets on the line: That “unlimited liability” is a big one – your personal belongings could be used to pay off business debts.
• Potential for disagreements: When you have multiple people, differences of opinion or conflicts can pop up.
• Decisions can take longer: Getting everyone to agree can sometimes slow things down compared to when one person calls all the shots.
• What happens if someone leaves?: If a partner decides to leave or passes away, it could shake up the business, unless your partnership agreement has a good plan for such events.

A partnership can be an excellent choice for professionals looking to blend their skills, for those collaborating on projects, or for any business where teamwork and sharing responsibilities just make sense. If this sounds like the right decision for you and your partners, taking the time to understand all the details is a wise first step. You can explore more details on partnership registration in Sri Lanka to help you plan your venture together.

2.3 Private Limited Company (Ltd./Pvt. Ltd.)

Picture a Private Limited Company as a business that functions as its own ‘legal entity,’ separate from you, the shareholders. This is advantageous because it generally protects your personal assets if the business has debts – that’s what we call limited liability. The company is run by directors, and being a more formal arrangement, it does require more rules and official paperwork to comply with, as per the Companies Act No. 7 of 2007.

Registration Process & Key Details for Private Limited Company:

The process mainly happens online through the government’s eROC (Electronic Registrar of Companies) portal, facilitated by the Department of Registrar of Companies (DRC). Here’s a general roadmap:

1. Business Name Reservation:
   • Check Availability First: Before anything, ensure your proposed company name isn’t already taken or too similar to existing ones. This is crucial. For a preliminary search, you can use tools like the Simplebooks company name check. You can also perform this check through the official eROC portal.

• Use eROC Portal for Approval: Official company name approval and reservation also happen through the eROC portal. For tips on this tricky part, you might find guides on how to name a business really helpful.

1. Preparation of Key Documents & Forms: This is a crucial step. You will need:
   • Articles of Association: This is the rulebook for your company, governing its operations. It can be based on the model articles in the Companies Act or be a custom document signed by the initial shareholders.
   • Form 01 – Application of Incorporation: This form includes the declaration of name availability, details of initial directors (who must consent and certify they are not disqualified), initial shareholders, and the initial company secretary/secretaries (who must consent).
   • Form 18 – Consent of Directors: Each director must sign this form to consent to their appointment.
   • Form 19 – Consent of Secretary: The company secretary (or secretaries) must sign this to consent to their appointment.
   • A Shareholder’s Agreement is also highly recommended, though not a mandatory filing document for registration, as it provides greater protection to shareholders and clearly defines responsibilities, which is critical in case of disputes.
2. Appoint a Company Secretary: Appointing a Company Secretary is a must for your registration with the ROC. For clarity on this crucial role, resources like the blog ‘Company Secretary in Sri Lanka | Your Documents Done Right, On Time‘ can be super helpful.
3. Submission via eROC: With name approval and your documents ready, you’ll submit all company and shareholder details along with these forms and your Articles of Association through the eROC portal to the Department of Registrar of Companies (DRC).
4. Payment of Fees: There will be registration fees to pay, which is also typically done via the portal.
5. Obtaining Registration Certificate: Upon successful incorporation, companies receive a Certificate of Incorporation from the Registrar of Companies.
6. Public Notice of Incorporation: Newly incorporated companies are generally required to give public notice of our incorporation. This often involves publishing a notice in newspapers and the Government Gazette. This should include the company registration number, name, and registered office address. Now, both the paper notice and Gazette publication are handled by the Registrar of Companies (ROC), ensuring the process is properly managed and completed efficiently.

A Private Limited Company is often a great choice if your business is growing, you’re looking for investors, you want a more formal setup, or that personal liability protection is key for you. It might seem like a lot, but it’s definitely manageable. If you’re looking for support, companies like Simplebooks offer dedicated company registration services and have tools like a business registration dashboard to help streamline things.

If you’re looking for a more comprehensive look at the digital journey, checking out our guide on online company registration in Sri Lanka can really provide some valuable insights.

