Incorporation &Related Matters

Companies The law applicable for companies is Companies Act No.7 of 2007 Other rules and regulations oSecurities Council Act oSecurities and Exchange Commission of Sri Lanka Act No.36 of 1987 oCSE Rules oTake Over and Mergers Code oUnit 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 CERTIFICATE OF INCORPORATION (c) Issue a CERTIFICATE OF INCORPORATION The Certificate of Incorporation specify  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 when a company is incorporated under the Companies Act it is treated as a separate legal entity Veil of Incorporation = this is called “Veil of Incorporation” Legal Persons Natural Persons Artificial Persons Crated under the Companies Act Crated by law of Parliament

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 oWhich has the capacity to carry on or undertake any business or activity, do any act or enter in to any transaction (subject to Sec13) oAll 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 person required by law - To be in writing signed by that person and notarially attested - in writing and signed by that person - is not required by law to be in writing on behalf of the company -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 the company's express or implied authority; - in writing or orally, by a person acting under the company's express or implied 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 Restrictions Conditionally 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.