Incorporation and registration of a company
A company is an artificial legal person created by registration under the Companies Act No. 7 of 2007, separate from its members, usually with limited liability and perpetual succession.
What incorporation means
Incorporation is the legal process that creates a company: an artificial person recognised by law, separate from the people who own and run it. In Sri Lanka companies are incorporated under the Companies Act No. 7 of 2007, which replaced the Companies Act of 1982. Once the Registrar-General of Companies registers the company and issues a certificate of incorporation, it exists as a body corporate. The leading case is Salomon v Salomon & Co Ltd: Mr Salomon sold his boot-making business to a company he controlled and took secured debentures. When the company failed, the House of Lords held that the company was a separate person from Salomon, so he was not personally liable for its debts, and as a secured creditor he was paid before the unsecured creditors.
Features of a company
- Separate legal entity: the company, not its members, owns its property and owes its debts.
- Limited liability: in a limited company, a shareholder risks only any amount unpaid on his shares.
- Perpetual succession: the company continues despite the death, retirement or change of its members.
- Can own property, make contracts, and sue and be sued in its own name.
- Transferable shares: subject to the articles; private companies usually restrict transfers.
- Separation of ownership and management: shareholders own, the board of directors manages.
- Regulation: it must keep records and file returns with the Registrar.
- Lifting the veil: courts may look behind the company where it is used for fraud or as a sham.
Types of companies
| Type | Key feature | Example |
|---|---|---|
| Company limited by shares | Shareholders' liability limited to any amount unpaid on their shares | Most trading companies |
| Company limited by guarantee | Members promise to contribute a fixed amount if it is wound up | Clubs, professional and charitable bodies |
| Unlimited company | Members' liability is not limited | Rare |
| Private company | Its articles bar it from offering shares to the public and limit the number of its shareholders; name ends with '(Private) Limited' or '(Pvt) Ltd' | Many family businesses |
| Public company | A limited company that is not private; may offer shares to the public. Its name ends with 'Limited' (or 'Ltd'); once listed on the Colombo Stock Exchange, with 'PLC' | Dialog Axiata PLC, Hayleys PLC (both listed) |
| Overseas company | A foreign company with a place of business in Sri Lanka, registered as such | A foreign firm's branch office in Colombo |
Registering a company
After incorporation: keep a registered office and statutory registers, register with the Inland Revenue, and with EPF and ETF once staff are employed.
Dialog Axiata PLC, Hayleys PLC and John Keells Holdings PLC are listed public companies: 'PLC' (Public Limited Company) in the name shows that their shares trade on the Colombo Stock Exchange. A family bakery in Matara that incorporates as a '(Private) Limited' company gains a separate legal personality, so the owners' personal assets are protected if it fails, unless they have given personal guarantees to the bank.
Short answer: “What is meant by the separate legal personality of a company?” A registered company is a legal person distinct from its members; it owns its property and owes its own debts (Salomon v Salomon & Co Ltd).
Structured question: “Distinguish between a private company and a public company.” Private: articles bar public offers and limit shareholders; name ends '(Private) Limited'. Public: may offer shares to the public; name ends 'Limited', or 'PLC' once listed; stricter rules.
Essay: “Explain the features of a company and the procedure for incorporating a company under the Companies Act No. 7 of 2007.” Define incorporation; explain the features (Salomon); list the types; then describe name reservation, documents, filing, registration and the certificate; post-incorporation steps.
Company features S-L-P-O-T-M: Separate entity, Limited liability, Perpetual succession, Own property and sue, Transferable shares, Management separate from ownership.