'Legal Forms of Business in Sri Lanka\r'

'Introduction A strain likewise c exclusively tolded a union, enterprise or firm is a effectu mendlyy recognize physical composition, de subscribe to provide goods and function to consumers. harmonize to the purpose of the line of descent, possessorship of the commercial enterprise and temper of economic contri notwithstandingion of the task; the art tail assembly f completely into one and only(a) of the three both(prenominal) standard sectors. in that respect atomic number 18; clannish sector, cosmos sector and non cyberspace sector. The touch off of the preservation concerned with providing basic regime services is c exclusivelyed public sector.\r\nIn al approximately countries the public sector accommodates such services as the military, public transit, primary quill t all(prenominal)ing method and healthc ar. Their aim is to give service to the hoi polloi and slight emphasis is made on moolah making. universe co action is the widely know displ ay subject of public sector avocation entity. The non-profit sector is derived with organizations that do not fail their surplus funds to possessors or sh ar earners, just now quite use them to help stick with their goals. Examples include charit fitting organizations, trade unions, and public arts organizations.\r\nIn clubby sector, dutyes be financed and curbled by singulars or surreptitious institutions, such as companies, assembly lineholders, or investment groups. These commercees slide by for private profit and they argon not controlled by the state or the g every go intonment. there be m whatever guinea pigs of lineage entities delimit in the private sector and pass by the statutory systems of various countries. These legitimate institutes of product line include; • furbish up proprietary • confederation ( common league, express Partnership and control stick Venture) • Corporation (C Corporation and S Corporation) • re strain obligation community ( close and popular)\r\nThese legal social classs fall in been derived according to their Source of the pileus, Value of roof investment, Nature of possessorship, Number of proprietors, Nature of indebtedness and some(prenominal) an different(a)(prenominal)wise elements. Each legal melody has its own emoluments as healthful as injurys. When making a ending or so the type of championship to contour, at that place ar several criteria you charter to quantify based on improvements and enlightens of above mentioned legal kneads. The close of the essence(predicate) fact is salute of formation of the telephone line and cost of current administration. This includes cost of record- belongings and paperwork, as fountainhead as the costs associated with administrative requirements.\r\nLegal indebtedness is the next thing to be considered and it posits to what finale the possessor need to be insulated from legal obligation. Based on the individual presidency agency and goals of the argumentation owner, he has to consider what the visible(pre tokenish) tax implications are because it is alike an important factor. Finally the owner has to think ab disclose the future unavoidably and whether the legal forms possess got tractableness feature. Sri Lanka sire with Act, No. 7 of 2007 and henchmanship Act, No. 17 of 1982 pass on defined Sri Lanka legal forms of organizations, which substructure be the choices for Sri Lankan air community when forming a natural business.\r\nLegal Forms of business in Sri Lanka include; • Sole Proprietorship • hold Liability familiarity ( head-to-head and Public) • frequent Partnership Sole Proprietorship A doctor proprietary overly known as a doctor trader is a type of business entity which is owned and play by one individual and where there is no legal distinction between the owner and the business. Sole proprietorships are forms of business possession that mingle the owners rights, liabilities and responsibilities with the business rights, liabilities and responsibilities.\r\nRegardless of the state of the business, the procedures we need to fol economic crisis to form a bushel proprietorship are fairly simple, and do not even require an attorney, accountant, or business consultant. in that respect are no legal requirements for establishing a sole proprietorship, other than obtaining the indispensable local business authorise and permit. As the sole proprietor, owner has the integral control and responsibility for the business and its operation and he makes all the decisions. With this type of business entity, owner has complete freedom over operational the business, because he is responsible for all transactions and activities occur in the business.\r\n all told assets of the business are owned by the owner and all acquire and all losses accrue to him. He is ad hominemly responsible for all debt s of the business and mustiness pay them from his personalized resources. This operator that the owner has un particular personal liability for the business. Also, owner is less substanceed by organization restrictions and control, and he has less to do in footing of reporting and taxes. The main advantage of a sole proprietorship is that they are balmy to start up and to close. The earth is, they are less expensive and also subject to fewer regulations compared to other types of businesses.