Law Perspective

BUSINESS FORMS IN
SRI LANKA:
A LEGAL PERSPECTIVE
Group Assignment
By:
Group No: F 24
Group Members
Name Reg: No. Index No.
01. H.A.D. Krishantha (Leader) 57581 5455
02. L.N. Kalubowila 57559 5433
03. T.M.H.J. Karunarathna 57565 5439
04. N.P.I.M. Karunarathna 57569 5443
05. A.P. Karunarathne 57570 5444
06. K.P.N.D. Karunasekara 57572 5446
07. R.L.C.R. Kumara 57589 5458
Faculty of Management Studies & Commerce,

University
iversity of Sri Jayewardenepura,
Gangodawila,
Nugegoda.
COM 3301 – Corporate Law
Acknowledgement
We would like to express our deep and sincere gratitude to Mr. M.A. Nihal Chandrathilaka.
His wide knowledge and his logical way of thinking have been of great value for us. His
understanding, encouraging and personal guidance have provided a good basis for our
assignment.
We wish to express our warm and sincere thanks to the Department of Commerce which
provided us the opportunity to follow the Corporate Law course, which gives us a broader
knowledge regarding the application Corporate law in business practices. Except that this
assignment helps to get clear knowledge about law relating to all the business forms in Sri
Lanka.
During this work we have collaborated with many colleagues for whom we have great
regard, and we wish to extend our warmest thanks to all those who have helped us with our
assignment.
Thank You for All………….!
Group No: F 24 Page 2

Preface
This booklet was specially prepared as the
assignment that offered us by the Department of
Commerce for the subject of Corporate Law.
This includes basically what are the legal aspects
affected to the sole proprietors, partnerships,
companies, public enterprises, co-operatives &
non-profit organizations, when they establishing,
operating & winding up. I kindly invite you to
read this and comment.

Content
Page
Introduction 05
01. Sole Proprietorship 06
02. Partnership 08
03. Companies 11
03.1 Incorporation 11
03.2 Controlling 13
03.3 Winding up 15
04. Co-operatives 18
05. Corporations 20
06. Public Enterprises 22
Conclusion 25
I. References 26
II. Annexure 27
1. Jubilee Cotton Mills Vs Lewis 27

2. Salomon Vs Salomon & Co Ltd. 27

Introduction
Objective of the Study

The main objective of this assignment is to examine the process of law related to different
types of business forms in Sri Lanka. It also provides an opportunity to make a comparison
study between the various business acts and regulations for formation controlling &
dissolution of those types of businesses.
Methodology of the study

Documental study we used as the methodology in this assignment by way of comparative
analysis between the New Companies Act of No.7 of 2007 can be given as mainly. In addition
we access internet to obtain more information to take information about government
regulations and to get idea about law relating for other types of business forms in order to
successfully complete this assignment.
Business Forms in Sri Lanka

Business is a main economic task in any country. Sri Lanka also can indicate as same.
According to the Sri Lankan business field it can indentify various types of business
organizations. Sole traders, Partnerships, Companies, Co-operatives, Co operations, Public
Enterprises are can be given as generally.
Sri Lankan law is related to those business organizations as well as citizens in country. The
Companies Act No 7th of 2007 can be signified as a major business law in Sri Lanka. That act
furnishes rules and regulations for not only Companies. It some rules related to partnerships
too.
And other hand the parliament also innovate new public departments and co operations for
fulfill other nonprofit tasks. The regulations given by government strictly relate for
formation, control & dissolution to those types of organizations.
In upcoming pages will give extensive details and information about how the law relate for
formation, control & dissolution of above all the type of business forms.

