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[null,"Prepared By:","Contributors:"]
[null,"D. L. & F. De Saram"]
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[]
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["Social Enterprise Law Surveys"]
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["Report Generated: 4/29/2025"]
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["View your report results on next tab"]

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["Question","Sri Lanka"]
["I. Enterprise Form"]
["What jurisdiction(s) do you practice in?","Sri Lanka\n"]
["What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade or business (rather than for investment or holding company purposes)? Please briefly describe these forms. a. Of these, which are the most common for-profit organizational forms used by Enterprises seeking financing from investors and that will have multiple owners? b. Other than organizational forms specifically designed for Social Enterprises (and discussed below under Question 4), which, if any, are the most common for-profit organizational forms used by Social Enterprises?","The most common for-profit organizational form utilized in Sri Lanka is the limited liability company, which is traditional in nature. A limited liability company can be either: (i) a private company with less than 50 shareholders, which is not permitted to offer shares to the public; or (ii) a public company, which can issue shares to the public. Both forms will be governed in accordance with its Articles of Association.\nTwo or more persons may also establish a company limited by guarantee, being a corporate form under which shares are not issued and its members undertake to contribute to the assets of the company in the event of liquidation as specified in the Articles of Association.\na. Enterprises that seek financing from investors and intending to have multiple owners tend to form limited liability companies.\nb. The most common for-profit organization form, which may be used by Social Enterprises, is a company limited by guarantee. Guarantee Companies are often used for the promotion of commerce, art, science, religion, charity, sport, or any other useful object as specified in the Articles of Association. In such an event, payment of dividends to members will be prohibited.\n"]
["Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required to or allowed to consider (e.g., interests of employees, customers, the environment, etc.)?","The traditional organization forms do not require the board or managers to consider, balance or prioritize interests other than shareholder value in decision making but may do so, based on organizational policies and any specific objects set out in the Articles of Association.\n \n"]
["Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so: a. What type(s) of organizational forms are they? b. How do they materially differ from the most closely analogous traditional organizational form? c. What are the main benefits for founders and funders of such organizational forms? d. Are there any restrictions on the use of these organizational forms (such as profit-caps, stakeholder involvement and impact reporting)? If there are, what are they? e. Are there any material differences in timing or costs for forming a Social Enterprise versus a traditional Enterprise? f. How prevalent and well known are Social Enterprise forms?"," a. The following organizational forms are specifically designed for Social Enterprises. \n\n \n\t Societies under the Societies Ordinance No. 16 of 1891, as amended; \n\t Social Service Organizations under the Voluntary Social Service Organizations (Registration and Supervision) Act No. 8 of 1991; \n \n\n i. Societies under the Societies Ordinance No. 16 of 1891, as amended: \n\n \n\t Materially differs from limited liability companies as a Society can be registered either as a ‘mutual provident society’ (i.e., a society with the objective of promoting thrift, giving relief to members in times of sickness or distress, aiding them when in pecuniary difficulties, and for making provision for their widows and orphans) or as a ‘specifically authorized societies’ being a society established for a purpose authorized by the relevant Minister. A Society can be established with a minimum of 7 members and will be subject to minimum capital requirements, as prescribed from time to time. \n\t The main benefit to founders and funders is the promotion of the objectives for which the Society is founded. \n\t The gross sum and annuities to which a member is entitled will be limited to sums prescribed under the Ordinance. Audits and annual returns must be prepared setting out the funds, expenditure and effects of the Society. \n\t The timeline for setting up a Society will be longer than forming a traditional Enterprise. However, the costs involved are comparatively lower. \n\t This organization form is well known and has been available for quite some time. \n \n\n ii. Social Service Organizations (“SSO”) under the Voluntary Social Service Organizations (Registration and Supervision) Act No. 8 of 1991 \n\n \n\t Materially differs from limited liability companies as SSOs must be dependent on public contributions, charities, grants payable by the Government or donations (local or foreign) and have as its main objectives, the provision of reliefs/services for the mentally retarded or physically disabled, the poor, the sick, the orphans and the destitute, and the provision of relief to the needy in times of disaster. SSOs must also be non-governmental in nature. \n\t The main benefit to founders and funders is the promotion of objectives for which it is founded. \n\t SSOs must also register with the National Secretariat for Non-Governmental Organizations. The Registrar of Voluntary SSOs may inspect the premises of SSO to ascertain whether satisfactory standards of service are met and may highlight to the relevant Minister any fraud or misappropriation of funds. Such matters can be referred by the Minister to a Board of Inquiry established under the Act. \n\t The time period to establish an SSO will be longer than forming a traditional Enterprise. However, the costs involved are comparatively lower. \n\t This organization form is well known and has been available for quite some time. \n \n"]
["Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporate, tax or other perspective? b. Are there any material benefits of, and/or restrictions on, using a Nonprofit form for Social Enterprises that does not apply to Nonprofits that are not Social Enterprises? c. Is there any type of “hybrid” Nonprofit form that requires less reporting and/or allows for faster formation? If so, please describe the drawbacks of utilizing this form (i.e. fewer tax benefits). d. How prevalent is the use of Nonprofits for Social Enterprises?"," Social Enterprises are permitted to be formed and operated as nonprofits. \n\n \n\t The corporate name of a company limited by guarantee can be registered without the inclusion of the word ‘limited’ if it is established as a Social Enterprise. Further, different compliance and reporting requirements will be applicable based on the organizational form. \n\t Nonprofit Social Enterprises are entitled to tax benefits under the Income Tax laws of Sri Lanka. Please refer to responses under Part III – Tax. \n\t No. \n\t Social Enterprises are commonly formed and operated as nonprofits \n \n\n   \n"]
["Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms.","Yes, cooperative societies can be established under Cooperative Societies Law No. 5 of 1972, as amended. The objectives of the Cooperative Society must be the provision of specified services contributing to economic, social, educational and cultural welfare of its members in accordance with cooperative principles. A Cooperative Society can be registered with or without limited liability unless the members are themselves registered societies in which event the liability of the society will be limited.\nSocieties must consist of at least 10 persons, who are over 18 years of age, residing, employed and owning immovable property within the area of operation of the Cooperative Society and capable of utilizing the services rendered by the Cooperative Society or at least 3 registered Societies.\nEvery registered Cooperative Society must transfer an amount not less than 25% of net profits to its reserve fund and contribute a portion of the net profits, as prescribed, to the Cooperative Fund. The balance of the net profits may be utilized for prescribed purposes, including payment of dividends to members.\nThe payment of dividends to members and transfer of share/interest of a member will be subject to profit-caps and maximum holdings, as required under the Law. An annual statement of accounts and statistics relating to the activities of the Cooperative Society must be filed with the Registrar of Cooperative Societies within 3 months from the close of a financial year.\n"]
["Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to.","Please refer to responses under Q3 – Part IV Governmental Infrastructure.\n"]
["In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples.","Case law and jurisprudence in Sri Lanka have not evolved in relation to Social Enterprises.\n"]
["Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe.","No.\n"]
["Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe.","No. However, Social Enterprises may choose their objectives in line with certain ESG factors.\n"]
["Does your jurisdiction have any ESG requirements for investors? If it does, please describe.","No.\n"]
["II. Funding"]
["Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements. b. If they are not, are they permitted to consider such factors? c. What other relevant factors do investors tend to consider (aside from profit motive).","There are no major investor classes required to look at ESG issues. Such factors may be considered based on internal organizational policies of the investor.\n"]
["What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)?","Social Enterprises receive grants, charitable investments and traditional investments. The type of funding typically varies based on the organizational form of the Social Enterprise. Nonprofit Social Enterprises receive more grants and charitable investments, whereas for-profit Social Enterprises receive more traditional investments.\n \n"]
["How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)?","For-profit impact investments are increasing in Sri Lanka and there are a few organizations [such as Lanka Impact Investing Network (Private) Limited and Lanka Social Ventures) promoting impact investments and providing ancillary support.   \n"]
["What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government funding? b. Is any government funding limited to Enterprises incorporated using Social Enterprise forms?","There is no special government funding specifically available to Social Enterprises. Funding under programs backed by the Government of Sri Lanka (GoSL) may be available to enterprises depending on the form of the Enterprise and industry. For example, the Central Bank of Sri Lanka (CBSL), on behalf of GoSL, contributes to enhance access to finance by providing affordable finance to for-profit enterprises in sectors, such as agriculture, animal husbandry and micro, small and medium scale enterprises via a network of participating financial institutions.\n"]
["Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)?","No.\n"]
["To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction.","As a member of the United Nations Sustainable Stock Exchanges initiative, the Colombo Stock Exchange has issued Guidelines for ESG disclosure and performance among listed companies. The Guideline consolidates current practices of investors and issuers and carries Best Practice Recommendations.\n"]
