New companies crop up with foreign partnerships under property deals
Sri Lanka‘s new company registrations including the partnership business with foreigners have increased considerably since 2022 even after the economic crisis left deep scars among prospective entrepreneurs struggling to find access to capital, official data shows.
The trend of increasing foreign partnership companies even during the period of recession was due to the practice of selling land and property to foreigners by interested parties taking advantage of the 2018 amendment to the Restriction on Alienation of Land Act No. 38 of 2014, several industry officials said.
The companies with foreign shareholders have been registered through the Registration of Companies with a Board of Directors appointed, a senior Finance Ministry official said adding that both local and foreign private sector would be able to buy shares.
Foreigners holding over 49 per cent of shares in companies can own the freehold of any property where the individual proprietors benefit from shared facilities – this includes, apartment blocks, resort developments and condominiums.
For all other properties – lands, villas, hotels – foreigners can hold a 99 year lease in their own name, or buy through a minority owned company with a local majority shareholder, he added.
Some 1,995 new companies have been set up in in January 2024, on top of 4,500 companies registered in 2023 despite the gravest economic crisis in the country’s history, according to statistics of the Registration of Companies.
The number of registration of companies has risen to 22,376 in 2023 from 17.819 in 2022 at a time where 204,100 factories have been permanently closed and 59,100 factories have been temporarily closed, the Department of Census and Statistics revealed.
The Registrar of Companies is strictly monitoring the companies registered with the department to prevent operating of shadow or dud companies, Registrar General of Companies Sanjeewa Dissanayake told the Business Times.
He noted that the department has posted revenue of over Rs.1 billion last year from company registrations and the officials keep a close tab on the process of filing annual reports and financial statements of companies.
The company registrations are being done under Sole Proprietorship, Partnership, Private Limited Company, Public Limited Company and Company Limited Guarantee.
However he noted that he cannot comment on the breakdown of a particular category and the intentions of entrepreneurs setting up of new companies.
Vice President of Sri Lankan Micro Small and Medium Chamber of Commerce Mahendra Perera told the Business Times that starting a new genuine business under the present economic situation was impossible.
The sustenance of new ventures cannot be guaranteed as the prospective entrepreneurs are suffering from economic hardships, high electricity bill coupled with production costs and unbearable taxes, he said.
However he noted that new companies are coming up with foreign partnership with local proprietors aiming to earn money by selling property at high prices to foreigners making use of the ease in regulations.