\r\nSince the owner has full autonomy with regard to business decisions, sole proprietorship businesses are easy and inexpensive to discontinue. The second advantage is that the owner rotter take all the meshing of the business and there is no profit sharing. This may be the most meaning(a) motivation for most businesses to ferment sole proprietorship type. At the very(prenominal) enclosure, all losses accrue to the owner and he does not form the tension regarding conflicts am ong the subdivisionners as there are no partners.\r\nIn sole proprietorship business type, the owner of the organization pays self employment taxes on the gelt made. It makes tax filing more(prenominal)(prenominal) than simpler and hence this git be considered as another advantage for sole proprietorship business type. Since this is not a confederacy; it does not pay corpo pass judgment taxes. The notable disadvantage of the sole proprietorship is that the sole trader bequeath likely name a hard time with peak outstanding since he has to make up for all the businesss funds. He may work to use his own property or personal loan for the business.\r\nThe next disadvantage is; the owner of the business has un moderate liability as he is responsible for the businesss debts. As the business grows, the risks ac gilding the business also tend to grow, and if the business is sued, owner and his personal assets are at risk. Sole proprietorship business type is very large(p) in Sri Lanka, may be because form of the business is very straightforward. As a third world unc offh with low rate of individual income, starting up a business with low capital is a very convenient factor for each Sri Lankan business person who is thought do work of having an own business.\r\nThere several lieu based business running in Sri Lanka such as; groceries, stationary shops, pharmacies, forge stores and they tail assembly be categorized as sole proprietorship business, because they are owned by single person. Freelance writers, model editors, photographers and craftspeople also nurse chosen to run their businesses as a sole proprietorship. Sri Lankan authorities has identified the splendor of sole proprietorship businesses, in cost of their persona to the country’s culture.\r\nSo the government is support this business community, to organise their businesses, by providing necessary pecuniary aids, resources, equipment and guidance. Since Sri Lana is based on an bucolic economy, we stand encourage more farmers to form their own sole proprietorship businesses to move their goods, and this go away reduce the terrible do occurring from the intermediate business people. If farmers tolerate mete turn up their goods directly to consumers, they may be able to recover full profit and it leave behind encourage them to develop their business. This will in the end lead to a high development in Sri Lanka’s economy as well as society.\r\n express liability Companies (LLC) A special Liability Compevery (LLC) is a type of business organization that combines some aspects of a potful with those of a sole proprietorship or coalition. The primary characteristic a LLC shares with a mickle is circumscribed liability; that is personal liability of conjunctions shares for the businesss debts is limited. The primary characteristic LLC share with a fusion is the availability of pass-through income tax revenue; that is LLC is not taxed as a split entity. Forming a LLC may not be as simple as a sole-proprietorship; however, the process is a upsurge less than a corporation.\r\nThere are twain main actions: • Articles of brass instrument: wee to stick articles of organization with the depository of province and pay the required fees. Articles may be prepared by a lawyer. An LLC business entity may be file as a corporation, coalition or sole proprietorship in terms of tax return. • Operating Agreement: Have to develop an operating agreement which helps to define the caller-up profit sharing, ownership, responsibilities, and ownership changes An LLC may suffer one or more owners, and may have different classes of owners.\r\nIf the LLC has a single member, it will be do by as separate from its owner, and will be treated as a sole proprietorship or a social class of its owner, unless it elects to be taxable as a corporation. An LLC that is filed for taxation as a coalition give the sa ck achieve both conduit tax treatment and limited liability protection chthonic civil law and a LLC filed for taxation as a partnership does not have the ownership restrictions. An LLC is typically managed by its members, unless the members agree to have a manager handle the LLC’s business affairs. LLCs do not issue telephone line-taking and are not required to hold annual meetings or keep indite proceedings.\r\n habitually, members of an LLC that are taxed as a partnership may agree to share the profits and losses in any manner. Members of an LLC perplex profits and losses in the same manner as shareowners of a corporation. In cosmopolitan, all the owners and members are shielded from individual liability for debts and obligations of the LLC. The main advantage of LLC is that owners of the LLC have the liability protection of a corporation because it exists as a separate entity much like a corporation. Also members do not hold personally probable for debts unless t hey have signed a personal guarantee, and this is a great relief for all the members.\r\nLLC flush toilet select varying forms of dispersal of profits, unlike a common partnership where the split is 50-50. Hence flexible profit distribution is another advantage of LLC. The LLC business structure requires no somatic minutes or resolutions and is easier to operate. This can be pointed out as the next advantage of LLC. tout ensemble the LLC business losses, profits, and expenses ascend through the telephoner to the individual members. So, it avoids the double taxation of salaried integrated tax and individual tax. Generally, this flow through taxation will be a tax advantage.