2.4 Other Business Structures

• Public Limited Company (PLC): Can offer shares to the public and may be listed on a stock exchange. Subject to even higher compliance requirements.
• Company Limited by Guarantee: Typically used for non-profit organizations (NGOs). Liability of members is limited to the amount they undertake to contribute in the event of winding up. For more details on registering such an entity, you can refer to the Simplebooks guide on NGO Registration in Sri Lanka.

Chapter 4: Special Considerations for Foreign Investors

If you want to invest in South Asia, Sri Lanka is a promising destination. However, there are two primary ways to consider each with its own sets of rules and regulation processes if you are a foreigner or an overseas company looking forward to establishing a presence here.

Pathway 1: Incorporating a New Local Company as a Foreigner

If you want to start a new business from the ground up in Sri Lanka, this is a common route for foreign entrepreneurs like you. You are creating a brand new Sri Lankan Private Limited Company that is owned by you.

The registration process is the same as for local, key forms Form 1, Form 18, and Form 19, and involves the online eROC portal, as detailed in Chapter 3 

Key Considerations

Company Secretary

 You should appoint a  local Company Secretary, as it is a mandatory requirement, who will also ensure ongoing compliance by guiding you through the registration.

Investment Restrictions

Certain industries have restrictions on foreign ownership that you have to be aware of. Some sectors are reserved for Sri Lankans, while in others, foreign approval is capped at 40% unless a special approval is granted. 

Pathway 2: Registering an Overseas Company (Branch Office)

This pathway is applicable to you if your company wishes to extend its operations into Sri Lanka, rather than creating a separate new entity. You are able to register your existing company’s presence as a Branch Office, Project Office, or Liaison Office.

The registration process involves a specific set of documents.

Key Differentiated Steps & Requirements

Key Registration Forms

You will need to submit  Form 44 (details of the local place of business), Form 45 (list of directors), and Form 46 (details of a local resident authorized to accept legal documents) instead of the forms for incorporation.

Parent Company Documents 

You have to provide certified copies of your existing parent company’s foundational documents, such as Articles of Association and Memorandum.

Minimum Investment Requirement

For operations to be carried out, a registered overseas company should remit a minimum initial investment of USD $200,000 into a Securities Investment Account (SIA) in Sri Lanka.

Annual Compliance

After the registration, you have to annually submit copies of the parent company’s financial statements to the Registrar of Companies in Sri Lanka.

4.3 Summary of Foreign Investment Restrictions

Some of the investment rules below are applied to both pathways, and it is important to be aware of them.

Industries Generally Not Permitted for Foreign Direct Investment (FDI)

• Money Lending & Pawn Broking
• Coastal Fishing
• Retail trade with a capital of less than USD 1 Million (this figure can vary, so always verify with current regulations).
• Provision of security services.

Industries Often Limited to 40% Foreign Ownership (unless BOI approval is obtained)

• Mass Communication
• Education
• Deep Sea Fishing
• Freight Forwarding & Shipping Agencies
• Industries based on local natural resources (e.g., timber, mining).

Chapter 5: Key Government Bodies Involved

• Department of Registrar of Companies (DRC): Responsible for private limited company registration in Sri Lanka including Public Limited, business registration forms and administration of the Companies Act. The eROC portal is our online platform.
• Provincial Councils / Divisional Secretariats: Primary registration authorities for Sole Proprietorships and Partnerships.
• Inland Revenue Department (IRD): Responsible for tax administration, including issuing Taxpayer Identification Numbers (TINs) and VAT registration.
• Department of Labour: Manages registration for Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) for businesses with employees.
• Local Government Authorities (Municipal Councils, Urban Councils): May require trade licenses or permits depending on the nature and location of the business.

Chapter 6 : Initial Costs and Fees

The cost of business registration varies based on the type of entity and the services required.

