When starting a business or organization in Sri Lanka, one of the most important decisions you’ll face is choosing the right type of company structure. The Companies Act No. 07 of 2007 outlines the legal frameworks available, each with its own implications for liability, ownership, and purpose.

In this blog, we break down the three main types of companies recognized by Sri Lankan law under Section 3 of the Act, and help you understand which structure might be right for your venture.

πŸ“˜ What Does the Law Say?

Section 3 of the Companies Act states that a company incorporated under this law can be one of the following:

  1. A Limited Company
  2. An Unlimited Company
  3. A Company Limited by Guarantee

Each of these is tailored to suit different purposes and levels of financial risk. Let’s dive into each type.

πŸ”Ή 1. Limited Company – For Business with Limited Risk

A limited company is the most common type of business structure in Sri Lanka.

βœ… Key Features:

  • It issues shares to its owners (shareholders).
  • Shareholders’ liability is limited to the unpaid amount on their shares.
  • If the company runs into debt, personal assets of shareholders are not at risk, beyond what they owe for their shares.

There are two major sub-types:

  • Private Limited Company (Pvt Ltd): Can have up to 50 shareholders and cannot offer shares to the public.
  • Public Limited Company (PLC): Can offer shares publicly and must meet stricter compliance standards.

🧾 Example:

If you invest Rs. 10,000 in shares and have paid Rs. 7,000, your liability is only Rs. 3,000β€”even if the company goes bankrupt.

Best for: Startups, trading businesses, tech companies, import/export firms, etc.

πŸ”Ή 2. Unlimited Company – High Risk, Rarely Used

An unlimited company also issues shares, but it comes with a big difference: no limit to shareholder liability.

⚠️ Key Features:

  • Shareholders are personally responsible for all of the company’s debts if it fails.
  • Their personal property can be used to cover debts after liquidation.
  • This structure is rare and used only in specific professional or trust-based settings.

🧾 Example:

If your company has Rs. 5 million in debts and assets worth Rs. 2 million, shareholders must contribute Rs. 3 million from personal funds.

Best for: Certain law firms, family businesses, or situations where owners want to show high trustworthiness or reduce oversight.

πŸ”Ή 3. Company Limited by Guarantee – Ideal for Non-Profits

This structure is specifically designed for non-profit organizations.

βœ… Key Features:

  • Does not issue shares.
  • Has members, not shareholders.
  • Members agree to pay a guaranteed amount (e.g., Rs. 1,000) only if the company is wound up.
  • No dividends are paid β€” profits are reinvested into the organization.

🧾 Example:

A charity working on environmental awareness is formed as a company limited by guarantee. If it shuts down, each member might only be liable to contribute Rs. 1,000 β€” and nothing more.

Best for: NGOs, charities, social service organizations, clubs, and associations.

πŸ”Έ Special Note: Private vs. Offshore Limited Companies

Section 3(2) of the Act states that:

  • If a limited company is incorporated as a private company, it must follow rules in Part II of the Act.
  • If incorporated as an offshore company, Part XI applies.

These sections lay out specific requirements regarding filing, governance, and operations for such companies.

🟩 Quick Comparison Table

Type of CompanyIssues Shares?LiabilityBest Suited For
Limited CompanyYesLimited to unpaid sharesMost business ventures
Unlimited CompanyYesUnlimited (high risk)Rare – professional firms
Company Limited by GuaranteeNoLimited to a set amountNon-profits, clubs, associations

βœ… Final Thoughts

Choosing the right company structure is more than a legal formality β€” it defines how your business operates, who owns it, and what financial risks are involved.

  • Want personal asset protection? A limited company is your best choice.
  • Running a charity or NGO? Go with a company limited by guarantee.
  • Ready to take full financial responsibility for your business? You might consider an unlimited company (but proceed with caution).

Before incorporating, always consult a qualified legal or corporate advisor to align your business structure with your goals.

πŸ“Œ Need help choosing the right structur

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