01. Sole Proprietorship
What is a sole trader?

A sole trader is a single person running a business under their own name, e.g. Nimal Perera,
or with a registered business name, such as Nimal Perera Enginers'. A sole trader is a simple
business structure and gives the owner all the decision making power. Often a small
business will start out as a sole trader, and later, when the business grows, register as a
company to take advantage of a lower tax rate and less personal legal liability.
Formation
• Capital: By owner from his private savings, lending loans, etc
• Ownership: Belongs to one person
• Responsibility: unlimited
• Sharing profit: by himself
• Management: By owner or under his inspection.
• Control: By owner.
• Existence: depend on owner
• Legal personality: no
Business registration
As an example, Mr. Nimal Perera starts a business under his name as Nimal Perera is not
required to register her exact name as a business name, though he may choose to. If he is
trading under any variation of his name, e.g. 'Nimal Perera and Associates', or as 'NImal
Engineering', he is legally required to register the business name with statues of provincial
council.
Business Names Act (No. 7 of 1987) - Sect 4

“Particulars to be furnished by an individual &c., who is a non-
citizen
The business of the individual, firm or body corporate referred to in subsection (1) shall be
carried on in Sri Lanka in the name of such individual, firm or body corporate, by a person
who is a citizen of and resident in Sri Lanka, who shall be deemed to be the local manager

and such local manager shall be personally responsible for the discharge of all obligations
attaching to the individual, firm or body corporate under this Act.”
Tax obligations
As a sole trader, you are required to include a declaration of income earned from the
business as a part of your personal tax return. Sole traders pay income tax at personal tax
rates, though they may also have to pay provisional tax.
Liability
As a sole trader, you own the assets of your business and are responsible for its liabilities.
Liability is unlimited and can extend to your personal assets, including your share of any
assets you jointly own with another person.
Dissolution
According to owners desire any time business can dissolution.

02. Partnerships
Definition
The law relating to Partnerships in Sri Lanka is governed mainly by the Partnership Act of UK
of 1890. According to section 1 of the Partnership Act the partnership is defined as “A
partnership is a relationship which subsists between persons to carry on a business in
common with a view of profit.”
According to the above definition following elements should be present in a partnership.
1) There should be a relationship

This relationship can be created by an agreement. It may be made in writing, orally or by
conduct. But according to section 18 of the Prevention of Frauds Ordinance, if the
partnerships capital is in excess of Rs.1000/= that partnership agreement must be in writing.
2) There should be persons

Minimum number of persons required is two. According to the Companies Act No.7 of 2007
section 519, the maximum number should be twenty
(3) There should be a business

Here the word business is not confined to trading only. It concludes every trade, profession
or other occupation. And such a business must be an active and a continuous entity.
(4) In common
That is, partners should have an intention to do their business together and to share the
profits and losses among them.
(5) View of profit

The purpose of the agreement should be to make profit. If the partners do not have that
intention it will not be created as a partnership.
Formation
The purpose of the partnership should be legal. Even a minor may be a partner. But on
reaching the age of majority (i.e. after 18 years of age) he can renounce (give up) all his

liabilities for the partnership debts. If he does not do so then partnerships debts will be
binding on him.
Application of prevention of frauds ordinance regarding the creation of a partnership
Section 18 of the Prevention of frauds ordinance states that “No promise, contract, bargain
or agreement unless it be in writing and signed by the party making the same shall be of
force or avail in law for establishing a partnership where the capital exceeds Rs.1,000/=.
According to the above section, if the capital of the partnership is above Rupees Thousand
the partnership agreement should be in writing.
Therefore among partners written evidence is a must to establish a partnership and to claim
rights as partners. Other documents may provide corroboration of the existence of the
partnership but are not substitute for the written agreement.
Operation
Rights of Partners
The rights and duties of partners are decided by the partnership agreement. If the
partnership agreement is not in writing or if the agreement does not provide for any
particular right or duty of the partners, then the Partnership Act will be applicable to decide
the rights and duties. According to the Partnership Act rights and duties should be decided in
the following manner.
Capital and Profits
Indemnity
Interest for loans.
Interest on capital.
Management of the partnership business.
Introduction of a new partner.
Differences as to ordinary matters.
Duties of Partners
Every partner should submit true accounts and full information regarding his
dealings to other partners.
The accountability for private profits.
Duty of a partner not to compete with the firm

In addition to the aforesaid statutory duties, there is a common law duty, that is, each
partner must act in good faith in the best interest of the firm.
Dissolution
Dissolution of partnership can take place in one of two ways:
Under an order of court;
Without the intervention of a Court Of Law
Dissolution by the Court order

