Growth is an exciting phase for any business. Whether you’re taking on new investors, bringing in experienced directors, or restructuring ownership, adding directors or shareholders is a common and often necessary part of expansion.
However, these changes must follow the correct legal procedures under the Sri Lankan Companies Act. Mistakes can cause disputes, regulatory penalties, or delays in your growth plans. Here’s what you need to know about adding directors or shareholders to your Sri Lankan company and how RegisterMyBiz can help you do it right.
Why Add New Directors or Shareholders?
Businesses add new directors or shareholders for many reasons, including:
✔️ Attracting Investors – Offering equity to investors provides needed capital for expansion.
✔️ Bringing in Expertise – Adding experienced directors strengthens your board’s skills.
✔️ Business Succession Planning – Smoothly transitioning ownership or leadership for continuity.
✔️ Strategic Partnerships – Issuing shares or appointing directors to solidify business alliances.
While beneficial, these changes must comply with your company’s Articles of Association, shareholder agreements, and Sri Lankan law.
Adding or Appointing a New Director
🔹 1. Review Your Articles of Association and Existing Agreements
Your Articles of Association set out the procedure for appointing directors, including:
- Maximum number of directors allowed
- Whether shareholder approval is needed
- Procedures for resignation or removal of directors
If you have existing shareholder agreements or investment contracts, check for clauses affecting director appointments.
🔹 2. Obtain Board and/or Shareholder Approval
Depending on your Articles, appointing a director may require:
- A resolution passed by the existing board of directors
- Or an ordinary resolution at a shareholders’ meeting
The resolution should clearly state:
- The name of the new director
- Effective date of appointment
- Director’s consent to act (usually documented with Form 18)
🔹 3. Prepare Form 18 (Consent of Director)
Under the Companies Act, any new director must provide signed consent on Form 18, confirming willingness to serve.
This form must include:
- Full name
- Residential address
- National ID or passport number
- Signature
🔹 4. File the Forms with the Registrar of Companies
You must file the following documents with the ROC within 20 working days of the appointment:
- Form 20: Notice of Change of Directors or Secretary
- Signed board/shareholder resolution
- Form 18 (Director’s Consent)
🔹 5. Update Statutory Registers
After filing with the ROC, update your company’s:
- Register of Directors and Secretaries
- Register of Interests (if applicable)
🔹 6. Notify Stakeholders
Inform your bank, investors, major clients, and other key stakeholders about the appointment to keep records aligned.
Adding New Shareholders or Issuing Shares
🔹 1. Review Your Articles of Association
Your Articles outline whether you can issue new shares, the procedures, and any pre-emptive rights of existing shareholders.
Pre-emptive rights give existing shareholders first option to buy new shares before offering them to outsiders, helping prevent unwanted dilution.
🔹 2. Hold a Board or Shareholder Meeting
To issue shares or transfer existing shares, your board or shareholders must approve a resolution detailing:
- Number of shares to be issued
- Price per share
- Allotment to new or existing shareholders
🔹 3. Prepare Share Certificates and Register of Members
After issuing or transferring shares:
- Issue new share certificates signed by directors and secretary
- Update the Register of Members with names, addresses, and shareholdings of new shareholders
- Cancel or endorse existing share certificates in case of transfers
🔹 4. File Required Forms with the ROC
If new shares are issued or existing shares are transferred, you must notify the ROC by updating your Annual Return or filing interim notifications if significant changes occur.
🔹 5. Pay Stamp Duty on Share Transfers
For share transfers, stamp duty (0.5% of the transfer value) must be paid within one month of execution. Late payment attracts penalties.
Legal and Governance Considerations
🔹 Due Diligence
Before adding directors or shareholders, perform background checks to avoid conflicts of interest, potential reputational risks, or regulatory issues.
🔹 Compliance with Other Laws
Ensure changes don’t breach restrictions under:
- Sector regulations (e.g., banking, finance, telecom)
- Foreign ownership limits for certain industries
- Shareholder agreements with specific transfer or issuance clauses
🔹 Transparency and Good Governance
Document all decisions with minutes and board resolutions to maintain transparency and comply with corporate governance best practices.
Common Mistakes to Avoid
Failing to check Articles of Association before issuing shares
Skipping proper resolutions for appointments or transfers
Missing deadlines for filing forms with the ROC
Forgetting to update statutory registers or issue share certificates
Ignoring stamp duty obligations for share transfers
How RegisterMyBiz Can Help You Expand Smoothly
At RegisterMyBiz, we simplify the process of adding new directors or shareholders with end-to-end support:
✅ Reviewing your Articles of Association and agreements
✅ Drafting board and shareholder resolutions
✅ Preparing and filing ROC forms on time
✅ Issuing or updating share certificates
✅ Calculating and managing stamp duty payments
✅ Maintaining updated statutory registers
✅ Advising on governance practices during expansions
We handle the paperwork and legal compliance so you can focus on your growth strategy.
Conclusion
Adding directors or shareholders is a big step forward but one that requires careful legal and procedural attention. By following the right steps and working with professionals, you can avoid costly mistakes, keep your company compliant, and build a stronger foundation for growth.
Ready to expand your business with confidence? Contact RegisterMyBiz today for expert assistance in managing your company’s structural changes.
