2.1 COMPANIES I. NEW ACT The new Companies Act No. 7 of 2007 was enacted by the Parliament on 20 th October, 2006 and was certified by the Speaker on 20 th March 2007 . The provisions of the Act have been brought into operation on 3 rd May 2007 by an Order made by the Minister of Trade, Marketing Development, Co-operative and Consumer Affairs, and published in the Gazette Extraordinary No. 1493/20 dated 20 th April 2007. II.TYPES OF COMPANIES The following types of Companies can be established under the provisions of the Companies Act No.7 of 2007:- COMPANIES
(a) Limited Company (b) Unlimited Company (c) Company Limited by Guarantee ___________________ Public Private Off-Shore
III. INCORPORATION - Application on Form 1 - Adopt Model Articles or annex a set of Articles - No memorandum of association but objects clause can be included in the Articles. IV. ABOLITION OF DOCTRINE OF ULTRA VIRES Ultra – 'beyond' Vires – 'powers' (a) The doctrine of 'ultra vires' is no more a rule of our Company Law as the New Act does not recognise it. A Company is now not required to have a memorandum. However it can have the objects as a part of the Articles of Association, if the rules of the Exchange Commission or Stock Exchange or a Board of Investment agreement requires the objects to be included. (b) The Fourth Schedule to the Act sets out in terms of Section 37(1) the matters to be specified by a public company in its prospectus. The first matter is "the business which the subscribers or promoters intend that the Company should carry out during the period of five years from the date of commencement of business by the Company." (c) Section 185(1) which contains the provisions in respect of major transactions provides that "a company shall not enter into any major transaction unless such transaction is a transaction which the Company is expressly authorised to enter into by a provision in its articles which was included in it at the time the Company was incorporated." (d) Section 185(2) defines a 'major transaction' to mean, inter alia, "a transaction or service of transactions which have the purpose or effect of substantially altering the nature ofthe business carried on by the Company." (e) According to Section 188 it is a duty of every director of a company not to act or agree to the company acting in a manner that contravenes any provisions of the Act or the provisions contained in the Articles of the company. (f) Although the doctrine of 'ultra vires' is now abolished largely to protect the interests of third parties dealing with the Companies, the Directors and the Secretaries should be mindful of these provisions pointed out in (a) to (e) above. V. PUBLIC NOTICE A company must, within thirty (30) working days of its incorporation under the Companies Act, give public notice ofits incorporation, specifying the name and company number of the company and the address of the company's registered office. VI COMPANY NAME AND CHANGES THEREOF (a) Name Requirements Type of Company Name should end with the words
(b) Restrictions: - not identical - not to contain the words 'Chamber of Commerce' unless it is a company limited by guarantee with licence under Section 34 - not to be misleading. (c) Qualified Restrictions - Not to use the following words without the Minister's consent * 'President' or 'Presidential'............... * 'Municipal' or 'other Local Authority' or suggesting connection with any Society or body incorporated by an Act of Parliament * 'Co-operative' or 'Society' * 'National', 'State' or ' Sri Lanka ' or similar words........ (Section 7) (d) Change of Name v Prior, Name Approval from R.G.C. v Only by special resolution with the Registrar's prior approval v Notice to the Registrar – Form 03 v Registrar's Certificate under Section 8(3)(b) v Not to affect rights and obligations or pending legal proceedings v Public Notice to be given v Consequent to change of status (i.e. Public Company / Private Company) (Sections 8, 9, 10 and 11) (e) The Registrar is empowered to give directions to change a company's name (f) Giving Company Name and Number mandatory A company should 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. (Section 12) VII. REGISTERED OFFICE (a) Every company should have a registered office in Sri Lanka. A company can now have its registered office in any part of Sri Lanka (under the earlier Law it was required to be in the judicial district mentioned in the Memorandum of Association). (b) Subject to the company's articles and to the requirements to give notice to the Registrar on Prescribed Form 13 the board of a company may change the registered office of the company at any time. It may be prudent to delete the clause in respect of the registered office in the Memorandum of Association of an existing company as it also becomes part of the Articles. (c) The new Act has introduced a new requirement that if the registered office of a company is at the office of any chartered accountant, attorney-at-law, or any other person, the description of the registered office shall state— (i) that the registered office of the company is at the office of the Chartered Accountant, Attorney-at-Law, or any other person; and (ii) the particulars of the location of those offices. (d) Notice of change of registered office on Form 13 given to the Registrar will take effect five working days after the notice is received by the Registrar, or on such later date as may be specified in the notice. (Please see sections 113 and 114). VIII. STATUTORY FORMS AND RETURNS - A CHECK LIST
