Limited Liability
Company

Business Name Ordinance

(a) Partnership Business
every Firm having a place of business in Sri Lanka and carrying on business under a business name which does not consist of the true full names of all partners who are individuals and the corporate names of all partners who are corporations without any addition;

(b) Sole Proprietorship Business
every individual having a place of business in Sri Lanka and carrying on business under a business name which does not consist of his true full names without any addition), shall be registered within 14 days after the commencement of business.

Companies Act No. 07 of 2007

Limited Liability Company

Limited Liability Company may be incorporated before commencement of business activities or by converting partnership business or Sole proprietorship business in to Limited Liability Company.

Therefore, any person should consider whether business should be registered or incorporated as a Sole Proprietorship business, Partnership Business or Limited Liability Company before commencement of business activities. Partners or sole proprietors by evaluating advantages or disadvantages of a limited liability company may consider incorporating Private Limited Company.

Advantages of Limited Liability Company

1. Separate Legal Existence
One key characteristic of Limited Liability Company is that it has a separate legal existence apart from its members. Company has separate identity as per law from its members and Directors. Therefore, Limited Liability Company can buy and sell property, hire employees, institute lawsuits and retain attorneys to defend claims against it.

2. Perpetual Succession
Death or incapacity of the Shareholder does not affect the existence of a Private Limited Company or LLC can usually continue existing even after a member transfers his/her shares.

3. Limited Liability
As the name suggests, an LLC offers limited liability to its members. This feature allows members the freedom to hire employees and conduct business that would otherwise put the members' personal assets at risk in a lawsuit.

4. Number of Shareholders & Directors
The Limited Liability Company can be formed with one member (Shareholder) and with one Director under the Companies Act in Sri Lanka.

5. Minimum Investment
Companies Act does not define any limitation on quantum of investment by investors or shareholders and minimum investment required to incorporate a Limited Liability Company in Sri Lanka is par value of a Share. Par value may be Rs. 10, Rs. 100 or any other amount decided by board of directors of a Company. However, minimum investment is defined under other Acts for investments to be made by foreign entities.

6. Income Tax Liability
A company shall be liable to tax separately from its shareholders and arrangements between a company and its managers or shareholders shall be recognised.

7. Income Tax Benefits
Limited Liability Company may enjoy income tax benefits by way of application of lower income tax rates (14%) and tax incentives by way of Enhance Capital Allowances from 100% to 300%.

8. Withholding Tax (WHT)
No WHT shall be deducted on service fee and contract payments under section 85 of Inland Revenue Act, No. 24 of 2017 but Sole Proprietary businesses are subject to deduction of WHT tax at a rate of 5%.