Section 35 of the Act states that on an application made by a partner in the under
mentioned situations the court may order dissolution of the partnership;
Where a partner is found to be a lunatic
Where a partner is permanently incapable of performing his part of the partnership
contract.
Where a partner has been guilty of conduct which is in the opinion the court
calculated to prejudicially affect the carrying on of the partnership business.
Example: criminal conviction for fraud.
Where the partnership can only be carried on at a loss
Dissolution without a Court order

By the expiry of agreed time
On the death or bankruptcy of any partner
When a partner sells his share to an outsider
By agreement of all partners
By any partner giving notice of an intention to dissolve the partnership
Where the business of the partnership has become illegal or where it is illegal to
carry on that type of business in a partnership

03. Companies
Introduction to Companies Act No 7 of 2007

From 3rd May 2007 businesses and companies were governed by the new Company’s Act
which came into force. The Company Law was codified in Sri Lanka by Act No. 17 of 1982
which was based on a joint stock banking ordinance and principles of English Commercial
Law. A prospective businessman has a choice of devices from which a selection could be
made if he wishes to do business. If a person does not like to do business either as a sole
trader or in partnership with others he could set up a ‘company’ – a process described in law
as ‘incorporation’. The companies Act No 7 of 2007 deals with this type of device. The Act is
not concerned either with sole traders or with partnerships. A business commenced as a
sole partnership or as a partnership could be converted in to a company, once established,
has to be wound up in accordance with the procedure laid down in the Act before such
business could be converted to a sole proprietorship or partnership.
The rules of incorporate, control & dissolution given for the companies by this act can
denote as follows.
03.1 Incorporation of a Company
Incorporation means, creating an artificial legal person. There are two methods by which
artificial legal persons can be created. It can be done by an Act of Parliament or by
registration under the companies act.
Incorporation of A Company/ Registered of A Company

Under the new act, a Company could be incorporated as a limited company, 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’. That is an individual or a body
corporate can own all the 100% shares in a company. On behalf the Government, the
Secretary to the Treasury is also empowered to incorporate a single Share holder 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 for the same to the Registrar in the
prescribed from signed by each of the initial shareholders, together with following
documents,

Application form
The articles of association of the company
Form 18- Consent from each of the initial directors
Form 19-Consent from the initial secretary
Under Sec.5 (1), on receipt of a properly completed document and fees, the Registrar
General shall enter the particulars of the company on the Register, assign a unique number
to that company as its company number and issue a Certificate of Incorporation to the
applicant company. The certificate of incorporation is treated as birth certificate of the
company. If the certificate is issued by the Registrar General, it will be conclusive evidence
that the company is properly registered. Therefore even though there are mistakes in the
registration procedure, those mistakes will not invalidate the creation of the company.
As per Sec.5 (3) (b), a company comes into existence on the date specified in the certificate
of incorporation, and not from any other date.
Relevant case: Jubilee Cotton Mills Vs Lewis (annexure 01)
When the company is incorporated it will get certain consequences they are;
Separate legal personality
Limited Liability
The right to offer shares to the public
The right to transfer shares
Increased borrowing powers
Separate Legal Personality

When a company is incorporated, the main consequence or the effect will be that the
company is treated as a person separate from those who created it, those who own it &
those who manage it. Therefore, the company treated as a person capable of doing all its
activities in its own name & it can own properties file or defend cases & it can make
contracts in its own name.
Relevant case: Salomon Vs Salomon & Co Ltd. (annexure 02)
Lifting of veil of Incorporation