Note : Registration fees are payable as per the gazette notification and are subject to variation from time to time. However, the above specified fees are subject to 15% VAT. IX. STATUTORY BOOKS AND REGISTERS A Company should ensure that the following statutory books and registers are duly maintained :- (a) Minutes Books: For recording proceedings of General and Board Meetings Section 147 (b) Attendance Books: For recording attendance at Company and Board Meetings. In the case of some companies their Board of Director have decided to dispense with the requirements of taking attendance at the Board Meeting (c) Index of Shareholders: When the number of Shareholders exceeds 50 – (Section 126). (d) Share Register: A Share Register recording the shares issued by the Company and the names and the last known address of each shareholders and the number of shares of each class held by them during the last 10 years and should also include the date of any issue, repurchase or redemption of shares from or transfer of shares by or to such shareholders (Section 123). (e) Register of Directors and Secretaries: Register of Directors and Secretaries containing their names residential address and business occupation (if the secretary is a corporate body its name and registered or principal office) – (Section 223). (f) Register of Charges: For recording all charges specifically affecting property of the Company and all floating charges on the undertaking or any property of the Company specifying in each case a short description of the property charged, amount of the charge and except in the case of securities to bearer the names of persons entitled thereto – (Section 110). (g) Interests Register – Register to record any transaction or proposed transactions with the Company in which a Director is interested within the meaning of Section 191 – (Section 192). (h) Other Companyrecords referred to in Section 116. X. REGISTRATION OF CHARGES (a) 'Charge' is defined to include a mortgage. The charges required to be registered are listed in Section 102(2). (b)Charge created by a company on the security of its property or undertaking – to be registered within 21 days from the date of instrument of charge on Form 10 (Section 102). If it is in respect of a charge by an instrument executed outside Sri Lanka time for registration is extended to 3 months from the date of execution. (c)If not registered, it is void against any liquidator or creditor of the Company – Section 103. XI. CONTRACTS ON BEHALF OF THE COMPANY (a) Common seal not mandatory One of the important deviations made by the new Act is dispensing with the mandatory requirements of the common seal. However, the new Act recognizes that a company may have a common seal. For example, Section 12(1) states that a company shall ensure that its name and its company number are clearly stated in the common seal, if any. (b) Mode of Execution A contract or other enforceable obligation may be entered into by a company by its authorised persons as provided for in Sections 19 and 20. (c) Pre-Incorporation Contracts Sections 23 to 25 contains provisions giving sanctity to pre-incorporation contracts. (d) Authentication of Documents A document or record of proceedings requiring authentication by a company shall be signed by a director, secretary, or other authorised officer of the company. (Section 26) XII. COMPANY SECRETARY 
XIII. APPOINTMENT AND REMOVAL OF DIRECTORS (a) Number at least two for a Public Company at least one for any other Company (Section 201) (b) Qualifications Any person who is not disqualified under Section 202(2) can be appointed as a Director of a company. The following persons are so disqualified :- (i) a person who is under eighteen years of age; (ii) a person who is an undischarged insolvent; (iii) a person who is or would be prohibited from being a director of or be concerned or taking part in the promotion, formation or management of a company, under the Companies Act, No. 17 of 1982, but for the repeal of that Act; (iv) a person who is prohibited from being a director or promoter of or being concerned or taking part in the management of a company under section 213 or section 214 of the Act; (v) a person who has been adjudged to be of unsound mind; (vi) a person that is not a natural person; (vii) in relation to any particular company, a person who does not comply with any qualifications for directors contained in the articles of that company. (c) Disqualifications Where a person— (i) has been convicted of any offence under this Act which is punishable by imprisonment; (ii) has been convicted of an offence involving dishonest or fraudulent acts; (iii) is adjudged insolvent under the Insolvency Ordinance (Cap. 97) ; or (iv) adjudged to be of unsound mind, such person should not, during the period of five years after the conviction or adjudication, as the case may be, be a director or promoter of or in any way, whether directly or indirectly, be concerned or take part in the management of a company, unless that person first makes an application to obtain the leave of the court. Leave may be given on such terms and conditions as the court thinks fit. (Section 213(1)) (d) Court may disqualify directors Where a person— (i) is prohibited from being a director of company under section 213; (ii) while a director of a company, has persistently failed to comply with the provisions of the Act; (iii) has been convicted of an offence of involving dishonest or fraudulent acts in a country other than Sri Lanka; or (iv) was a director of a company which became insolvent and that person's conduct as a director of that company or of any other company makes that person unfit to be a director of a company, the court may make an order that the person