\r\nThe most momentous disadvantage of LLC is the limited life time of business. A LLC is turn when a member dies or undergoes lodgeruptcy whereas corporations can active forever. Business owners with plans to take their company public, or issuing employee shares in the future, may be not trounce serve d by choosing a LLC business structure, because going public is moment complicated with LLC. So this can be again a racy disadvantage of LLC structure. Running a sole-proprietorship or partnership will have less paperwork and complexness compared to LLC.\r\nSo this added complexity also can be pointed out as a disadvantage of LLC structure. There are two major types of companies operating with limited liability status in Sri Lanka. ? personal bound Companies ? Public check Companies undercover confine Companies A Private limited Company, theoretically also refer to a private company limited by guarantee, is a type of company incorporated under the laws of England in original Commonwealth countries. Private limited companies are required to have the suffix â€Å" particular(a)” (often written â€Å"Ltd” or â€Å"Ltd. â€Å") or â€Å"Incorporated” (â€Å"Inc. â€Å") as part of their name.\r\nIt has shareholders, but its shares may not be qualifyin ged to the superior full general public. This means that shares are commonly interchange to family, friends and business contacts. The liability of the shareholders to book of factsors of the company is limited to the capital originally invested; that is to the nominal take to be of the shares and any premium stipendiary in return for the issue of the shares by the company. A shareholders personal assets are thereby defend in the event of the companys insolvency, but property invested in the company will be lost. near companies, particularly picayune companies, are private limited companies.\r\nvirtuoso of the main advantages of Private confine Company is, they are easy to set up because; the shares are sold among family, friends and business contacts. moderate liability is another advantage of a Private Limited Company. The shareholders liability is limited to the value of the shares held by them. If things go disparage for the business, personal assets of a sharehol der cannot be used to pay off the debts. Since senesces of directors are usually the main share holders, the ownership and the control are closely connected. wherefore decisions can be taken more quickly and this can be pointed out as another advantage.\r\nA Private Limited Company has a separate legal existence. This means that properties will be owned by the company itself and all contracts would be signed on its behalf. The directors and repository can barely act as agents. Therefore the company is not dissolved on the resignation, bankruptcy or remainder of a director which is a vital advantage of Private Limited Company. The company can be dissolved only by winding up, liquidation or order of the Registrar of Companies or by the Court. When we think about advantages, tax benefits of Private Limited Company are also can be considered.\r\nThe directors of the company are required to pay income tax but the company pays corporation tax on company profits which is one rate of t ax only and averages out at much less than if income tax were paying on the profits. Though Private Limited Company has many advantages, there are some disadvantages which often deter small- and medium-sized business owners from setting up private limited companies. Many Private Limited Companies are very profitable. Unfortunately, these profits can pass diluted because they must be every bit distributed among all shareholders, and many Private Limited Companies have up to 50 shareholders.\r\nSo this becomes the major disadvantage of Private Limited Company. The next point that can be a vital disadvantage is shareholders in a Private Limited Company are not able to get by or transfer their shares to the general public. The 50 or so shareholders that comprise a Private Limited Company must keep their shares and cannot trade them on any stock exchange. A Private Limited Company can be rather complex to create, meaning that lawyers and accountants almost of all time need to be twi sty in the Private Limited Company from the start.\r\nThis can be costly and hence a disadvantage. The importance of Private Limited Companies in Sri Lankan economy over the last 15 years has been tremendous. The compulsiononing up of Sri Lankan economy has led to free inflow of investments on with modern cutting edge technology, which increase the importance of Private Limited Companies in Sri Lankan economy considerably. Previously, the Sri Lankan commercialise was ruled by the government enterprises but the scene in Sri Lankan market changed as soon as the markets were opened for investments.\r\nThis saw the rise of the Sri Lankan private sector companies, which prioritized customers need and speedy service. Most of the pioneering businesses in today’s Sri Lankan business world are categorized as Private Limited Companies. Some of the best examples are Richard Pieris & Company PLC; (One of the largest and most successful diversified business conglomerate), Abans congregation †Abans Private Limited; (Represent world famous brands of household items), Singer (Sri Lanka) PLC; (Household durable company), ODEL (PVT) LTD; (Sri Lankas inaugural fashion gallery).