Guide to Individual Business Registration in Sri Lanka

When you’re starting out as an entrepreneur or when starting your own business, one of the first decisions you have to make is regarding registering your business.

As you’re just starting out, you don’t know what type of registration you need to make or whether that would be the best structure for the kind of business you want to operate.

What complicates this even further is that as a small business, you also may not have the capital and resources required to register your company as a private limited company. So you may be interested in registering your business as an individual business registration or what’s known more commonly as a sole-proprietor business. 

This article covers the benefits and disadvantages there are in making an individual business registration in Sri Lanka and the process to register such a business.

Advantages of individual business registration in Sri Lanka

There are many advantages to having a sole-proprietor business registration. 

It’s simple to register and maintain

You don’t have to go through a complicated process to register your business. Instead, it can be done by just following 3 steps.

You get to keep all the profits.

As there are no other owners or stakeholders, you get to keep the entirety of the profits generated by your business. 

Freedom to make decisions

This is one of the main benefits individual business owners enjoy by registering a sole proprietorship. As there are no other decision-makers, you get to make independent decisions about your business without any interference from anyone. 

It’s a good starting point.

Many businesses that have become large corporations started as small/individual businesses. So, individual business registration in Sri Lanka is an ideal option for Sri Lankan entrepreneurs who want to start a business as soon as possible without an extensive process slowing them down.

Disadvantages of individual business registration in Sri Lanka

While there are many advantages in registering as an individual business/sole-proprietor, there are some considerable disadvantages.

Unlimited liability to creditors

Since you are the sole owner, legally, you are liable to pay for any business obligations or debts incurred by the business. 

For example, you buy goods or services from a supplier for your business. Unfortunately, your business goes through a bad period and does not make enough money to pay the supplier. In such a case, the supplier who is now a creditor of your business can come after your personal assets such as houses or vehicles you own to settle that debt.

Due to this, an individual business may not be able to take the same amount of risk to expand the business compared to a private limited business. 

Restrictions in raising money for the operation

Due to you being the only owner of your business, you will not be able to raise money from another person for your business, such as by issuing shares. Therefore, your financing options will be limited to alternatives such as obtaining loans. However, you are likely to run into difficulties as banks in Sri Lanka typically make it harder for individual businesses to obtain loans without significant collateral. 

The duration of the business is limited, leading to a lack of credibility.

The duration of the business is tied directly to the owner’s life. So if the owner passes, then the business ceases to operate. Now you may think this is a minor detail as if you are the owner and you pass away, what point is there in a business?

If you compare that with a private limited business that has no specific duration, consumers and investors will trust that business a lot more because they have assurances that the business would last beyond just the owner. There will be continuity despite the owner no longer being there. They would still be able to obtain goods or services from your business. 

Lack of expertise in decision making

While independent decision making is generally seen as a good thing, not all your decisions will go right. Some decisions will inevitably go wrong. However, as you don’t have anyone around you that you can consult, you are more at risk of making decisions that may go wrong. Especially if you are operating in industries that require a lot more technical experience than you have, you run the risk of making decisions that may lead to disastrous results for your business.

The steps to make an individual business registration in Sri Lanka

Step 1 – Obtain the relevant forms from your provincial council.

Visit the provincial council that applies to you based on your residential address. Once you’re there, you can inform them you want to register a sole-proprietorship business. 

You can register your business in your own name. You also can register it under a fictitious name. Having a fictitious name allows you to build a brand more easily than using your name for the business.

Once you inform them of your requirement, they will provide you with 2 forms.

• A form to register your business name.
• A form to request a report from Grama Niladhari

Step 2 – Submitting the completed Grama Niladhari report and other applications.

Once you have completed the form and have obtained the report from Grama Niladhari, you can submit it to the provincial council. At that point, you must also make the required registration fees to the divisional secretary. 

When submitting the forms and the report, you also need to submit the below.

• A copy of your NIC
• Business premises ownership documents (You have to provide one of the below documents)
• Deed – To show proof that the premises are owned by you
• Lease agreement – To show proof if the premises are rented by you
• Consent letter – To show the proof owner of the premises has consented to the operation of a business
• Varipanam assessment notice
• Affidavit confirming the initial capital of the business

While in most cases, all you need is the above, there are some other documents you may need to submit if you fall into one of the below categories.

Step 3 – Obtaining the Certificate of Registration of Business Name

Once you submit all required documents and pay the fees, the Divisional Secretary will issue a Certificate of Registration of Business Name. Please keep in mind that you need to display this certificate at your place of business.

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How can Simplebooks help?

We’ve helped thousands of small business owners set up, operate and expand their businesses across Sri Lanka. Most of them started small and grew with our help to establish large companies. While we typically recommend anyone to register a Private Limited Business due to the many advantages, we can help you with the process of setting up a sole proprietor business. 

If you’re interested in discussing how we can take care of the entire process for you without worrying about anything, reach out for a free consultation today!