When the veil of incorporation is lifted for the company’s activity members or directors
become personally liable. To make the members or directors personally liable for the

company’s activities there are two ways that is in two methods the way of incorporation can
be lifted.
According to the provisions of the companies Act
According to case low principle
Company Name
According to the company act every company must have a name. Sec. 6- provide that the
name of every,
(a) Limited company other than a listed company shall end in the word “Limited”
or by the abbreviation. “Ltd”;
(b) Private company, shall end in the words “(Private) Limited” or by the
abbreviation “(Pvt) Ltd”; and
(c) Limited company which is a listed company shall end in the words “Public
Limited Company” or by the abbreviation “PLC”.
03.2 Controlling of a Company
Shareholders
Shareholders are the real owners of the company. Shareholders of a company may get
powers in two methods.
1. By the Companies Act
2. By the Articles of Association
As per Sec. (90) powers reserved to the shareholders by the Act and by the articles may be
exercised either at a meeting of shareholders or by a written resolution instead of a
meeting.
Generally the shareholders can exercise their powers by passing resolutions in a meeting. As
per Sec.91 all the powers reserved to shareholders may be exercised by way of an ordinary
resolution. But if the Act or articles require special resolution to exercise those powers, then
special resolution should be passed.
According to Sec.92 (01) to exercise the following powers special resolution is
requires.
a) To alter the company’s articles

b) To approve a major transaction

c) To approve an amalgamation of the company.
d) To reduce the company’s stated capital
e) To resolve that the company be wound up voluntarily
f) To change the name of a company or
g) To change status of a company
Sec. 126 (01) of the Companies Act, every company having more than fifty shareholders
shall, keep an index of the names of the shareholders of the company.
According to the Sec. 131 of the Act, every company, at least once in every year must deliver
to the Registrar, an annual return in the prescribed form (Form 15), containing the matters
specified in the fifth schedule in the Companies Act.
Sec. 116 (01) states that a company shall keep all the documents at its registered office.
Directors
The main function of a director is attending board meetings and taking part in decision
making.
As per Sec. 201, a company shall have at least one director, except a public company which
should have at least two directors.
Before the Companies Act 2007 was introduced, the duties of directors were mainly
governed by the common law. The Companies Act 2007 recognizes most of these duties are
statutory duties of the directors.
1. Duty to act in good faith and in the interest of a company,(Sec. 187)
He should act in good faith in what that person believes to be interests of the
company.
2. Duty to comply with Act and company’s articles (Sec. 189)
He should always act without violating the Companies Act and the articles of a
company.
3. Duty of skill and care (Standard of care) (Sec. 189)
(a) He should not act in a manner which is reckless or grossly negligent;
(b) He should exercise the degree of skill and care that may be reasonably
expected of a person of his knowledge and experience.

In case of Dorchester Finance Co. Vs Stabbings, court decided that, a directory who should
have expected knowledge about his field.
According to the company Act Company need a secretary. Secretary can be divided into two
types. The first secretary & Subsequent secretary can be denoted as these two types. The
first secretary appointed at the time the company is incorporated and the Subsequent
secretary appointed by the directors. [Sec.221 (4)]
03.3 Winding up
Modes of winding up (Sec: 267)

The winding up of a company may be either,
a) By the court
b) Voluntary
c) Subject to the supervision of court
Winding up by the court (Sec: 270)

To the wind up a company an application should be presented to the court by way of a
petition.
Grounds for compulsory winding up
According to Sec: 270, a company may be wound be up by the court if,
I. The company has by special resolution resolved that the company should be wound
up by the court.
II. The company doesn’t commence its business within a year from its incorporation or
suspends it business for one year.
III. The number of members falls below the statutory minimum number.
IV. The company has no directors.
V. The company is unable to pay its debts.
VI. The court is of opinion that it is just and equitable that the company should be
wound up.
Commencement of winding up
If an order to wind up is made the winding up commences not from the date of the order
but it commences from the date of filling the petition. Because sec: 277 provide that the

winding up of a company by the court shall be deemed to commence at the time of the
presentation of the petition for the winding up.
But if a resolution has been passed by the court for voluntary winding up before the
presentation of a petition for the winding up by the court, then the winding up shall deemed
to have commenced at the time of the passing of the resolution.
Liquidator
As per Sec: 285, it is the court that has the power to appoint a liquidator. The court may
appoint a liquidator based on the nomination made after the meetings of the creditors and
contributors. If the two meetings don’t agree on the persons to be appointed. The court will
decide the difference and make such order as it thinks fit. If a liquidator isn’t appointed by
the court, the official receiver will act as liquidator.
A person other than the official receiver who is appointed as the liquidator can’t act until he
has give the notice of his appointment to the Registrar of Companies and given security in
the prescribed manner to the satisfaction of the Registrar.
Voluntary Winding up (Sec: 319)