shall not, without leave of court, be a director or promoter of or in any way whether directly or indirectly be concerned or take part in the management of a company, for such period not exceeding ten years as may be specified in the order. (e) Appointment and Removal (i) First Directors : Directors named in the application for incorporation or in the amalgamation proposal will continue as a Director until he ceases to be such a director in accordance with the provisions of the Act (Section 204(1)) (ii) Subsequent Directors : can be appointed by ordinary resolution of shareholders unless the articles otherwise provide (Section 204(2)) Every appointment of Directors should be voted on individually. (Section 205) (iii) Removal : Subject to the provisions in the articles a director may be removed from office by ordinary resolution passed at a general meeting called for that purpose (Section 206). (iv) Vacation or Cessation of Office: The office of director of a company will be vacated if the Director - (a) resigns from his office in accordance withsection 207(2); (b) is removed from office in accordance with the provisions of the Act or the articles of the company; (c) becomes disqualified from being a director in terms of the provisions of section 202; (d) dies; (e) vacates office pursuant to section 210(2); or (f) otherwise vacates office in accordance with the articles of the company. (v) Resignation A notice of resignation of a Director will become effective when it is received at the registered office of the Company or at a later time specified in the notice. (Section 207(2)) However where a company has only one director that director may not resign office until that director has called a meeting of shareholders to receive notice of resignation and to appoint one or more new directors. In any event notices of resignation of a sole director will not take effect until the date of such meeting of shareholders. (f) Age limit A person who has attained the age of Seventy years will vacate office if he is a Director of:- (i) a public company or (ii) a private company which is a subsidiary of a public company, (a) at the conclusion of the annual general meeting commencing next after he attains the age of seventy years ; (b) if he is reappointed as a director after attaining the age of seventy years, at the annual general meeting following that reappointment. Unless reappointed by a resolution passed at a general meeting approving such reappointment declaring that the age limit would not apply to him. (Sections 210 and 211) XIV. VALIDITY OF ACTS OF DIRECTORS The acts of a person as a director will valid notwithstanding the fact that :- (a) the person's appointment was defective; or (b) the person is not qualified for such appointment XV. POWERS OF MANAGEMENT OF DIRECTORS Section 184 vests the power of management of a company in its board of directors subject to the provisions in the articles of association of the Company. Of course the board of directors should be mindful of the provisions of section 185 in respect of major transactions and the statement made in the Company's prospectus issued under Section 37(1) read with the Fourth Schedule. If there is an unanimous agreement of shareholders in terms of section 31(1) certain specified provisions (including section 185 or major transactions) will not apply to a private company. XVI. MAJOR TRANSACTIONS A company cannot enter into any major transactionunless such transaction is - (a) approved by special resolution; (b) contingent on approval by special resolution; (c) consented to in writing by all the shareholders of the company; or (d) a transaction which the company is expressly authorized to enter into by a provision in its articles which was included in it at the time the company was incorporated. However , this restriction will not apply to - (a) a transaction under which a company gives, or agrees to give, a floating charge over all or any part of the property of the company; (b) a transaction entered into by a receiver appointed pursuant to an instrument creating a floating charge over all or any part of the property of the company; (c) a transaction entered into by an administrator or liquidator of a company. The provisions contained in Section 185 in respect of the Major Transactions will not apply to Private Companies acting with unanimous shareholder approval. Although the doctrine of ultra vires is abolished under the new law and the objects are not mandatory one has to be mindful of the item (d) in the definition of "Major transaction" quoted above. A transaction (or a series of transactions) which has (have) the purpose or effect of substantially altering the nature of the business carried on by the Company cannot be entered into without the approval or ratification of at least 75% of the Shareholders unless it is included in one of the objects (included in the Articles). Therefore it may be prudent to have a set of objects to cover all the anticipated businesses. "Assets " has been defined to include property of any kind, whether corporal or incorporeal; "Major transaction ", has been defined to mean – (a) the acquisition of, or an agreement to acquire, whether contingent or not, assets of a value which is greater than half the value of the assets of the company before the acquisition; (b) the disposition of, or an agreement to dispose of, whether contingent or not, the whole or more than half the value of the assets of the company; (c) a transaction which has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities of a value which is greater than half the value of the assets before the acquisition; or (d) a transaction, or series of related transactions which have the purpose or effect of substantially altering the nature of the business carried on by the company. (Section 185) "Floating Charge" : A Company may grant a charge to which Part XIV of the Act applies (in the Act referred to as a 'floating charge') over the whole or any part of the property and undertaking of the Company, for the purpose of securing a debt or any other obligation incurred or to be incurred by the Company or any other person. (Section 427) XVII. DELEGATION OF POWERS BY DIRECTORS Section 186 permits the board of directors to delegate their powers as provided for therein subject to any restrictions in the articles of association of the Company. XVIII. DUTIES OF DIRECTORS The new Act imposes statutory duties on directors of a company :- (a) to act in good faith and in the best interests of the Company. (Section 187). (b) to comply with the Act and the Company's articles of association. (Section 188). (c) not to actin a manner which is reckless or grossly negligent but to exercise the degree of skill and care that may reasonably be expected of a person of his knowledge and experience. (Section 189). (d) to rely on and use information and advice received from others only if he knows that such reliance isnot unwarranted and if he is not put on notice after making adequate inquiries. (Section 190). (e) to make disclosure of interests. (Section 192) (f) not to use company information. (Section 197) (g) to disclose share dealings. (Section 200) (h) to approve remuneration and other benefits for directors only as provided for in Section 216. (i) not to give loan or provide guarantee or security to a director unless permitted under Section 217. (j) to act as provided for in Section 219 in the event of a situation of insolvency. (k) to call an extra-ordinary general meeting if it appears that there will be serious loss of capital. (as provided for in Section 220). XIX. INTERESTS REGISTER Every company should maintain an Interests Register. However, in the case of a private company, such register can be dispensed with (Please see paragraph XXV(b) below). A director of a company should disclose his interests and have the same entered in the Interests Register. Furthermore, remuneration and other benefits to directors should also be entered in the Interests Register XX. INDEMNITY AND INSURANCE A company can indemnify or directly or indirectly effect insurance for a director or employee of the company or of a related company only in the manner set out in section 218. XXI. SHARES (a) No par value A company will not have authorised capital or par value for shares under the new Act. (b) Stated Capital Subject to section 59, (in respect of reduction of stated capital) stated capital, in relation to a company, means the total of all amounts received by the company or due and payable to the company (a) in respect of the issue of shares; and (b) in respect of calls on shares Where a share is issued for consideration other than cash, the board shall determine the cash value of such consideration for the above purposes. (Section 58) (c) Rights attached to every share Subject to the Articles a share in a Company confers on the holder the rights (a) to one vote on a poll at a meeting of the company on any resolution; (b) to an equal share in dividends paid by the company; (c) to an equal share in the distribution of the surplus assets of the company on liquidation. (Section 49) Shares can be issued conferring rights other than those set out above by the board of directors of a company in conformity with section 51(3). (d)Different Classes of Shares A company may issue different classes of shares, and in particular may issue shares which - (a) are redeemable; (b) confer preferential rights to distributions; or (c) confer special, limited, or conditional voting rights, or confer no voting rights. (Section 49) (e) Consideration for issue of shares Before issuing any shares the board of directors of the company should:- (a) decide the consideration for which the shares will be issued; and (b) resolve that in its opinion that consideration is fair and reasonable to the company and to all existing shareholders. The consideration for which a share is issued may take any form including cash, promissory notes, future services, property of any kind, or other securities of the company. Upon receipt of the consideration, the company should within a period of 20 days make allotment of the shares. (Section 52) (f) Pre-emptive rights to new shares Subject to the articles, where a company issues shares which rank equally with or above existing shares in relation to voting or distribution rights, those shares shall be offered to the holders of existing shares in a manner which would, if the offer was accepted, maintain the relative voting and distribution rights of those shareholders. Such an offer should remain open for acceptance for a reasonable period of time. (Section 53) (g) Method of issuing shares A share is deemed to be issued when the name of the holder is entered on the share register, and such entry shall be made prior to giving notice required to be given to the Registrar. However, the issue by a company of a share which imposes a liability to the company on the holder will be invalid and of no effect until such time as the person to whom it is issued has consented in writing to become the holder of the share. (Section 54) (h) Distribution to Shareholders "Distribution" is defined to mean (a) the direct or indirect transfer of money or property, other than the shares of a company, to or for the benefit of a shareholder; or (b) the incurring of a debt to or for the benefit of a shareholder, in relation to a share or shares held by that shareholder, whether by means of a payment of a dividend, a redemption or other acquisition of the share or shares, a distribution of indebtedness or otherwise. Before a distribution is made by a company to any shareholder, such distribution shall - (a) be authorised by the board ; and (b) unless the articles provide otherwise, be approved by the shareholders by ordinary resolution. The board of a company may authorise a distribution at such time and in such amount as it considers appropriate, where it is satisfied that the company will, immediately after the distribution is made, satisfy the solvency test. (Section 56) (i) Solvency Test A company will be deemed to have satisfied the solvency test, if— (a) it is able to pay its debts as they become due in the normal course of business; and (b) the value of the company's assets is greater than — (i) the value of its liabilities; and (ii) the company's stated capital. In determining whether a company satisfies the solvency test, the board (a) shall take into account the most recent financial statements of the company prepared in accordance with section 151 of the Act; (b) shall take into account circumstances the directors know or ought to know which affect the value of the company's assets and liabilities; (c) may take into account a fair valuation or other method of assessing the value of assets and liabilities. (Section 57) (j) Dividends A dividend is a distribution out of profits of the company other than an acquisition by the company of its own shares, or a redemption of shares by the company. The board of a company should not authorise a dividend in respect of some shares in a class, and not others of that class; or of a greater amount in respect of some shares in a class than other shares in that class, except where— (a) the amount of the dividend is reduced in proportion to any liability attached to the shares under the articles; or (b) a shareholder has agreed in writing to receive no dividend, or a lesser dividend than would otherwise be payable. (Section 60) (k) Personal liability of Directors for irregular distribution Where, in relation to a distribution to which Section 61(1) applies, the procedure set out in section 56 has not been followed; or reasonable grounds for believing that the company would satisfy the solvency test did not exist at the time the certificate was signed, every director who— (a) failed to take reasonable steps to ensure the procedure was followed; or (b) signed the certificate, as the case may be, will be personally liable to the company to repay to the company, so much of the distribution as the company is not able to recover from shareholders. (Section 61(2)) (l) Alteration of Shareholder's Rights A company cannot take any action that would affect the rights attached to shares unless that action has been approved by a special resolution of each interest group. (Section 99) For the purposes of this section, the rights attached to a share include :- (a) the rights, privileges, limitations, and conditions attached to the share under this Act or the articles, including voting rights and rights to distributions; (b) pre-emptive rights under section 53; (c) the right to have the procedure set out in this section, and any further procedure required by the articles for the amendment or alteration of the articles observed by the company; and (d) the right that a procedure required by the articles for the amendment or alteration of the articles not be amended or altered. (m) Minority Buy-Out Rights (a) Where a shareholder is entitled to vote on the exercise of the power set out in:- (i) paragraph (a) of subsection (1) of section 92 to alter the company's articles, and the proposed alteration imposes or removes a restriction on the business or activities in which the company may engage or (ii) paragraph (b) or (c) of subsection (1) of section 92 in respect of major transactions or amalgamation, and the shareholders resolved to exercise those powers, and – (a) the shareholder cast all the votes attached to shares registered in the shareholder's name and having the same beneficial owner, against the exercise of the power; or (b) where the resolution to exercise the power was passed under section 144, the shareholder did not sign the resolution in respect of the shares registered in the shareholder's name and having the same beneficial owner, that shareholder will be entitled to require the company to purchase those shares in accordance with section 94. (Section 93) (b) Where an interest group has approved the taking of any action that affects the rights attached to shares, the company becomes entitled to take the action; and (i) a shareholder who was a member of the interest group cast all the votes attached to the shares registered in that shareholder's name and having the same beneficial owner against approving the action; or (ii) where the resolution approving the taking of the action was passed under section 144, a shareholder who was a member of the interest group did not sign the resolution in respect of the shares registered in that shareholder's name and having the same beneficial owner, such shareholder will be entitled to require the company to purchase those shares in accordance with section 94. (Section 100) "Interest Group" is defined to mean – in relation to any action or proposal affecting rights attached to shares, a group of shareholders – (a) whose affected rights are identical; and (b) whose rights are affected by the action or proposal in the same way.
