The legal framework for businesses in Sri Lanka is governed by several key laws and regulations that establish the guidelines for forming, operating, and dissolving businesses, according to corporate lawyers in Sri Lanka. Here is an overview of the primary components of this framework:
- Companies Act No. 7 of 2007
- This is the principal legislation governing the incorporation, regulation, and liquidation of companies in Sri Lanka.
- It outlines the procedures for registering a company, the responsibilities of directors, shareholders' rights, and company management.
- Board of Investment (BOI) Act
- This act governs foreign investments in Sri Lanka.
- It provides incentives, such as tax holidays and other benefits, to attract foreign investors.
- Partnership Ordinance
- This ordinance governs the formation and operation of partnerships in Sri Lanka.
- It outlines the rights and responsibilities of partners, the registration process, and the dissolution of partnerships.
- Sole Proprietorships
- While there is no specific act governing sole proprietorships, they are subject to general business regulations and registration requirements.
- Sole proprietors must register their business name with the respective provincial authorities.
- Intellectual Property Act No. 36 of 2003
- This act governs the protection of intellectual property rights, including trademarks, patents, and copyrights, which should be done through intellectual property lawyers or corporate law firms in Sri Lanka.
- Inland Revenue Act
- This act governs the taxation of businesses in Sri Lanka.
- It outlines the tax obligations of different types of businesses and the procedures for tax compliance.
- Customs Ordinance
- This ordinance regulates the import and export of goods.
- It outlines the procedures for customs clearance, duties, and other import/export regulations.
- Labour Laws
- Various laws, such as the Employment of Women, Young Persons, and Children Act, the Industrial Disputes Act, and the Wages Boards Ordinance, regulate employment relationships.
- These laws cover areas such as employee rights, working conditions, dispute resolution, and minimum wage standards.
- Consumer Protection Act No. 9 of 2003
- This act protects consumers from unfair trade practices and ensures the safety and quality of goods and services.
- Environmental Laws
- Laws such as the National Environmental Act regulate the environmental impact of business activities.
- Businesses must comply with environmental standards and obtain necessary permits for operations that affect the environment.
Regulatory Bodies:
- Registrar of Companies: Oversees company registration and compliance.
- Board of Investment (BOI): Facilitates and regulates foreign investments.
- Department of Inland Revenue: Manages tax collection and compliance.
- Consumer Affairs Authority: Protects consumer rights and enforces consumer protection laws.
- Central Environmental Authority: Ensures compliance with environmental regulations.
Setting Up a Business:
- Choose the Business Structure: Decide whether to establish a sole proprietorship, partnership, or company.
- Register the Business: Register the business name with the provincial authorities or the Registrar of Companies.
- Obtain Licences and Permits: Depending on the nature of the business, various licences and permits may be required from relevant authorities.
- Tax Registration: Register for tax purposes with the Department of Inland Revenue.
- Compliance with Labour Laws: Ensure compliance with employment laws and regulations, in consultation with business lawyers in Sri Lanka.
Understanding and adhering to these legal requirements is crucial for operating a business in Sri Lanka. Consulting with legal and business professionals can help navigate this complex framework effectively. When starting a business, it is good to always partner with one of the best law firms in Sri Lanka, so that you are ensured of proper legal advice and representation.
What happens if there is a fallout between founders of a business?
A fallout between founders of a business can have significant legal and operational implications. The resolution process largely depends on the business structure, the existence of formal agreements, and the specific circumstances of the dispute. Here is a detailed look at potential steps and outcomes:
- Reviewing Founders’ Agreement or Shareholders’ Agreement
- Founders’ Agreement: This is a document that outlines the roles, responsibilities, equity distribution, and conflict resolution mechanisms among the founders. If such an agreement exists, it should be the first point of reference.
- Shareholders’ Agreement: For incorporated entities, this agreement will outline procedures for handling disputes, the rights and obligations of shareholders, and mechanisms for buying or selling shares.
- Mediation and Negotiation
- Mediation: Engaging a neutral third party to facilitate a discussion between the founders to reach a mutually agreeable solution.
- Negotiation: Direct discussions between the founders to resolve the dispute amicably. This may involve renegotiating roles, responsibilities, or equity stakes.
- Legal Action
- Court Proceedings: If mediation and negotiation fail, the dispute may be taken to court. The relevant court depends on the nature of the business and the dispute. Legal action can be costly and time-consuming.
- Arbitration: If the founders’ agreement or shareholders’ agreement includes an arbitration clause, the dispute can be resolved through arbitration, which is a private and binding process.
- Buyout Options
- Voluntary Buyout: One founder may agree to buy out the other’s shares or interest in the business, either through mutual agreement or based on pre-defined terms in the founders’ agreement.
- Forced Buyout: Some agreements may include clauses that allow for a forced buyout if a founder breaches the agreement or acts against the company’s interests.
- Dissolution of the Business
- Voluntary Dissolution: The founders may agree to dissolve the business and distribute its assets according to the legal structure and existing agreements.
- Involuntary Dissolution: In some cases, the court may order the dissolution of the business if the founders cannot resolve their disputes and it is deemed that the business cannot continue to operate effectively.
- Impact on Operations
- Operational Disruption: A fallout can lead to significant disruptions in the business operations, affecting employees, customers, and suppliers.
- Reputation Damage: Public disputes can harm the business’s reputation and stakeholder trust.
- Financial Implications
- Legal Costs: Engaging in legal action or arbitration can be expensive.
- Valuation and Compensation: Determining the value of the business or the departing founder’s share can be complex and may require professional valuation services.
Steps to Prevent or Mitigate Founder Disputes
- Clear Agreements: Establishing clear and comprehensive founders’ and shareholders’ agreements that outline roles, responsibilities, equity distribution, and dispute resolution mechanisms.
- Regular Communication: Maintaining open and regular communication among founders to address issues early.
- Defined Exit Strategies: Including clear exit strategies and buyout clauses in the agreements to handle potential departures smoothly.
- Conflict Resolution Mechanisms: Setting up internal processes for conflict resolution, such as regular meetings with mediators or advisors.
Navigating a fallout between founders requires careful consideration of legal, financial, and operational factors. Engaging legal and business professionals can help manage the process and protect the interests of the business and its stakeholders.