When may a company be wound up voluntarily (Sec: 319)
I. If the articles provide for the dissolving of the company after a specified period or on
the occurrence of a specified event, and when such period expires or when such an
event occurs, the company may pass an ordinary resolution to wind up the
company.
II. If the company resolved by special resolution to the effect that it cannot by reason
of its liabilities continue its business and that the company should be wound up
voluntarily.
III. Where the company resolves by special resolution to the effect that it cannot by
reason of its liabilities continue its business and that it is advisable to wind up.
Notice of winding up resolution must be given in the Gazette within 14 days of passing of the
resolution.
Commencement
A voluntary winding up is deemed to commence at the time of passing of the resolution for
voluntary winding up.

Effects of Voluntary Winding Up

On the commencement of the winding up.
1) The company should cease to carry on its business except for the beneficial winding
up thereof.
2) All transfers of shares are void unless sanctioned by the liquidator.
3) Any alterations in the status of the shareholders are void.
Not withstanding anything contrary to the articles, even though the winding up
commences the corporate state and corporate powers of the company will continue
until the company is dissolved.
Types of Voluntary Winding Up

Voluntary winding up may be,
1) A shareholders’ voluntary winding up or
2) A creditors’ voluntary winding up.
A voluntary winding up becomes a shareholders’’ voluntary winding up when a declaration
of solvency is made, and a creditors’ voluntary winding up when such a declaration isn’t
made.
Winding Up Subject To Supervision of Court (Sec 351)

This is a voluntary winding up done under the supervision of the court.
Provision & Effects

When a company has passed a resolution for voluntary winding up, the court may order that
the voluntary winding up shall continue subject to such supervision of the court, and with
such liberty for creditors, contributories or others to apply to the court’ and generally on
such terms and conditions as the court thinks just.
The main advantage of the supervision order is that no proceedings can be commenced or
continued against the company without leave of the court.
Another advantage is that where such an order is made, the court may appoint additional
liquidator, the liquidator so appointed is in the same position as if he had been appointed in
a voluntary winding up.

04. Co- Operatives
Introduction
Cooperatives around the world are facing major structural challenges as they respond to a
more industrialized agriculture, globalization, and freer trade. Co-ops are responding to
these changes by merging, by finding new ways of raising capital, and by developing new
organizational forms such as New Generation Co-ops.
Formation
State Government will appoint Registrar of Cooperative Societies. State Government can
appoint persons to assist Registrar and confer on such persons all or any of powers of
Registrar. Function of Registrar starts with registration of a society. He has powers of general
supervision over society. Returns of Society are to be filed with Registrar. He can order
inquiry or inspection against society. He can order dissolution of society.
A society can be formed with at least 10 members of age above 18 years. If object of society
is creation of funds to be lent to its members, all the members must be residing in same
town, village or group of villages or all members should be of same tribe, class, caste or
occupation, unless Registrar otherwise directs. The provision of minimum 10 members or
residing in same town/village etc. is not applicable if a registered society is member of
another society. The last word in name of society should be ‘Limited’. If the Society is
registered with limited liability, Registrar is empowered to decide whether a person is
agriculturist or non-agriculturist or whether he is resident of same town/village or whether
the members belong to same caste/tribe etc. and his decision will be final.
Formation of a Co-operative Society

A Co-operative Society can be formed as per the provisions of the Co-operative Societies Act,
1912. At least ten persons having the capacity to enter into a contract with common
economic objectives, like farming, weaving, consuming, etc. can form a Co-operative Society.
A joint application along with the bye-laws of the society containing the details about the
society and its members has to be submitted to the Registrar of Co-operative Societies of
the concerned state. After scrutiny of the application and the bye–laws, the registrar issues a
Certificate of Registration.

