Company Incorporation in Sri Lanka

A Comprehensive Legal Overview for Local and Foreign Investors

As Sri Lanka continues to strengthen its position as a strategic commercial hub in South Asia, both local entrepreneurs and foreign investors are increasingly exploring opportunities to establish companies within its jurisdiction. Incorporation in Sri Lanka is governed primarily by the Companies Act No. 7 of 2007, supported by foreign exchange and investment-related regulations that ensure transparency, governance, and regulatory stability.

Drawing from my experience advising both multinational investors and domestic corporates, this article provides a practical yet expert-level overview of who can incorporate a company, the applicable laws, foreign ownership thresholds, incorporation procedures, and the legal framework governing foreign exchange and investment.

Who Can Incorporate a Company in Sri Lanka?

Any individual, local or foreign can incorporate a company in Sri Lanka, as can foreign incorporated entities, joint ventures, and investment groups. Foreign individuals or companies may establish a fully foreign-owned private limited company (where sector regulations permit) or a joint venture with local shareholders in industries where foreign ownership is capped.

Can Foreigners Incorporate a Company in Sri Lanka?

Yes, subject to sector-specific foreign investment rules.

Sri Lanka permits foreign investors to hold up to 100% of the shares of a locally incorporated company, except in industries where ownership is restricted or capped under the Foreign Exchange Act No. 12 of 2017 and related investment regulations.

Sectors Allowing 100% Foreign Ownership

Most sectors are open to full foreign participation, including:

• Information Technology and digital services
• Construction and infrastructure
• Professional services
• BPO/KPO
• Hospitality and tourism
• Retail (only where foreign investment exceeds USD 5 million)

Sectors with a 40% Foreign Ownership Cap

Foreign ownership is limited to 40% unless special approval is granted by the Board of Investment (BOI). These sectors include:

• Education
• Mass communication
• Travel agencies
• Freight forwarding & shipping agencies
• Certain agricultural and raw material processing industries
• Mining and primary processing of natural resources

Sectors Reserved Exclusively for Sri Lankan Nationals

Foreign shareholding is prohibited in:

• Pawn brokering
• Money lending
• Security services
• Coastal fishing
• Retail trade under USD 5 million investment

Applicable Legal Framework

1. Companies Act No. 7 of 2007

This Act governs all aspects of incorporation, shareholder rights, director duties, compliance, and statutory filings. It regulates both local companies and overseas companies registering a branch presence.

2. Foreign Exchange Act No. 12 of 2017 (FEA)

The FEA sets limits on foreign shareholding and prescribes the categories where foreign investment is permitted, restricted, or prohibited. It also grants general permission for non-resident investors to hold up to 100% of the shares of local companies except in restricted sectors.

3. Sector-Specific Regulations & BOI Approvals

Industries such as aviation, shipping, large-scale mining, lotteries, and arms manufacturing require line-ministry or BOI approval before incorporation.

4. Securities Investment Account (SIA) Rules

Foreign investors must route their capital contributions through a Securities Investment Account (SIA) maintained with a licensed commercial bank in Sri Lanka. This ensures compliance with foreign exchange regulations and facilitates repatriation of profits and capital.

Shareholder Requirements & Ownership Structure

Private Limited Liability Companies

• Minimum shareholders: 1
• Maximum shareholders: 50

The percentage of foreign shareholding depends entirely on sector-specific restrictions prescribed under applicable laws and regulations. Companies engaging in activities that permit foreign shareholding must clearly state their business objectives in the Articles of Association.

Types of Companies That Can Be Incorporated

Under the Companies Act, a business may be structured as:

1. Private Limited Liability Company (Pvt Ltd)
   Suitable for most business ventures; subject to a simpler compliance framework.
2. Public Limited Company (PLC)
   Allows issuing shares to the public; higher transparency and reporting obligations.
3. Company Limited by Guarantee
   Typically used for NGOs and non-profit organisations; no share capital.
4. Overseas Company (Branch Office)
   Foreign companies registering a place of business in Sri Lanka.

Process of Incorporation in Sri Lanka

While the process remains standardized, foreign-owned entities must meet additional compliance duties:

1. Name Reservation
   Apply online with the ROC to reserve the proposed company name.
2. Drafting Articles of Association
   Companies may adopt the model Articles or draft customized Articles. Foreign-owned companies must specify objectives clearly.
3. Preparation of Incorporation Documents

   The following must be submitted to the ROC:

   • Form 1 – Application for Incorporation
   • Form 18 – Consent of Directors
   • Form 19 – Consent of Secretary
   • Proposed Articles of Association
4. Capital Remittance for Foreign Shareholders
   Foreign investors must remit investment capital via an SIA.
5. Issuance of Certificate of Incorporation
   Upon approval, the ROC issues the Certificate of Incorporation, legally establishing the entity.
6. Post-Incorporation Compliance
   • Appointment of a qualified company secretary
   • Filing annual returns and audited financial statements
   • Maintaining a registered office in Sri Lanka

Conclusion

Sri Lanka offers a well-structured, investor-friendly legal framework for company incorporation. With clear statutes, established regulatory procedures, and defined foreign ownership rules, both local and international investors can set up operations smoothly, provided they navigate sectoral restrictions and foreign exchange compliance accurately.

For foreign investors, understanding ownership caps, BOI-linked approvals, and capital remittance rules under the Foreign Exchange Act is crucial for risk-free entry into the Sri Lankan market.

If your company or your client is exploring incorporation in Sri Lanka, professional guidance is essential to ensure compliance with both corporate and foreign exchange regulations. Our firm is well-positioned to advise on every stage of the process, from structuring ownership to obtaining regulatory approvals.

By: D & D Associates – Legal Department

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