SRI LANKA Law and Practice Contributed by: Ayanthi Abeyawickrama, Varners
In private companies, directors frequently assume both executive and non-executive roles, and decision-making is often closely aligned with shareholder interests, particularly in close - ly held companies. Shareholders exercise their rights primarily through resolutions passed at general meetings, including the appointment and removal of directors, approval of dividends, actioning of reserve rights, and amendments to the articles of association. There is no statutory provision under Sri Lankan law for a two-tier board structure (ie, a separate supervisory and management board), making the one-tier system the default and standard corporate governance framework for companies incorporated in Sri Lanka. However, companies may internally assign functional roles (eg, man - aging director, non-executive chairman) or may have multiple tiers of governing structures to promote oversight and accountability, particu - larly in larger or regulated entities. This is gener - ally the case in companies limited by guarantee. 3.5 Directors’, Officers’ and Shareholders’ Liability The liability of directors and officers is primarily governed by the Companies Act, No 7 of 2007, which imposes both fiduciary and statutory duties on directors. These duties include: • acting in good faith in the best interests of the company; • exercising powers for proper purposes; • avoiding conflicts of interest; and • performing their functions with care, diligence and skill (see Sections 187–189 of the Com - panies Act). Directors may be held personally liable for breaches of these duties, particularly in cases involving unlawful distributions, trading while
insolvent, or misstatement of financial informa - tion. Officers, including company secretaries, may also face liability for non-compliance with statutory requirements, failure to maintain prop - er records, or facilitating regulatory breaches. They are also liable for securities law violations or breaches of statutory obligations under laws such as the Employees’ Provident Fund Act or the Employees’ Trust Fund Act. In the case of listed companies, directors and senior management must additionally com - ply with the “fit and proper” criteria under the Listing Rules of the Colombo Stock Exchange and relevant provisions of securities laws. They are expected to avoid conduct such as insider trading, misrepresentation of material facts, and falsification of financial statements. Directors of listed entities operating in regulated sectors (such as banking, finance and insurance) must also satisfy the sector-specific fit and proper requirements imposed by regulators such as the Central Bank of Sri Lanka and the SEC. The principle of separate legal personality pro - tects shareholders from personal liability; as such, they are generally not liable for the debts or obligations of the company, other than for any amount unpaid on their shares. Nevertheless, Sri Lankan courts will pierce the corporate veil in exceptional circumstances, such as in cases involving fraud or offences related to bribery, corruption or money laundering. 4. Employment Law 4.1 Nature of Applicable Regulations The nature of the legal rules governing employ - ment relationships in Sri Lanka is primarily reg - ulatory and protective of employees based on equitable standards.
769 CHAMBERS.COM
Powered by FlippingBook