XXII. SHAREHOLDERS
XXIII. GENERAL MEETINGS (a) Annual General Meeting Annual General Meetings will have to be held ONCE in each calendar year – - Not later than 6 months after the Balance Sheet Date; and - Not later than 15 months after the previous Annual General Meeting ("AGM"). BUT the first Annual General Meeting need not be held in the calendar year of incorporation but it should be held within 18 months from the date of incorporation. However, if everything required to be done at an Annual General Meeting is done by resolution in writing, it is not necessary to hold the Annual General Meeting. (Section 133) (b) Convening of extraordinary general meeting on requisition (i) Notwithstanding anything in its articles the directors of a company, are bound, on the requisition of shareholders holding at the date of the deposit of the requisition, shares which carry not less than ten percent of the votes which may be cast on an issue, to forthwith proceedduly to convene an extraordinary general meeting of the company to consider and vote on that issue. The meeting shall be convened not later than fifteen working days after the date of the deposit of the requisition, and held no later than thirty working days after the date of the deposit of the requisition. (ii) The requisition should state the issue or issues to be considered and voted on at the meeting and shall be signed by the requisitionists and deposited at the registered office of the company, and may consist of several documents in like form, each signed by one or more requisitionists. (iii) Where the directors do not within fifteen working days from the date of the deposit of the requisition duly proceed to convene a meeting, the requisitionists, or any of them representing more than one half of the total voting rights of all of them may themselves convene a meeting, but any meeting so convened shall not be held after the expiration of three months from the said date. (c) Notices for calling General Meetings Any provisions of a company's articles are void in so far as it provides for calling of a meeting of the company (other than an adjourned meeting) by a shorter notice than that stipulated by the Act (as indicated below). In other words, the notice for a meeting required to be given by the Articles can be longer than the stipulated period for that notice. A meeting of the company will, notwithstanding that it is called by shorter notice than that specified in the Act or in the company's articles, as the case may be, be deemed to have been duly called if it is so agreed— (i) in the case of a meeting called as the annual general meeting, by all the shareholders entitled to attend and vote at such meeting; and (ii) in the case of any other meeting, by the shareholders having a right to attend and vote at the meeting, being shareholders together holding shares which carry not less than ninety five percent of the voting rights, on each issue to be considered and voted on at that meeting.
(d) Meetings and Votes when the Articles are Silent The provisions in Section 136 will have effect in so far as the articles of the company do not make other provisions in that behalf. (e) Power of Court to order Meetings Where for any reason, it is impracticable to calla meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in the manner specified by the articles or the Act, the court may either of its own motion or on the application of any director of the company or of any shareholder of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and 1'conducted in such manner as the court thinks fit, and where any such order is made, may give such ancillary or consequential direction as it thinks expedient, and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted and any such direction may include a direction that one shareholder of the company present in person or by proxy shall be deemed to constitute a meeting. (Section 137) XXIV. SHAREHOLDERS' RESOLUTIONS IN WRITING (a) For the first time in Sri Lanka the shareholders' resolution can be passed by way of writing without convening general meetings. Subject to the provisions contained in the articles, a resolution in writing signed by not less than eighty five percent of the shareholders who would be entitled to vote on that resolution at a meeting of shareholders, who together hold not less than eighty five percent of the votes entitled to be cast on that resolution, is as valid as if it had been passed at a meeting of those shareholders. However, if the Secretary to the Treasury is the holder of a share in the company his consent in favour of such resolution is mandatory. (b) Subject to the provisions contained in the articles, a resolution in writing that— (a) relates to a matter that is required by the Act or by the articles to be decided at a meeting of the shareholders of a company; and (b) is signed by the shareholders specified in section 144(1), is deemed to be made in accordance with the provisions of the Act or the articles of the