Requirements for Registration:

1. Application with the signature of all members
2. Bye-laws of the society containing:
(a) Name, address and aims and objectives of the society;
(b) Names, addresses and occupations of members;
(c) Mode of admitting new members;
(d) Share capital and its division.
Types of Co operations
1. Consumers’ Co-operative Society
2. Producers’ Co-operative Society
3. Co-operative Marketing Society
4. Co-operative Credit Society
5. Co-operative Farming Society
6. Housing Co-operative Society
Control
Each society will be managed by Committee. Committee means the governing body of a
registered society to whom the management of its affairs is entrusted. Officer of society
includes a Chairman, Secretary, treasurer, member of Committee or other person
empowered under rules or bye-laws to give directions in regard to business of society.
Liability of past members towards society as on the date he ceased to be member will
continue for two years.
Dissolution
Registrar, after inspection or inquiry, or on application received from 75% of members of
society, may cancel the registration of society, if in his opinion, the Society should be
dissolved. Any member can appeal against the order of Registrar within two months to State
Government or other Revenue Authority authorized by State Government. If no appeal is
filed within two months, the order of dissolution shall become effective. If appeal is filed,
the order will become effective only after it is confirmed by appellate authority.

05. Corporations
General Powers of the Corporation.

Subject to the provisions of this Act, and any other written law, the Corporation shall have
the power to do, perform and execute, all such acts, matters and things as are necessary or
desirable for the promotion or furtherance of the objects of the Corporation or any one of
them, including the power to open, operate and close bank accounts, to borrow or raise
money, with or without security to receive or collect grants and donations, to invest its
funds, and to engage, employ and dismiss officers and servants required for the carrying out
of the objects of the Corporation.
Formation
The affairs of the Corporation shall, subject to the provisions of this Act and the rules of the
Corporation made under section 6, be administered by a working committee comprising of
the following,
The Executive Committee which shall consist of the President, Vice President,
Secretary, Assistant Secretary and Treasurer;
Thirteen committee members; and
An Advisory Board consisting of three eminent persons appointed by the Executive
Committee
The Working Committee shall cause proper accounts to be kept of all the moneys received
and expended by the Corporation. The accounts of the Corporation shall be examined and
audited at least once in every year and the correctness of income and expenditure account
and balance sheet certified by the auditor or auditors who are the associate members of the
Institute of Chartered Accountants of Sri Lanka.
Seal of the Corporation

The seal of the Corporation shall not be affixed to any instrument whatsoever, except in the
presence of the Executive President or the Secretary or the Treasurer and a member who
shall sign their names to the instrument in token of their presence and such signing shall be
independent of the signing of any person as a witness.

Dissolution
The Corporation shall be able and capable in law to take and hold any property movable or
immovable which may become vested in it by virtue of any purchase, grant, gift,
testamentary disposition or otherwise and all such property shall be held by the Corporation
for the purposes of this Act, and subject to the rules in force the time being of the said
Corporation, with full power to sell, mortgage, lease, exchange or otherwise dispose of the
same.
If upon the dissolution of the Corporation, there remains after the satisfaction of all its debts
and liabilities, any property whatsoever, such property shall not be distributed among the
members of the Corporation, but shall be given or transferred to some other Association or
Associations, having objects similar to the objects of the Corporation and which is or are, by
the rules thereof prohibited from distributing any income or property among its or their
members. Such Association or Associations shall be determined by the members of the
Corporation at, or immediately before, the time of the dissolution of the Corporation.

06. Public Enterprises
Private sector as well as the government sector gives a remarkable contribution to the
economy by doing variety of business activities. In a socialist economy, all the market
activities are controlled by the private sector.
But in practice we can rarely meet pure socialist or pure capitalist economies. Instead of that
most countries have mix economies and under those circumstances, we can see both private
& public sector intensives in business field.
Departments
Most of the departments in Sri Lanka are doing their activities for the purpose of providing
public services to the society. But some of few of them have commercial purposes as well.
Examples for such departments:
Postal Department
Railway Department
Department of small Enterprises
Department of National Income Taxes
And also there are departments in Sri Lanka, only for the providing public services without
any Commercial purpose.
Examples for such departments:
Department of education
Police Department
Food Department
Ministry of Health
Ministry of Education
Department of Health Services.
Due to the variety of departments are controlled by ministries, a ministry has a wide range
of duties rather than a department.
Main Characteristics of a department