["How prevalent, if at all, are impact bonds in your jurisdiction?","Impact bonds are not commonly used in Sri Lanka. In 2018, UNDP’s Regional Bureau for Asia and Pacific launched Sri Lanka’s first social impact fund (i.e., Social Impact Fund and Social Entrepreneurship Fund) aimed at supporting social entrepreneurs access innovative financing and to help achieve the 2030 Agenda for Sustainable Development.\n"]
["In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)?","No.\n"]
["Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under applicable statutes?","Whilst crowdfunding is not prohibited in Sri Lanka, special laws/rules have not yet been formulated to facilitate the same.\n"]
["III. Tax"]
["Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full. b. Are they dependent on the Social Enterprise utilized using a specific organizational form (e.g., for profit vs. Nonprofit form)? c. Please describe any other key requirements of the available tax exemptions (e.g., restrictions on sources or uses of funds, restrictions on commercial activities, etc.)."," The following funds received by Social Enterprises will be exempt from income tax: \n\n \n\t Amounts derived as grants/donations by any Social Enterprise for advancement of religion (registered with the relevant Ministry of Religious Affairs); \n\t Amounts derived by any registered Cooperative Society; \n\t Interest derived by an institution established for charitable purposes where it is proved to the satisfaction of the Commissioner-General of Inland Revenue (“CGIR”) that such interest is applied solely for the purpose of providing care to children, the elderly or the disabled in a home maintained by such charitable institution; \n\t Profits and income from any property donated by a Royal or other grant before 02.03.1815, to any place of public worship administered by a charitable institution, in so far as such profits and income are applied to the purposes for which such grant was made. \n \n"]
["Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations?","No.\n"]
["Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.)"," a. Tax rates \n\n \n\t Taxable income of a charitable institution (excluding gains from the realization of investment assets) is subject to tax at 14%; \n \n\n A “charitable institution” means the trustee or trustees of a trust or corporation or an unincorporated body of persons established for a charitable purpose only or engaged solely in carrying out a charitable purpose. “Charitable purposes” means a purpose for the benefit of the public or any section of the public in or outside Sri Lanka, of any of the following categories: (i) the relief of poverty; (ii) the advancement of education or knowledge other than by any institution established for business purposes or by any institution established under the Companies Act; (iii) activities for the protection of the environment or eco-friendly activities; (iv) the advancement of religion or the maintenance of religious rites and practices or the administration of a place of public worship; or (v) any other purpose beneficial to the community, not falling within any of the above categories. \n\n \n\t Non-governmental organizations (“NGOs”) – income tax at the rate of 28% on 3% of amounts received as grants, donations or contributions while other taxable income would be subject to the standard income tax regime. \n \n\n A “non-governmental organization” is defined as any organization or association, whether incorporated or unincorporated, formed by a person or a group of persons on a voluntary basis and which is nongovernmental in nature, and established and constituted: (a) for the provision or relief and services of a humanitarian nature to the poor and destitute, the sick, orphans, widows, youth, children; or (b) generally for the provision of relief to the needy; unless such organization or association is determined by the CGIR not to be a non-governmental organization, but in all cases does not include an approved charitable institution. \n\n b. Cash donations made by an individual or entity to an approved charitable institution (i.e., a charitable institution established for the providing institutionalized care for the sick or the needy; and declared by the Minister of Finance as an approved charitable institution) will be considered as a qualifying payment, subject to the following maximum limits: \n\n \n\t For an individual – 1/3 of the taxable income of the individual or LKR 75,000/-, whichever is lower; \n\t For an entity – 1/5 of the taxable income of the entity or LKR 500,000/-, whichever is lower. \n \n\n c. In the event that the CGIR is satisfied that any NGO is engaged, in any year of assessment, in: \n\n \n\t rehabilitation and the provision of infrastructure facilities and livelihood support to displaced persons in any area identified by GoSL for the purposes of such rehabilitation and provision; or \n\t any other activity approved by the Minister of Finance as being of humanitarian in nature, taking into consideration the nature and gravity of any disaster and the magnitude of relief required to be provided consequently, \n \n\n the CGIR is empowered to reduce or remove the tax payable by such NGO for that year of assessment if it appears that such reduction is just and equitable in all the circumstances of the case. \n\n d. Where any charitable institution provides in any year of assessment institutionalized care for the sick or the needy and the CGIR is satisfied that the cost of provision of such care is borne by such institution, the CGIR is empowered to grant a tax credit against the tax payable on the charitable institution’s taxable income for the year of assessment, subject to specified conditions,  provided it appears to the CGIR  that such reduction or remission is just and equitable in all the circumstances of the case. \n"]
["Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions?","Yes, tax exempt status will be recognized in Sri Lanka if specifically recognized under a Double Taxation Avoidance Treaty or any other mutual assistance agreement with the relevant jurisdiction.\n"]
["IV. Governmental Infrastructure"]
["Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe.","No.\n"]
["What government operational support, resources, training or services, are available for small businesses or Social Enterprises?","GoSL through CBSL and legislative enactments provide access to finance to SMEs. Various credit facilities and concessions have also been implemented in order to mitigate the adverse effects of COVID 19 pandemic. \nFurther, other GoSL institutions such as the National Enterprise Development Authority and Industrial Development Board provide a vast range of services and facilities including infrastructure facilities, engineering and technology services, entrepreneurship development and market access assistance.\n"]
["Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are."," Cooperative Societies \n\n Such registered societies are required to: \n\n \n\t Keep proper accounts of the income and expenditure, assets and liabilities and of all other transactions of the society to be kept; \n\t prepare an annual statement of accounts and statistics relating to the activities of the society, as may be required by the Registrar and submit the same to the Registrar within 03 months of the close of the relevant financial year; \n\t prepare a budget in respect of every financial year. setting out projections of revenue, expenditure both recurrent and capital, financial and cash resources, investments of funds, budgeted profit and loss accounts, income and expenditure accounts and balance sheets and present the same to the general body of the society for its approval, 02 months prior to the commencement of the relevant financial year; \n\t submit the budget to the Registrar, 01 month prior to the commencement of the financial year. \n \n\n Societies \n\n Societies are required to: \n\n \n\t have accounts audited by a public auditor annually; and \n\t submit a general statement of the receipts and expenditure, funds and effects, of the society as audited (“Annual Return”) to the Registrar representing expenditure in respect of the several objects of the Society separately. \n \n\n Voluntary SSOs and NGOs \n\n Voluntary SSOs and NGOs are required to submit progress reports on projects and usage of finances to the National Secretariat for NGOs annually.  \n"]
["Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness.","No.\n"]
["Is there a different bankruptcy system available for Social Enterprises?","No.\n"]
["VI. Miscellaneous"]
["What are the average time and filing fees to form an Enterprise in your jurisdiction?","A private limited liability company may be established within 7-10 working days and the average filing fee is likely to be LKR 12,000. The timeline and costs for the formation of other Enterprises differ based on the particular form and may take approximately 6-9 months and filing fees will be determined on a case-by-case basis.\n"]
["What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well as the standards there are to maintain them.","No certifications/accreditations allow access for benefits save and except for income tax purposes, the deductibility of donations to charities (established to provide institutionalized care for the sick/ needy) as qualifying payments would be subject to the certification of the charity as an ‘approved charitable institution’ by the Minister of Finance by way of gazette notification. Please refer to responses Q3 – Part III Tax.\n"]
["Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction.","Yes, startups can easily form and flourish in Sri Lanka. They are several forms of Enterprises available to choose from and incorporation processes of for-profit Enterprises are simple and faster.\n"]
["Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction.","For-profit Social Enterprises can form relatively easily. However, nonprofit Enterprises but must go through a relatively lengthy application process.\n"]
["Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Social Enterprises subject to legislation prohibiting inclusion of Social Enterprises in government contract procurement)?","In the general corporate form, directors and officers must use their powers in the best interests of the company and shareholders/members. While they are not prevented from considering other interests, such as the environment or the larger community, it would be better were they more easily able to consider those interests. Further, the current public procurement framework does not facilitate the participation of Social Enterprises in government contracts.\n"]
["In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects.","No.\n"]
["What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction?"," The following reforms may be beneficial to Social Enterprises: \n\n \n\t Establishing a specific regime for the establishment of Social Enterprises with hybrid motives, impact investment in Social Enterprises that do not prioritize financial return for investors and crowdfunding; and \n\t Providing tax benefits to Social Enterprises utilizing for-profit Enterprise forms. \n \n"]
["What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)?"," \n\t Implementing a uniform set of standards for ESG policies and reporting for all entities would make it easier for investors and consumers to compare and evaluate which enterprises are in fact doing good in the world, which would drive companies to perform better. \n\t Develop and integrate an appropriate system for measuring and managing the social and environmental impact of Social Enterprises. \n \n"]
["Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not?","No.\n"]