Launching a new business involves a critical set of legal steps to ensure compliance, protect your assets, and lay a solid foundation for future growth.
Here are the essential legal steps every new business must take:
1. Choose a Business Structure
This is the foundational decision that impacts liability, taxation, and administrative burden.
Sole Proprietorship: Simplest to set up, minimal formalities.
5 The business is not a separate legal entity from the owner.6 Unlimited personal liability for business debts and obligations.7 Partnership: Two or more individuals agree to share in the profits or losses.
8 Requires a partnership agreement.9 Unlimited personal liability for each partner (though some forms might offer limited liability to certain partners).Private Limited Company (Pvt Ltd): The most common choice for startups aiming for growth.
10 It's a separate legal entity from its owners (shareholders).11 Limited liability, meaning personal assets are generally protected.12 More complex to set up and maintain, with more compliance requirements.Public Limited Company (PLC): For larger entities that intend to offer shares to the public. Much higher compliance and regulatory burden.
Overseas Company (Branch Office): For foreign companies looking to establish a presence in Sri Lanka.
Recommendation: For most startups, a Private Limited Company is generally recommended due to the limited liability protection and the ease of attracting investment later.
2. Register Your Business Name
Name Availability Search: Before registering, you need to check if your desired business name is available and not already registered by another company.
14 For companies, this is done through the Department of the Registrar of Companies (DRC) website (eROC portal).15 For sole proprietorships and partnerships, it's typically done at your local Divisional Secretariat office.Name Reservation: Once available, reserve your chosen name with the relevant authority. For companies, this reservation is usually valid for a limited period (e.g., 3 months).
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3. Business Registration/Incorporation
This is the formal act of legalizing your business.
For Sole Proprietorships/Partnerships:
Obtain and complete the application form from your Divisional Secretariat Office.
17 Obtain a certified report from the Grama Niladhari (village officer) regarding your business name registration and premises.
18 Submit required documents (NIC copies of owners/partners, proof of land ownership/lease agreement/consent letter for premises, trade permit if applicable, partnership agreement for partnerships).
19 Pay the applicable registration fees.
Receive the Certificate of Registration of Business Name.
For Private Limited Companies (Pvt Ltd) - through eROC:
Online Registration: Sri Lanka has embraced the eROC (e-Registrar of Companies) system for online company registration, making the process significantly easier.
20 Required Forms: You'll typically need to submit:
Form 1: Application for the Registration of a Company.
Form 18: Consent of Initial Directors.
21 Form 19: Consent of Initial Secretary.
Articles of Association (AoA): This document lays down the rules and regulations for the internal management of the company.
22 You can adopt the standard "Model Articles of Association" provided in the Companies Act or draft your own (often done with legal assistance).23 Company Secretary: A Private Limited Company in Sri Lanka is legally required to appoint a qualified Company Secretary.
24 This can be an individual or a firm specializing in company secretarial services (e.g., D. L. & F. De Saram, Paul Ratnayeke Associates, eSecretary, ECSS).25 They assist with compliance.Registered Office Address: You must provide a valid registered office address in Sri Lanka.
26 Submission and Payment: Upload scanned, signed documents (PDF format) and make the necessary payments via credit/debit card on the eROC portal.
27 Certificate of Incorporation: Upon successful processing, you will receive your Certificate of Incorporation and a Company Registration Number.
Public Notice of Incorporation (for Pvt Ltd): After incorporation, you are typically required to publish a public notice in at least one gazette and one local newspaper (in all three languages) announcing the company's registration.
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4. Tax Registration
Every business operating in Sri Lanka needs to comply with tax regulations.
Taxpayer Identification Number (TIN): This is mandatory.
30 You must register with the Inland Revenue Department (IRD) to obtain a TIN.31 For registered companies, the company will automatically be registered for Corporate Income Tax upon successful TIN registration.32 This can be done online through the IRD e-services portal (RAMIS).Value Added Tax (VAT) Registration: If your projected or actual annual turnover exceeds the VAT threshold (currently LKR 60 million annually or LKR 15 million quarterly, but confirm latest figures with IRD), you must register for VAT.