1. Ownership
Full ownership of departments is enjoyed by the government

2. Fund raising
Funds needed to run the department are provided according to the annual
budget by central treasury.
3. Control
Departments are control by the subject minister. Minister is responsible to
the parliament according to the activities related to his department.
4. Management
To manage the department activities, relevant subject minister will appoint
a head of the department known as a commissioner.
5. Relevant Acts
Rules & regulations enacted by the minister or central treasury through
circulars, financial regulations, establishment code etc. are affected to the
departments.
6. Legality
Departments have legality. Head of the department should present in his
name in a court.
7. Responsibility
Unlimited responsibility. Minister of the department responsible for the
public, related to the activities of the department.
8. Profits & Losses

Profits & losses of departments should be bare by the government. If there
is any profit, it credit to the consolidated fund if the government.
Accounting and Auditing of Departments

Public Enterprises should implement their accounting & auditing activities according to the
provisions of the constitution. Chapter no.153 & 154 are providing relevant provisions for
this regards. According to the provisions of the constitution, all institutes (departments,
corporations, boards) should submit their accounts for the purpose of auditing to the
Auditor General before 21st February of coming year. Then he should implement his audit

activities under the authorities given him by the constitution, and should submit his audit
report within 3 months to the parliament. Then Public Account Committee (PAC) is
discussing these reports & gives their approval or rejection. 125 permanent orders delegate
authorities for this committee and it consist of 12 members of parliament, those appointed
by the parliament.
Provisions for the Accounting of Departments

Not only the provisions of the constitution, but following provisions also important to
control the department accounts.
1. Provisions of the annual discharge act.
2. Provisions including in special acts.
Public Finance Act No.38 of 1971
Provincial Council Finance Act No.42 of 1978
Emergency Needs Funds Act No.35 of 1978
National Income Act No.28 of 1978
3. Finance regulations and Establishment code.
4. Public administration & treasury circulars.

Conclusion
According to the above review there are many types of business organizations held in Sri
Lanka. Sole Proprietors, Partnerships, Companies, Co operatives, Corporations, & public
organizations can be given as main forms of business organizations in here.
On the report of above sole proprietors have no wide law relating in Sri Lanka. There fore
this type of business organizations can be formed very easily. Partnerships also same to
above form of organization. But Companies, Co operatives, Corporations and government
enterprises are different from above forms in view of law relating. Companies should be
formed under the company Act No. 7 of 2007. That act gives rules & regulations for
controlling as well as dissolution of Companies. The act indicates the maximum limit of
partners in a partnership.
Next move to the Co operation, it should be registered under the Co operative act 1912. It
forms by at least 10 members. Government supervision can receive for this type of
organizations. Because their main objective is not a profit earn, their objective is maximize
the social welfare.
In corporations, it has two type of owners. It can be categarzed as government ownership

and private ownership. But government or public ownership shoul be at least 51% from the
whole shares of the Corporation. Corporations formed under the Act which is accept in the
parliament. The winding up also should be done under the agreed Act of parliament.
When we move to the public departments we can all departments are incorporate under a
special act passed by a parliament. When controlling a department it should be done by a
government officer called secretary of the department. He is appointed by the subject
minister and minister of the department responsible for the parliament or the public.
Finance regulations, establishment code and circulars are the legal provisions using when
they are controlling. When winding up a department there is a special procedure to go
through and it must pass a special resolution in the parliament.
According to above review Companies, Corporations, Co operatives, public enterprises have

legal personality. Because those organizations registered under the Company Act or formed
by under the Parliament Act. But sole proprietors and partnerships haven’t that advantage.
Because that both organization’s registration not essential.
All the information have given above, taken as a whole it represent all the business
organizations have little or law relating. Business law flowing surrounded by all the business
organizations.

