Individual Business Registration in Sri Lanka
After reading this article, you will get a good education about individual businesses, known as sole-proprietorship businesses, and the registration process of individual businesses. In a previous article, we talked about registering a private limited company. As a new business starter, you may need more resources to register your business as a private limited company. Instead, you may consider registering your own business as an individual one. If so, this article is for you. Remember to read till the end, and you will learn about registering your business significantly.
Let’s take a look at what is a sole-proprietor business.
The sole proprietorship is a widespread business type in Sri Lanka. Usually, sole proprietorships are small unincorporated businesses that only have one owner. Most importantly, these kinds of businesses are not separate legal entities, unlike private limited companies. In the law, the owner and the business are just one entity. To start an individual business, you don’t need huge capital, and usually, respective companies are funded by the owner’s accounts. This explanation is very brief about individual companies. We will talk more about this regarding the pros and cons of individual businesses.
The pros and cons of registering your business as a sole-proprietorship
The Pros
- Starting the business
Usually, individual businesses are easy to start than other business types. The registration is simple. The operation of the company is simple compared to other business types too.
- Raising Capital
Already you know, usually, individual businesses are small businesses. So you don’t need a huge capital to start. The thing is, in what industry are you willing to create one? The capital may vary depending on the industry.
- You are controlling your business.
Controlling a big business is challenging. With few owners or partners, it isn’t easy to make quick decisions. Those companies need to be more flexible in operating. When it comes to individual businesses, this is different. There is just one owner. The owner can make direct, quick decisions and control the company as the owner’s willing. You have the freedom to make decisions.
- Who claims the profits?
In your individual business, all the profits generated belong to you. No one else claims your earnings because you are the only owner.
- You will grow
Find out the history of big businesses in Sri Lanka. You will find out the beginning is a small individual business like yours in many first-row companies. So as an entrepreneur, you are at a good starting point. Growing your company or making your company a big brand is up to you!
Every business type has its advantages and disadvantages. So why not in individual businesses? Let’s take a look at the Cons.
The Cons
- Your Liability
The sole businesses are bound by UNLIMITED LIABILITY. This risk happens because the business and you are not separate persons. People have their good times and bad times. As well as companies have too. If your business is having a hard time, incurs debts, and gets sued, you must settle everything. Those debts are under your name. No matter how you are paying these debts. You may lose your assets, such as your houses, vehicles, or anything. You are legally bound to pay your companies’ debts with your personal assets.
- Expanding your business
In private limited companies, there is limited liability. So they can raise funds and easily take risks to expand their businesses. But individual companies may be unable to take those risks because they are bound by unlimited liability.
- How long will you survive?
Your business has the same lifespan as yours. After the owner passes, there is no business. Don’t be so selfish; if you had an incorporated business, your business would survive without you. And your customers still have a chance to get their familiar goods or services from your company. Did you get it?
- Raising capital
You must know you don’t have a chance to raise your individual businesses’ capital from outside. Only you can do this by yourself. You can hardly get bank loans, but you are in unlimited liability. But in incorporated businesses, they can raise capital more quickly than you. They can issue shares mainly, and the investors are willing to invest their money in incorporated companies.
- You may end in a disaster.
As the sole owner of your company, you have the freedom to make your desired decisions. That is a good thing. But who knows, all of your decisions are right? Because you don’t have someone to get a consult. Your knowledge, experience, and skills may not be enough to make those rough decisions. So you are at significant risk when making decisions about your company. So make sure to take them very carefully.
- Paying taxes may be a nightmare.
If your company makes profits, you are personally liable to pay taxes. Your company taxes are always under your name. The more significant profits you earn, the larger taxes you pay.
I hope you got a better understanding of the nature of individual businesses. Let’s dig into our main topic. How to register a sole-proprietorship business?
Already we explained the registration process is more straightforward than other business types. We will explain step by step.
Step-01
Obtain the relevant forms from your provincial council
You can collect the forms required to register your business from the provincial council in your residential area. There are two forms you should collect.
- The form to register your business name.
- The form to request a report from Grama Niladhari.
Step-02
Submitting the completed Grama Niladhari report and other required documents.
After completing the form and collecting the Grama Niladhari report, you can submit them to the provincial council. And you should pay the registration fees to the divisional secretary.
When submitting the forms and report, make sure to submit the below documents too,
- A copy of your NIC
- Business premises ownership documents (You have to provide one of the below documents)
- Deed – To show proof that you own the premises
- Lease agreement – To show evidence that the premises are rented by you
- Consent letter – To show the proof owner of the premises has consented to the operation of a business
- Varipanam assessment notice
- Affidavit confirming the initial capital of the business
According to your business’s industry, you may also ask to submit some other industry-relevant documents. Submit them also if you are in a category listed below.
| Type of Business | Required Document |
| Ayurvedic-related dispensaries, hospitals, storage, planting, and manufacturing. | Provincial Ayurvedic Commissioner’s certification |
| Gems and jewelry related | Recommendation from Gem and Jewellery Authority in Sri Lanka |
| Vocational businesses | Certifications you have received from an institution or authority |
| Tobacco-related business | Recommendation from the Excise Department of Sri Lanka |
| Pharmacy | Certification from Sri Lanka Medical Council |
| Consultancy | Certificates related to your consultancy practice |
| Nursery | Recommendation from an Early Childhood Development Assistant who’s employed in the relevant divisional secretariat |
| Daycare centers | Recommendation from an Early Childhood Development Assistant who’s employed in the relevant divisional secretariat |
| Gas station | Recommendations from Central Environment Authority and the Ceylon Petroleum Corporation |
| Polythene, paint, plastic, and acid-related business | Recommendation from the Central Environment Authority |
| Wood related business | Recommendation from the Forest department |
| Printing business | Recommendation from the Department of National Archives |
| Rooms, guest houses, spas | Reports from the Police division and Divisional secretariat |
| Animal farms | Recommendation from District Veterinarian |
| Food-related business | Recommendation from the Public Health Inspector |
| Pesticides, fertilizer-related business | Recommendation from the Department of Agriculture |
| Agency or distribution business | Certification of the relevant agency |
Step-03
Obtaining the Certificate of Registration of Business Name
After you submit all the documents successfully and pay the fees, the divisional secretary will issue a certificate of registration of the business name. You need to display that certificate on your business premises.
After completing all the above steps, you are good to go.
Here you can access our other articles on “Private Limited Company Registration” and “Partnership Company Registration”.
