How to Close a Company in Sri Lanka: A Step-by-Step Guide

Closing a company in Sri Lanka requires adherence to specific legal procedures, which can vary depending on the situation of the business. Whether your company is dormant, solvent, or insolvent, you must choose the right method to close the business in compliance with the Companies Act No. 07 of 2007. This guide will help you understand the methods of closing a company, the necessary steps for each, and the important legal, tax, and employee-related considerations.

Key Considerations Before Closing

Before beginning the closure process, consider the following:

  1. Outstanding Liabilities: Ensure all debts and obligations are settled. A company cannot be closed if it has unresolved financial issues.
  2. Tax Compliance: Obtain tax clearance from the Inland Revenue Department to ensure that all taxes, including income tax and VAT, are paid.
  3. Employee Settlements: Employees must be properly compensated with their final wages, unused leave entitlements, and gratuity (if applicable).
  4. Legal Compliance: Ensure that all company filings, including annual returns and financial statements, are up to date.

Methods of Closing a Company in Sri Lanka

The method you choose to close your company depends on the company’s status and its financial situation. The most common methods are strike-off, voluntary liquidation, and court-ordered liquidation.

  1. Strike Off (Simplest and Most Common Method)

    The strike-off method is the easiest and most cost-effective method to close a company. This method is best for dormant companies that have no assets or liabilities, have not conducted any business for at least a year, and have no intention of transacting business in the future.

    When to Use:

    • The company is dormant (has not been active for at least 12 months)
    • The company has no assets or liabilities
    • The company has no pending obligations to creditors, employees, or regulatory bodies

    Process for Strike Off:

    1. Resolution by Directors: The company’s Board of Directors must pass a formal resolution agreeing to strike off the company from the Register of Companies. This resolution should be recorded in the minutes of the meeting.

      Example:

      • "The Directors of AUS - E TECH (Private) Limited, in the meeting held on 18th February 2025, resolved to strike off the company under Section 394 of the Companies Act No. 07 of 2007"​.

    2. Affidavit from Shareholders/Directors: An affidavit must be submitted, affirming that the company has not carried out any business operations, has no debts or liabilities, and has no ongoing litigation. The affidavit also confirms that the company has no intention of resuming operations​.

      The affidavit should state:

      • The company has been inactive since incorporation.
      • The company has no assets, liabilities, or dues to any entities, including the Inland Revenue Department or the Department of Labour.
      • No legal actions are pending against the company.

    3. Request Letter to the Registrar of Companies (ROC): A formal request letter addressed to the ROC must be submitted, stating the intent to strike off the company from the registry under Section 394 of the Companies Act. The letter must include the affidavit and supporting documents like certified financial statements that confirm the company’s inactivity​.

    4. Public Notice and Objection Period: The ROC will publish a public notice in the Government Gazette to inform creditors and stakeholders of the company’s intention to close. If no objections are received within a specified period, the company will be struck off the registry.

    5. Final Approval: After the objection period, the ROC will issue confirmation that the company has been struck off the register, officially dissolving the company. The company will no longer exist as a legal entity.

  2. Voluntary Liquidation (Solvent Companies)

    For companies that are solvent (able to pay their debts), voluntary liquidation is the preferred method. This process involves the company’s shareholders passing a resolution to wind up the business and appointing a liquidator to settle debts and distribute any remaining assets.

    When to Use:

    • The company is solvent (it can pay all debts)
    • Shareholders wish to wind up the company

    Process for Voluntary Liquidation:

    1. Board Resolution and Shareholder Approval: The board of directors must propose winding up, and shareholders must approve the decision through a special resolution.
    2. Appoint a Liquidator: A liquidator is appointed to handle the company’s assets and liabilities.
    3. Settle Debts and Liabilities: The liquidator settles any outstanding debts with creditors.
    4. Asset Distribution: Any remaining assets are distributed to shareholders after debts are settled.
    5. Final Meeting and Reporting: The liquidator will call a final meeting, present the liquidation accounts, and file reports with the Registrar of Companies to dissolve the company.