company. (c) it will not be necessary for a company to hold an annual general meeting of shareholders under section 133, if everything required to be done at that meeting (by resolution or otherwise) is done by resolution in accordance with section 144. (d) Within five working days of a resolution being passed under section 144, the company should send a copy of the resolution to every shareholder who did not sign the resolution. Where a company fails to comply with those provisions the company will be guilty of an offence, and be liable on conviction to a fine not exceeding one hundred thousand rupees; and every officer who is in default will be guilty of an offence and be liable on conviction to a fine not exceeding fifty thousand rupees. (e) A resolution may be signed without any prior notice being given to shareholders. (f) A person who is registered as the holder of parcels of shares having different beneficial owners, may expressly sign a resolution under section 144 in respect of shares having one beneficial owner and refrain from signing the resolution in respect of shares having another beneficial owner. (g) Notwithstanding any provision in the Act, where the Secretary to the Treasury is the holder of a share of a company, any resolution in writing (referred to above) shall not be valid unless the consent in writing of the Secretary to the Treasury as a holder of the share is also obtained in favour of such resolution. (Section 144) XXV. PRIVATE COMPANIES: SPECIAL PROVISIONS (a) Private Companies A Company will be a Private Company only and if only it complies with the provisions of Section 27 which requires the articles of that company to include provisions which – (i) prohibit the company from offering shares or other securities issued by the company to the public; and (ii) limit the number of its shareholders to fifty, not including shareholders who are – (a) employees of the company; or (b) former employees of the company who became shareholders of the company while being employees of such company and who have continued to be shareholders after ceasing to be employees of the company. (b) Interests Register can be dispensed with A private company may by unanimous resolution of its shareholders dispense with the keeping of an interests register, and while such a resolution is in force, no provision of this Act which requires any matter to be entered in the interests register of a company, will apply to such private company. A unanimous resolution referred to above will cease to have effect, if any shareholder gives notice in writing to the company that he requires it to keep an interests register. (Section 30) (c) Unanimous Agreement by Shareholders of a Private Company Where all the shareholders of a private company agree in writing to any action which has been taken, or is to be taken by the company — (i) the taking of that action is deemed to be validly authorised by the company, notwithstanding any provision in the articles of the company to the contrary; and (ii) the provisions contained in the list of sections of this Act specified in the Second Schedule hereto shall not apply to and in relation to that action. (Section 31). Those provisions are – Section 52 (Consideration for issue of shares) Section 53 (Pre-emptive rights to new issues) Section 56 (Distributions) Section 60 (Dividends) Section 61 (Recovery of distributions) Section 64 (Purchase of own shares) Section 70 (Restrictions ongiving financial assistance) Section 90 (Exercise of powers reserved to shareholders) Section 92(1)(b) (Powers exercised by special resolution) Section 99 (Alteration of shareholder rights) Section 185 (Major transactions) Section 192 (Disclosure of interest) Section 193 (Avoidance of transactions) Section 216 (Remuneration and other benefits) Section 217 (Restrictions on loans to directors) Section 218 (Indemnity and insurance) XXVI. BOARD MEETINGS The Articles of Association govern the proceedings of the Boards of Directors of Companies. The Directors should meet as provided for and required by the Articles of Association XXVII. CHECKLIST FOR MEETINGS
XXVIII.OVERSEAS COMPANY A company incorporated outside Sri Lanka can establish a place of business in Sri Lanka and register its branch in Sri Lanka under the provisions of Part XVIII of the Act. Although the Companies (Special Provisions) Law No. 19 of 1974 and the Foreign Companies (Special Provisions) Law No. 9 of 1975 have been repealed by Section 533(2) of the Act, Section 489(7) of the Act provides as follows:- "A company incorporated outside Sri Lanka shall not establish a place of business within Sri Lanka or be registered as an overseas company, where the business being carried on by that company does not conform to the stipulations made by or under the Exchange Control Act." KN/RP 12.06.07 Companies Act.doc/office/website |
Every Listed Company "Public Limited Company", or "PLC"
Every other limited company "Limited" or 'Ltd'
Private Company "(Private) Limited", or "(Pvt) Ltd." 