33 You can also opt for voluntary VAT registration if you are below the threshold but expect to exceed it or if your business works primarily with other VAT-registered entities.34 Other Taxes: Depending on your business type and activities, you may also need to register for:
Withholding Tax (WHT)
35 Social Security Contribution Levy (SSCL)
PAYE (Pay As You Earn) for employees
36 Stamp Duty
37 Betting & Gaming Levy (if applicable)
Consult a Tax Advisor: It's highly advisable to consult with a qualified accountant or tax advisor to understand your specific tax obligations and ensure compliance.
5. Obtain Licenses and Permits
These are often industry-specific and location-specific.
Trade License: Required by local municipal or divisional councils for most businesses operating within their jurisdiction.
38 Environmental Permits: If your business operations have an environmental impact (e.g., manufacturing, waste processing), you may need clearances from the Central Environment Authority (CEA) or other relevant bodies.
39 Industry-Specific Licenses:
Food and Beverage: Health permits from the Public Health Inspector (PHI).
Construction: Permits from local authorities, CIDA registration for contractors.
Healthcare/Pharmaceuticals: Approvals from the Ministry of Health, National Medicines Regulatory Authority (NMRA).
Tourism: Licenses from the Sri Lanka Tourism Development Authority (SLTDA).
40 Import/Export: Registration with the Department of Commerce and potentially the Export Development Board (EDB).
41 Financial Services: Licenses from the Central Bank of Sri Lanka (CBSL) or Securities and Exchange Commission (SEC).
Police Reports/Divisional Secretariat Approvals: Required for certain businesses like guesthouses, spas, or those operating in specific sensitive areas.
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6. Comply with Labor Laws (If Hiring Employees)
EPF (Employees' Provident Fund) & ETF (Employees' Trust Fund) Registration: Mandatory social security contributions for employees.
43 You must register with the Department of Labour for EPF and ETF.Employer contributes 12% of employee's earnings to EPF.
44 Employer contributes 3% of employee's earnings to ETF.
45 Employee contributes 8% of earnings to EPF.
Employment Contracts: Draft legally compliant employment contracts outlining terms, conditions, remuneration, and benefits.
46 Adherence to Labor Regulations: Comply with relevant acts like the Shop and Office Employees Act, Wages Boards Ordinance, and other labor laws regarding working hours, holidays, minimum wages, and termination procedures.
Workplace Health and Safety: Ensure your workplace adheres to occupational health and safety regulations.
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7. Open a Business Bank Account
Separate Finances: Crucial for maintaining clear financial records and separating personal and business finances.
48 Requirements: Banks will typically require your Business Registration Certificate, TIN, company details (if applicable, Form 1, Form 18, Form 19, Articles of Association), and NICs of directors/proprietors.
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8. Intellectual Property (IP) Protection
Trademark Registration: Protect your brand name, logo, and slogans by registering them with the National Intellectual Property Office (NIPO) of Sri Lanka.
50 This prevents others from using your brand identity.Patent/Copyright: If you have innovative inventions or creative works (software, artistic designs), consider registering patents or copyrights.
9. Annual Compliance and Reporting
Legal obligations don't end after registration.
Annual Returns (for Companies): Private Limited Companies must file annual returns and financial statements with the Registrar of Companies.
51 Tax Filings: Timely submission of income tax returns, VAT returns, and other relevant tax documents.
License Renewals: Renew all applicable trade licenses, industry-specific permits, and company registration annually.
52 Statutory Records: Maintain statutory registers (e.g., directors, shareholders) and other corporate records as required by the Companies Act.
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Seeking Professional Advice:
While this guide provides a comprehensive overview, the nuances of legal compliance can be complex. It is highly recommended that you consult with:
A qualified Attorney-at-Law specializing in corporate or commercial law.
A Chartered Accountant or Tax Advisor.
54 A professional Company Secretarial Service provider.
These professionals can provide tailored advice, handle complex paperwork, and ensure you comply with all legal requirements specific to your business and industry in Sri Lanka, saving you from costly mistakes in the long run.