  3. Creditors’ Voluntary Liquidation (Insolvent Companies)

    When a company is insolvent (unable to pay its debts), creditors’ voluntary liquidation is used. In this case, the company’s creditors are involved in the liquidation process, and a liquidator is appointed to manage the winding-up process.

    When to Use:

    • The company is insolvent (it cannot pay its debts)
    • Creditors must be involved in the liquidation process

    Process for Creditors’ Voluntary Liquidation:

    1. Board Resolution and Shareholder Approval: The board of directors must propose winding up, and shareholders must approve the decision to liquidate.
    2. Creditor Meeting: A meeting of creditors is held to discuss the liquidation process and appoint a liquidator.
    3. Liquidator Appointment: A liquidator takes control of the company’s assets to settle debts.
    4. Settling Debts and Distributing Assets: The liquidator works to pay off creditors and distribute any remaining assets to shareholders.
    5. Final Meeting and Dissolution: The liquidator will call a final meeting, file the necessary reports with the Registrar of Companies, and the company will be dissolved.

  4. Court-Ordered Liquidation (Compulsory Liquidation)

    If a company is in a serious dispute or is insolvent, a court-ordered liquidation may be necessary. This process is initiated by a creditor, shareholder, or other interested party petitioning the court to dissolve the company.

    When to Use:

    • A creditor or stakeholder petitions the court
    • The company is in serious legal disputes or insolvency

    Process for Court-Ordered Liquidation:

    1. Petition the Court: A petition is filed in court by a creditor, shareholder, or other interested party.
    2. Court Appointment of a Liquidator: The court appoints a liquidator to handle the company’s liquidation.
    3. Liquidation Process: The liquidator takes control of the company’s assets and liabilities to pay creditors.
    4. Final Meeting and Court Approval: The liquidator presents the final accounts in court, and the company is officially dissolved.

    Tax and legal compliance are essential during the company closure process to ensure everything is in order. Here’s what you need to do:

    1. Tax Clearance: Before closing the company, obtain tax clearance from the Inland Revenue Department to confirm that all taxes, including income tax, VAT, and other obligations, are paid.
    2. Legal Filings: Ensure all necessary filings with the Registrar of Companies, including annual returns and financial statements, are up to date.
    3. EPF and ETF Contributions: Make sure all contributions to the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) are settled before finalizing the closure.
    4. Employee Final Settlements: Ensure employees are paid their final salaries, unused leave entitlements, and gratuity (if applicable).

    Employee Settlements and Final Payroll

    Proper employee settlements are a crucial part of the company closure process:

    1. Notify Employees: Inform employees of the closure and provide them with termination letters.
    2. Final Salary and Benefits: Pay all outstanding salaries, unused annual leave, and gratuity (if applicable). Provide employees with their final pay slips.
    3. EPF and ETF Contributions: Ensure that the final contributions to EPF and ETF are paid and the necessary forms are filed.
    4. Legal Termination: Ensure the termination complies with labor laws, including the required notice or payment in lieu of notice.

    Post-Closure Considerations

    After the company is officially closed, consider the following:

    1. Record-Keeping: Retain company records for at least 6–7 years for reference or in case of any audits.
    2. Final Confirmation: Ensure that all stakeholders have received their due payments and the company’s final accounts are properly settled.
    3. Company Restoration (If Necessary): If issues arise after the company is dissolved, you may need to apply to restore the company through the court.

    Common Challenges and Solutions

    Some common challenges during company closure include:

    1. Unsettled Debts: Ensure all debts are identified and settled early to avoid complications later.
    2. Tax and Regulatory Delays: Start the tax clearance and regulatory filings early to avoid delays.
    3. Employee Disputes: Communicate clearly with employees and settle their claims to avoid disputes.
    4. Complex Paperwork: Ensure all documents are correctly filled out to avoid rejections by the Registrar of Companies.

Closing a company in Sri Lanka requires careful planning and adherence to the law. By following the appropriate method—whether strike-off for dormant companies, voluntary liquidation for solvent companies, or court-ordered liquidation for insolvent companies—you can ensure that the company is closed in a compliant and orderly manner. Be sure to handle tax compliance, employee settlements, and legal filings properly to avoid complications. By staying organized and addressing common challenges proactively, you can ensure a smooth company closure process and move forward with confidence.

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