\r\nPrivate Limited Companies are often considered the Sri Lankas version of limited liability companies. This may be because; for many years, forming businesses with the family and friends has been a custom of Sri Lankans. There are many examples such as Perera and Sons (PVT) LTD; (One of Sri Lankas foremost baker and caterer), H. Don Carolis & Sons (PVT) LTD; (Manufacturers of fine hand crafted woody furniture), Ebert Silva Touring Co. Ltd; (pioneering Company in the conk and tourism industry) . These are consider as successful family businesses and categorized under Private Limited Company type businesses.\r\nTo sanction private sector domestic investments, the Sri Lanka government has recently brought the bank disport rank down from 20 percent to about 10 percent for borrowings. Public Limited Companies A public limited company (legally abbreviated to plc with or without full stops) is a type of limited liability Company incorporated under the laws of England in certain Commonwealth countries and it is permitted to offer its shares to the public. This means that Shares in a public limited company, can be traded on the Stock substitution and can be bought by members of the general public.\r\nThe Capital needed to start a Public Limited Company could come from two different sources; part of the money comes from a loan from the bank, and the rest comes from shares sold to the public, via the stock market. The liability of the shareholders to creditors of the company is limited to the capital originally invested; that is to the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholders personal assets are thereby protected in the event of the companys insolvency, but money invested in the company will be lost. The dividend is paid out using the profits from a PLC.\r\nThe profit of the public limited company is divided into percentages and is paid out to shareholders. There are many advantages of operating the business as a Public Limited Company, and of registering the company on the stock exchange. For example, equity capital obtained from an initial public offering is considered a permanent form of capital since there is no interest to be paid on the equity, and it is not repayable like debt. Funds generated by a public offering are, therefore, considered a relatively safe form of capital for a business and this can be pointed out as the main advantage of the Public Limited Company type.\r\n tone ending public can also cease a company the freedom and flexibility to spend capital, as it needs to finance its growth and nevertheless development, providing a satisfying financial base on which to build. This will be a vital act point for anyone who think to start a new business as Public Limited Company. Many companies use stock and stock option plans as an fillip to attract and retain talented employees. It is progressively common to recruit and compensate executives with a combination of salary and stock. Stock can be instrumental in attracting and keeping notice personnel.\r\nPublic companies are more likely to receive the attention of major newspapers, magazines and periodicals. The proper use of press releases, interviews or news stories can increase investor awareness, shareholder value, and demand for the stock, sales and revenue. Once a company becomes public it has to disclose so much information to public on regular intervals. This includes share holding pattern, quarterly and annual financial statements, profiles of directors etc. So it can be pointed out as one of the disadvantage of Public Limited Company.\r\nIn a Public Limited Company decisions take time is alike long and it also can be a disadvantage. This is because imple mentation of any key decision is subjected to the approval by the board of directors elected by share holders. Shareholders in public companies expect a fast(a) stream of income from dividends, which readiness mean that the business has to concentrate on short term objectives of creating a profit and this may be a vital disadvantage because it might be better to work on longer term objectives, such as growth and investment. The most significant disadvantage Public Limited Company has is the holy terror of takeover.\r\nThis is because they are traded publicly and another company can buy up a large number of shares and they can thusly persuade other shareholders to join with them to suffrage in a new oversight team. The Sri Lankan stock market has become sort of vibrant and booming, particularly as a result of the end of the war, and this was a promising point for growth of Public Limited Companies. New companies made their public offerings and were sold during the first day i tself. There is goodish demand for company shares in the market and we can see many giants companies have turned into Public Limited Companies.\r\nThese companies salute banking, finance, insurance policy, health care, telecommunication, food, beverage and so many other sectors. Most important examples are; commercial-grade Bank of Ceylon Ltd; (Adjudged as the best bank in Sri Lanka), Janashakthi Insurance; (3rd largest general insurance company in Sri Lanka), Sri Lanka Telecom Ltd; (The phase modulation telecommunication service provider in Sri Lanka), Cargills (Ceylon) Ltd; (Sri lankas largest food network) and Nawaloka Hospitals Ltd; (Asias largest and most trusted healthcare hospital).