Choosing shareholders
How many shareholders are needed to form a company?
The Companies Act No. 7 of 2007 permits a company to have just one shareholder. This sole shareholder can be an individual, a corporate entity, or the secretary to the treasury holding shares on behalf of the Government of Sri Lanka.
| Type | Minimum | Maxmium |
|---|---|---|
| Private company | 1 | 50 |
| Public company | 1 | Not specified |
What are the powers of shareholders in a Sri Lankan company?
Shareholders have various powers that can be exercised in two main ways:
- At a meeting of shareholders: Powers reserved to the shareholders by the Companies Act or the company's articles can be exercised during such meetings.
- By a resolution in lieu of a meeting: This is allowed under section 144 of the Companies Act.
How can shareholders exercise their powers?
Shareholders can exercise their powers by:
- Ordinary Resolution: Unless specified otherwise by the Act or the company’s articles, shareholders can exercise their powers through an ordinary resolution.
- Ordinary Resolution: Unless specified otherwise by the Act or the company’s articles, shareholders can exercise their powers through an ordinary resolution.
What are the liabilities of shareholders?
The liabilities of shareholders are limited and include:
Shareholders are not liable for any act, default, or obligation of the company merely because they are shareholders.
Their liability is limited to what is expressly provided in the company’s articles or any contracts they have entered into with the company.
What happens if there is an increase in shareholder liability?
Shareholders cannot be bound by a resolution that increases their liability or requires them to acquire more shares unless they agree in writing to such a resolution.
What rights do minority shareholders have?
Minority shareholders have certain rights, including:
- Minority buy-out rights: If a shareholder votes against certain resolutions (like altering company articles, major transactions, or amalgamations) and the resolution passes, they can require the company to purchase their shares.
- Court applications: They can apply to the court if they believe the company is being run in a manner prejudicial to their interests.
How are shareholder meetings conducted and resolutions passed?
Shareholder meetings and resolutions involve:
- General meetings: Regularly scheduled or specially convened meetings where shareholders vote on various issues.
- Resolutions: Decisions made by voting. Ordinary resolutions require a simple majority, while special resolutions require a higher threshold, typically a two-thirds majority.
What are the rights of shareholders in regard to the company's management and decisions?
Shareholders have the right to:
- Inspect financial records and other documents: This includes inspecting the register of shareholders and minutes of meetings.
- Vote on significant matters: Shareholders vote on major decisions like mergers, acquisitions, and changes to the company’s articles or capital structure.
Can shareholders initiate legal action on behalf of the company?
Yes, shareholders can bring derivative actions if the company is wronged and the directors fail to take action. This includes situations where the company’s interests need protection from the acts of its directors or other officers.
What happens if a shareholder wants to sell their shares?
Shareholders can transfer their shares, subject to the company’s articles. If the company refuses to register a transfer, the shareholder can appeal to the court to have the transfer registered.