• Government Fees:
  • Sole Proprietorship/Partnership: Fees payable to the Divisional Secretariat/Provincial Council for name registration and other processing.
  • Private Limited Company: Fees for name approval, filing of forms (Form 1, Articles of Association, etc.) with the ROC. An additional government fee may apply for adding extra directors.
• Professional Fees: If you engage a consultant, lawyer, or service provider like Simplebooks for assistance with registration, company secretarial services, or drafting documents, our professional fees will apply. Simplebooks offers transparent, all-inclusive pricing for our registration packages.

If you’re looking to simplify your business setup, Simplebooks has got you covered with packages that include government fees and some nice bonuses, like free assistance for your tax registration certificate. You can learn more about our support for Sri Lankan income tax services and even get a free consultation to discuss your specific needs.

Chapter 7: Essential Post-Registration Compliance

Once your business is officially registered, there are a few more important things to keep on your radar to ensure everything runs smoothly and legally. Here’s a quick rundown:

1. Get Your Tax ID (TIN): You’ll need a Taxpayer Identification Number from the Inland Revenue Department for all tax-related matters. Simplebooks often assists with tax registration; you can find out more about our Sri Lankan income tax services and check our blog for updated TIN information like “TIN Registration In Sri Lanka: What You Need To Know About The 2024 Update“.
2. Open a Business Bank Account: A separate bank account for your business is essential for clear financial management, especially for companies. Simplebooks often includes guidance on this in our registration process, for instance, within our “Step-by-Step Guide to Company Registration in Sri Lanka Using the Simplebooks Dashboard“.
3. Handle Employee Funds (EPF/ETF): If you employ staff, registering for EPF (Employees’ Provident Fund) and ETF (Employees’ Trust Fund) is a must. For guidance, look for Simplebooks resources like the “EPF & ETF – What you need to know” guide or our Payroll Management services.
4. Keep Accurate Bookkeeping: Proper financial records are vital for tracking performance and meeting tax obligations. Simplebooks offers bookkeeping and accounting services and the accounting tool to help.
5. Annual Company Obligations: For Private Limited Companies, remember yearly tasks like filing your Annual Return with the eROC, preparing financial statements, and submitting tax returns. Simplebooks provides support through our tax services and potentially income tax filing tools.
6. Renewals: Business registrations (especially for sole traders/partnerships) and trade licenses may need periodic renewal, so mark those dates!
7. Other Industry-Specific Rules: Depending on your business field, you might have other specific licenses or regulations to adhere to.

Keeping up with these ongoing responsibilities is crucial. Don’t forget, Simplebooks provides a variety of services that go beyond just the initial setup. They offer support in accounting, bookkeeping, and tax filing to help you smoothly navigate the steps after registration.

Chapter 8: Common Challenges and How Simplebooks Can Help

Entrepreneurs often face challenges during the registration process.

• Navigating Bureaucracy: Dealing with government departments can sometimes be time-consuming.
• Understanding Legal Requirements: The legal jargon and extensive documentation can be daunting.
• Ensuring Document Accuracy: Errors or omissions in forms can lead to delays.
• Time Commitment: The process can take time away from focusing on building the business itself.

How Simplebooks Can Help: Simplebooks aims to provide a hassle-free business registration experience. Our Simplebooks Dashboard offers:

• Effortless Online Registration: Register your business from home.
• Quick Process: Business registration in days, not weeks.
• Assured Compliance: Ensuring all legal requirements are met.
• Real-Time Progress Tracking: Stay updated on your registration status via the dashboard, SMS, or WhatsApp.
• Human Support and Collaboration: Access to a team for assistance and to answer doubts.
• Organized Document Management: All your documents in one secure place.
• Comprehensive Services: From name approval to post-registration support, including acting as Company Secretary.

FAQs

Your Next Steps

Getting your business registered is a big step forward. By familiarizing yourself with the different types of entities, the necessary processes, and the compliance requirements, you’ll be in a much better position to create a solid and legally compliant business in Sri Lanka.

While this handbook offers a thorough overview, keep in mind that the business environment can change. Always make sure you keep yourself updated with the latest information.For a free consultation or further assistance, reach out to the experts at Simplebooks.