When setting up a business in Sri Lanka, one of the most important decisions you will make is choosing the right type of company. The two most common forms for incorporated businesses are Private Limited Companies and Public Limited Companies. Each has its own advantages, legal requirements, and best use cases. Understanding the differences can save you time, money, and legal headaches in the future.
Private Limited Companies
A Private Limited Company is the most popular choice for small and medium businesses in Sri Lanka. It is a separate legal entity, which means the company itself can own property, enter contracts, and be held liable, protecting the personal assets of shareholders.
Private Limited Companies require at least one director and a company secretary, and they must have a minimum of one shareholder. Shares cannot be offered to the public, and ownership is typically restricted to a small group of people such as family members, partners, or private investors.
Sri Lanka has long been seen as a gateway to South Asia, with its strategic location, growing infrastructure, and a government eager to attract foreign investment. But before investing, it is essential to understand the legal framework that governs how foreign individuals and companies can operate here. At Wijesinghe Chambers, we help investors navigate these rules with clarity and confidence.
Pros of a Private Limited Company
- Limited liability protects personal assets.
- Less regulatory compliance compared to public companies.
- Flexibility in management and decision-making.
- More credibility with banks, investors, and clients compared to unregistered businesses.
Cons of a Private Limited Company
- Cannot raise capital from the general public.
- Transfer of shares is sometimes restricted, which may limit investment opportunities.
Private Limited Companies are ideal for startups, small and medium enterprises, family businesses, and professional service firms that do not plan to list on the stock exchange.
Public Limited Companies
A Public Limited Company is designed for larger businesses that may want to raise capital from the public through the stock exchange. These companies are heavily regulated and must comply with stricter governance rules.
Public Limited Companies require at least two directors and a company secretary, and a minimum of seven shareholders at incorporation. Shares can be offered to the public, and the company must comply with disclosure requirements under the Companies Act and the Colombo Stock Exchange if listed.
Pros of a Public Limited Company
- Can raise significant capital from the public.
- Shares are transferable, making it easier to bring in investors.
- Enhanced credibility and visibility in the market.
- Structured corporate governance can attract institutional investors.
Cons of a Public Limited Company
- Higher regulatory and compliance requirements.
- Costs for incorporation and ongoing audits are higher.
- More complex management structure, which may limit flexibility.
Public Limited Companies are best for large businesses, enterprises planning to go public, or companies seeking significant investment from multiple investors. Sectors like banking, insurance, manufacturing, and large-scale services often use this structure.
Key Differences to Remember
In summary, the main differences between Private and Public Limited Companies include:
- Shareholders: Private Limited requires at least one, Public Limited requires at least seven.
- Directors: Private Limited requires at least one, Public Limited requires at least two.
- Share Offer: Private Limited shares are private, Public Limited shares can be offered to the public.
- Compliance: Public Limited Companies have stricter compliance requirements, especially if listed.
- Capital Raising: Private Limited is limited to private investment, Public Limited can raise from the public or stock exchange.
- Governance: Private Limited Companies are more flexible, Public Limited Companies are more structured.
Choosing between a Private Limited Company and a Public Limited Company depends on your business goals, growth plans, and willingness to manage compliance requirements. Most entrepreneurs start with a Private Limited Company because it provides flexibility, liability protection, and credibility. Public Limited Companies are suited for businesses with larger capital needs and plans to list on the stock exchange.
At Wijesinghe Chambers, we help clients navigate this decision, guiding you through registration, compliance, and governance so you can focus on growing your business with confidence.