Incorporation

&Related Matters
 Companies
• The law applicable for companies is
Companies Act No.7 of 2007
• Other rules and regulations
o Securities Council Act
o Securities and Exchange Commission of Sri Lanka
Act No.36 of 1987
o CSE Rules
o Take Over and Mergers Code
o Unit Trust Code
 What is a Company
• Sec 529-

Company means a company incorporated

under this Act or an existing company.
 Types of companies permitted
• Sec 3(1) – Under the new Act, a Company
could be incorporated as a “ limited
Company” or an “unlimited Company” or as a
“Company limited by guarantee”.

• A major change in the new Act is that it

permits by Sec 4(2) “single shareholder
Companies”.
 Formation of a company
 As per Sec 4 (1) any person or persons may apply to incorporate a
Company, (other than a Company limited by guarantee) by making
an application to the Registrar in the prescribed form signed by
each of the initial shareholders, together with the following
documents:

• A declaration – the name of the Company is not identical or

similar to that of an existing Company.
• The Articles of Association of the Company – signed by each of the
initial shareholders.
• Consent from each of the initial directors, to act as a director.
• Consent from the initial secretary, to act as secretary.
Minimum No.of members.
4. (2)
A company shall have not less than two
shareholders, provided that

a company may have a single shareholder

where such single shareholder is the
Secretary to the Treasury who is holding shares
on behalf of the Government of Sri Lanka or is an
individual or a body corporate.
 Formation of a company contd…
 Sec 5(1) - On receipt of a properly completed application,
the Registrar General should,

• (a)Enter the particulars of the Company on the Register

• (b)Assign a unique number to that Company
• (c) Issue a CERTIFICATE OF INCORPORATION

 Sec 5(2) - The Certificate of Incorporation should specify;

o The name and number of the company

o The date on which the company was incorporated
o Type of the Company
o Whether the Company is a private Company
o Whether the Company is an off-shore Company
 The purpose of Incorporation
• Upon a COI being issued a company become a
body corporate with a separate legal
personality and identity that of its creators.in
the eyes of law it is a legal person distinct,
different and separate from its shareholders.
This is a metaphysical person created by law
with legal but with no physical existence.
 Consequences of Incorporation
1. Separate Legal Personality

2. Perpetual succession

3. Limited liability

4. The right to transfer shares

 Separate Legal Personality/
Veil of Incorporation
Legal
Persons
Natural Artificial
Persons Persons

Crated by law of Crated under the

Parliament
Companies Act

• when a company is incorporated under the

Companies Act it is treated as a separate legal entity
= this is called “Veil of Incorporation”
 Separate Legal Personality Contd...
• Company is an entity separate from those who created it, those who
own it and those who manage it.

• Sec 2- A company is a body corporate-

within and outside Sri Lanka
o Which has the capacity to carry on or undertake any
business or activity, do any act or enter in to any
transaction (subject to Sec13)
o All the powers and privileges necessary for that
 Company Contracts
• Sec 19- A company can enter in to a contract or other enforceable
obligation in the following manner

 if entered into by a natural  on behalf of the company

person required by law
- To be in writing signed by that
person and notarially attested
-in writing signed under the name of the
company by 2 directors/ any other person if
the articles of the company
provide/attorneys appointed by the
company and be notarially executed

-in writing signed by a person acting under

- in writing and signed by that the company's express or implied authority;
person

- in writing or orally, by a person acting

- is not required by law to be in
under the company's express or implied
writing authority.
 Separate Legal Personality Contd...

• Sec 87 - A shareholder should not be liable for any act,

default or an obligation of the company, by reason only of
being a shareholder.
 Case Law on Separate Legal Personality/
Veil of Incorporation

• Salomon v. Salomon & Co. Ltd [1897] AC 22

 From this case comes the fundamental concept that a company

has a legal personality or identity separate from its members.
 A company is thus a legal ‘person’.
• The company is at law a different person
altogether from the subscriber…. ;and though
it may be that after incorporation the business
is the precisely the same as it was before and
same persons are managers, and the same
hands receive the payments the company is in
law not the agent of the subscribers or
trustees for them. Nor are the subscribers, as
members liable in any shape or form except in
the manner provided by the Act
Contd..
• Lee v. Lee’s Air Farming Ltd.

• MaCaura v Northern Assurance Co Ltd [1925]

AC 619
This case established that a company is
separate from the owner as it has separate
legal personality.
• Trade Exchange (Ceylon) Ltd. V. Asian Hotels
Corporation(1981)
• DFCC Bank V Muditha Perera(2010)
 Main legal categories(lifting the veil)
• Agency
• Fraud
• Group enterprises
• Trusts
• Tort
• Enemy
• Tax
• legislations
 COMPANY NAME

The general rule is a company can select a combination

of any set of words it pleases, as its name. However
there are some limitations to this rule

These rules are set out mainly from sec.6 to sec12.

• Sec 6-
• Limited companies other than listed companies -
• Private company-
• Limited companies which is a listed companies-
 RESTRICTIONS ON NAMES

RESTRICTIONS

Absolute Conditionally
Restrictions Restricted

Sec 7(1)
A name -
(a) Identical with the name of any other co.
(b) Misleading in the opinion of the Registrar
• Sec 7(1)(b) - “Chamber of Commerce”
registered under a licence granted under section 34

• Sec 7(2) –
“President”, “Presidential”,
“Municipal”, “Incorporated”,
“Co-operative”, “Society”,
“Natiional”, “State”, “
“Sri Lanka”
Except with the consent of the Minister given
having regard to the national interest.
 Change of Name
• Voluntary change-
• the members of a company can change its name by passing
a special resolution
• Sec 8
• Sec 8(4)
• Sec 9

• Compulsory change-
• the co. registrar may direct a co. to change its name under
sec.10
• According to the sec 11 upon the change of status of a
company co. name has to be change.
 Use of Co. Name and No.
• Sec 12- A company shall ensure that its name and its company number are
clearly stated in-
• (a) all business letters of the company ;
• (b) all notices and other official publications of the company ;
• (c) all bills of exchange, promissory notes, endorsements, cheques and
orders for money or goods signed on behalf of the company ;
• (d) all invoices, receipts and letters of credit of the company ;
• (e) all other documents issued or signed by the company which creates or
is evidence of a legal obligation of the company ; and
• (f) the company seal, if any.

• (2) Every company shall ensure that its name and its company number are
clearly displayed at its registered office.