I. References
01. Company Act No. 7 of 2007

02. Course material of Final Level 1 from Institute of Chartered Accountants of Sri Lanka.
03. http://en.wikipedia.org/wiki/Cooperative
04. http://en.wikipedia.org/wiki/Partnership
05. http://www.inc.com/articles/1999/10/14108.html
06. http://www.medlawplus.com/library/legal/incorporation.htm

II. Annexure
01. Jubilee Cotton Mills Vs Lewis

In this case a certificate of incorporation was dated 6th January 1923, but in fact it was signed
and issued on 8th January 1923.On the 6th January 1923 the directors allotted shares to a
person called Lewis. Later when the company demanded money, he refused to pay stating
that the company was not in existence the day in which he was allotted the shares. But court
stated that commenced of the incorporation of the company is coming from the date in
which certificate of incorporation was dated and Lewis should pay money in related to the
allotment.
02. Salomon Vs Salomon & Co Ltd.

In this case there was the leather merchant called Salomon. He formed a company in the
name Salomon & Company Ltd. The members of the company were Salomon his wife & their
5 children. The company issued 20006 shares each share was 1 sterling pound. Salomon
bought 20,000 shares. The balance 6 shares were purchased by the other members.
Salomon acted as the director of the country. The company issued 10,000 sterling pound
valid debentures on the security of the company’s assets. Salomon brought all the
debentures. When the company was doing business it borrowed around 6000 sterling pound
from out side creditors. They didn’t get any security for their credits from the company. The
company carried on business for nearly one year but it suffered a heavy loss & it was
decided to wind up the company, at the time of winding up company’s assets were valued
for nearly 7000 sterling pound but companies liabilities were 16,000 sterling pounds. The
problem arose when distributing the remaining assets among the creditors. Solomon argued
that he should be given preference, because he has got security for his debentures but out
side creditors argued that Solomon & Solomon & company are in effect one & the same
person, because it the family owned company of Solomon. After doing the business &
suffering a loss, Solomon is not entitled to get any preference in the repayment of the loan.
The court held that the Solomon & Solomon & company are two separate persons. Solomon
has given loan to Solomon & Company on the security of company’s assets. But out side
creditors didn’t get any security. Therefore Solomon must be given preference in repayment
of the co.’s loan. Therefore the remaining assets should be given to Salomon.

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BUSINESS FORMS IN

Faculty of Management Studies & Commerce,

Thank You for All………….!

Group No: F 24 Page 2

Group No: F 24 Page 3

01. Sole Proprietorship 06

06. Public Enterprises 22

1. Jubilee Cotton Mills Vs Lewis 27

Group No: F 24 Page 4

Objective of the Study

Methodology of the study

Business Forms in Sri Lanka

Group No: F 24 Page 5

01. Sole Proprietorship

What is a sole trader?

Business Names Act (No. 7 of 1987) - Sect 4

Group No: F 24 Page 6

Group No: F 24 Page 7

1) There should be a relationship

2) There should be persons

(3) There should be a business

(5) View of profit

Group No: F 24 Page 8

Group No: F 24 Page 9

Dissolution by the Court order

Dissolution without a Court order

Group No: F 24 Page 10

Introduction to Companies Act No 7 of 2007

03.1 Incorporation of a Company

Incorporation of A Company/ Registered of A Company

Group No: F 24 Page 11

Separate Legal Personality

Lifting of veil of Incorporation

Group No: F 24 Page 12

03.2 Controlling of a Company

Group No: F 24 Page 13

b) To approve a major transaction

Group No: F 24 Page 14

Modes of winding up (Sec: 267)

Winding up by the court (Sec: 270)

Group No: F 24 Page 15

Voluntary Winding up (Sec: 319)

Group No: F 24 Page 16

Effects of Voluntary Winding Up

Types of Voluntary Winding Up

Winding Up Subject To Supervision of Court (Sec 351)

Provision & Effects

Group No: F 24 Page 17

04. Co- Operatives

Formation of a Co-operative Society

Group No: F 24 Page 18

Requirements for Registration:

Group No: F 24 Page 19

General Powers of the Corporation.

Seal of the Corporation

Group No: F 24 Page 20

Group No: F 24 Page 21

06. Public Enterprises

Main Characteristics of a department

Group No: F 24 Page 22

8. Profits & Losses

Accounting and Auditing of Departments

Group No: F 24 Page 23