Implications
of new Companies Act
The reforms made to the Companies Act
No. 17 of 1982 are designed to tackle the new developments
in this field and simplify the process of incorporation
which would immensely benefit the commercial community.
The European Chamber of Commerce of
Sri Lanka (ECCSL) recently held a seminar to introduce
the implications of these reforms to the public. Guest
speaker, Attorney at Law, Nihal Jayawardene said, "We
are hopeful that the introduction of this new legislative
regime will provide the most suitable legal infrastructure
in the commercial field for corporate structures to
meet the pressures of an open economy and face the challenges
of the next millennium."
Jayawardene feels that the proposed
reforms are much needed for several reasons. The most
important are to minimise barriers for small businesses
seeking the benefits of incorporation. He also spoke
on the need to encourage efficient and innovative management
of the companies by conferring on directors a wide discretion
in matters of business judgement, at the same time having
an effective control by shareholders and creditors against
abuses of such management. He added that it is important
not to impose unnecessary limits on the ability for
small business enterprises to structure those ventures.
The reforms should also make provision
for the possibility of rehabilitating business facing
temporary difficulties and to provide simple, quick
and fair procedures for realising and distributing effects
of defunct companies.
"These reforms have not been
suggested for the sake of change," Jayawardene
said, adding that the Minister of Trade and Commerce,
Jeyaraj Fernandopulle called for the creation of an
Advisory Commission on Company Law to recommend changes
to the Companies Act which he feels are very necessary.
Some of the proposed reforms pertain
to special provisions for private companies. Jayawardene
explained that at present, the large number of companies
that fall into the category of private companies has
created the need to provide a legal network in order
to encourage the incorporation of such corporate bodies
and to effectively regulate those.
In the new draft of the Companies
Act, suggested changes aim to enhance the ability of
a private company to take business risks and enable
them to obtain equity participation from willing investors
or distribute ownership more effectively through a partnership
or a non corporate structure.
Jayawardene also spoke on proposed
changes to single shareholder companies, simplifying
the incorporation process by introducing one constituent
document, minority buy out rights, financial assistance
by a company to acquire its own shares, the establishment
of a companies’ disputes board and a solvency
test regime.
Other speakers on the panel included
Attorneys at Law, Uditha Egalahewa who spoke on contract
on employment, trade unions and law relating to the
termination of employment and Lasantha Hettiarachchi
who gave a general overview of regulations applicable
to foreign investors in Sri Lanka. A presentation was
also made by tax consultant, Bharatha Subasinghe.
Hettiarachchi highlighting the role
of the Board of Investment (BOI) as the regulatory authority
for foreign direct investment in Sri Lanka and government
protection of foreign direct investment.
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