When starting a private limited company in Sri Lanka, one key concept to understand is share issuance. Shares represent ownership in a company, and issuing them is how a company raises capital from its owners or investors.
Before we dive into share issuance, it’s important to know what a share actually is. Think of a share as a small portion of a company. Owners divide the company into these pieces and sell them to raise money. When you buy one or more shares, you become a shareholder, meaning you own a part of the company. In return, shareholders are entitled to dividends, which are payments from the company’s profits.
Both Private Limited Companies (Pvt Ltd) and Public Limited Companies (PLC) issue shares. The key difference is that a private limited company offers shares only to a select group of investors, whereas a public company sells shares on the stock market to the general public.
Why Do Companies Issue Shares?
Private limited companies issue shares for several important reasons:
1. Raise Capital Share issuance is an effective way for companies to raise funds for operations, growth, or investment. Unlike loans, these funds do not need to be repaid with interest.
2. Attract New Investors Issuing shares allows new investors to become part of the company. This strengthens the company’s financial position and brings in expertise or connections that can benefit the business.
3. Reward Existing Owners or Employees Companies sometimes issue bonus shares to reward founders, directors, or employees as incentives. This motivates them while maintaining the company’s financial stability.
4. Manage Ownership Structure By controlling how many shares are issued and to whom, companies can manage the distribution of ownership and decision-making power among shareholders.
How Private Limited Companies Issue Shares
Issuing shares involves three main steps:
Step 1: Call a Board Meeting The first step is to call a meeting with your company’s board of directors. In this meeting, the board decides:
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The number of shares to issue
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The price of each share
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The class of shares, which determines voting and dividend rights
Step 2: Pass a Board Resolution After deciding the details, the board passes a resolution approving the share issue.
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This resolution is important as it shows that the entire board supports the share issuance.
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If your Articles of Association or Shareholders’ Agreement include pre-emptive rights, you must first offer the new shares to existing shareholders.
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If no such provisions exist, shares can be offered directly to new investors.
Step 3: Submit the Relevant Documents to ROC Once the board resolution is passed, you must notify the Registrar of Companies (ROC):
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Form 6 is filed to record the new share issue
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Submit the board resolution along with Form 6
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Update your Register of Shareholders, statutory records, and minute books
What Happens After a Share Issue?
After issuing shares, the following steps must be completed:
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Update the Share Register: Add the names of the new shareholders.
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File Form 6 with ROC: Within 20 working days, provide details of:
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Number of shares issued
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Consideration or value of the shares
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The company’s stated capital after the issue
- Issue Share Certificates: Share certificates act as proof of ownership and show the number of shares held by each shareholder.
Why Understanding Share Issues Matters
For entrepreneurs and business owners, understanding share issuance is crucial. It affects:
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Ownership Structure - Who controls the company and how decisions are made.
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Funding Opportunities - Raising money without taking loans.
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Legal Compliance - Avoiding disputes or penalties by properly recording shares.
Properly managing share issues ensures your private limited company grows smoothly while keeping investors and founders aligned.
Conclusion
A share issue is a fundamental aspect of running a private limited company in Sri Lanka. Whether you are a founder, investor, or employee, understanding how shares are issued and managed helps you understand your stake in the company. It also ensures your business can raise capital efficiently, remain compliant with the law, and maintain a clear ownership structure.
If you are planning to register a company or manage your existing private limited company, Talentspark Consulting can guide you through share issuance, company registration, and all legal requirements to make the process smooth and hassle-free.
Contact us today! 📞 769284857 / 742056297