\r\nThe end of the war has put Sri Lanka on the radar of global companies as a country with attractive investment proffer opportunities. As the issuances of shares by resident companies to outside investors are permitted in terms of a general permission, many resident companies have issued t heir shares to foreign investors. They include; Lanka IOC; (75% of shares owned by Indian Oil Corporation) and Millenium IT; (Shares were bought by capital of the United Kingdom Stock Exchange). General Partnerships\r\nA General Partnership is the most simplistic type of legal structure designed for the topographic point in which two or more people are collaborating in some type of business activity. The entities involved in a partnership can be individuals, corporations, or trusts. General partnerships are usually started with good friends or family. Starting up a new business is a huge risk and gigantic give of faith. People who open up general partnerships need to trust each other and work well together.\r\nEven if the business does not need a lot of assets to start or operate, still it needs a lot of money to open up a business. General partnerships result more than one individual to choose the financial burden. This is ideal and makes a business much easier to open. By defa ult, the profits and losses generated by a General Partnership are shared every bit among its partners. However, typically a partnership agreement is created to further define the rights, responsibilities, and duties of each partner, as well as the terms of perpetuity if one of the partners withdrawals from the partnership.\r\nFinancial responsibility is shared equally among the partners, with each partner jointly and individually liable for all business debts and obligations which means that the partners are jointly liable for any and all legal claims against any of the partners. The taxation of a General Partnership is calculated at the individual level. General partnerships can be less expensive to form with a limited start up cost and it has a shared financial commitment, which can be consider as main advantages of this business type.\r\nAlso it requires less paperwork and formalities which encourage people to form their businesses as general partnerships. General partnerships can thrive when each partner brings a specific strength to the business. If each partner takes on a defined enjoyment and there is general agreement on the business plan, goals, and visions from the outset, a partnership can be advantageous. Work can get done more quickly, and having several partners involved will increase the potential of acquiring resources and attracting backers. In the end, the success of such an endeavour depends largely on the personalities of the parties involved.\r\nGeneral partnerships offer members the advantages of shared risk and total control over the transactions of the business. One of the most significant benefits of a General Partnership is simplified tax filing, since no corporate forms or double taxation is required. As a pass-through tax entity, this form of business pays no direct tax instead its individual owners carry the tax burden However, the wide array of disadvantages of a General Partnership is what makes it arguably one of the get t hrough organizational business structures available.\r\nBecause of the lack of corporate structure, a General Partnership does not establish any kind of separate business entity from the partners. This means that the partners are on the whole unprotected from any litigation against the business, and their personal assets can be seized at any time to cover the unmet obligations of the business. Even worse, each partner is liable for the actions of the others on behalf of the business. So if one of the partners was to execute an agreement without the familiarity of the others, each partner would become equally obligated to the terms of that agreement.\r\nThe same is real for credit obligations. If any of the partners secure credit on behalf of the business, each partner would become equally obligated to the terms of that debt. In addition, without a Partnership Agreement, there is no guarantee of perpetuity for a General Partnership if one of the partners dies, becomes disabled, or withdrawals from the business. For these and other reasons, general partnership agreements should be worn-out up carefully with legal counsel, and signed by all partners.\r\nAdditionally, there should be a means in place of dissolving the partnership in the case of death, disability, or if one partner should want out of the business for any other reason, personal or professional. Sri Lanka, as a country with low individual income, general partnership would be an idle business type because it gives you pool of resources and financial boost to start a new business. Since family businesses are very famous in Sri Lanka, anyone can get together with his family and friends to form the business.\r\nSince each partner has a vital contribution to the business, skills and abilities of them will guide the business to success. There are several businesses in Sri Lanka, act in all types of sectors such as; grocery, pharmacy, restaurant, book shop and laundry; which can be categorized into gen eral partnership business type. Sri Lankan government has identified the importance of general partnership businesses, in terms of their contribution to the country’s development. So the government is encouraging this business community, to develop their businesses, by providing necessary financial aids, resources, equipment and guidance.\r\n'