Disclosure of Beneficial Ownership - Proposed amendments to the Companies Act, No. 07 of 2007

Overview

In a move to enhance transparency, combat illicit financial activity, and align domestic law with international best practices on corporate governance, anti-money laundering and countering of financing terrorism, amendments to the Companies Act, No. 07 of 2007 by the Companies (Amendment) Bill (“Bill”) are proposed, requiring the disclosure of beneficial ownership.

The concept of beneficial ownership goes beyond legal title to require the identification of the natural persons who ultimately own or control a company, whether directly or indirectly. These individuals may not appear on public records as shareholders or directors but often wield significant influence over a company’s operations and assets. Beneficial ownership is defined in the Bill (and is similar to that found in the Banking Act  No. 30 of 1988, as amended).

Definitions

“beneficial owner” means a natural person who ultimately owns or controls ten per cent or more of a company, in whole or in part, through, direct or indirect ownership or control of shares or voting rights or other ownership interest in that company, and also includes a natural person who exercises effective control through other means, and beneficial ownership is to be construed accordingly.

“effective control” includes a situation where control is exercised indirectly either through a chain of ownership or by appointment or removal of a director or by any other means of indirect control, such as the ability to take strategic decision that affects the operation of the company, its business practices or general direction of the company.

Key aspects of effective control:

Some examples of persons having ‘effective control’ over a company may include the following –

  • Where a person has absolute decision rights in relation to the running of a business (changing the articles of association, appointment removal of the chief executive officer, changing the nature of the company’s business)
  • Where a person has absolute veto rights over decisions related to the running of the business of the company, for example relating to adopting or amending the company’s business plan.
  • Where a person holds absolute veto rights over the appointment of the majority of directors, meaning those directors who hold a majority of the voting rights at meetings of the board on all or substantially all matters

In Basho Techs. Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL 3326693 (Del. Ch. July 6, 2018), aff’d sub nom., Davenport v. Basho Techs. Holdco B, LLC, 221 A.3d 100 (Del. 2019), the court considered several examples or indications evidencing ‘effective control’, including but not limited to,

  1. Relationships with particular directors that compromise their disinterestedness or independence
  2. Relationships with key managers or advisors who play a critical role in presenting options, providing information, and making recommendations
  3. The exercise of contractual rights to channel the corporation into a particular outcome by blocking or restricting other paths
  4. The existence or commercial relationships that provide a person with leverage over the company, such as status as key customer or supplier.

Similarly, in the Voight v. Metcalf, 2020 WL 614999 (Del. Ch. Feb. 10, 2020), which also dealt with a minority shareholder who had contractual veto rights regarding a number of material actions in the company, such as issuing shares, distributing dividends, approving material transactions, changing the company’s statute, and providing collateral for loans, court determined that there is no “magic formula” to prove ‘effective control’ and this must be determined on a case-by-case basis (emphasis is ours).

Salient provisions in the Bill

The provisions of the Bill require a company, including an overseas company and an offshore company, to

  • maintain a register of beneficial owners
  • to provide information relating to beneficial ownership to the Registrar General of Companies, certain public authorities and with limitations, to the public and in the annual return
  • appoint an authorised person for the safe keeping of the register of beneficial owners
  • a corresponding obligation is placed on a shareholder to provide information on beneficial ownership upon acquiring shares.

Further, details of beneficial ownership of a company must be made available to a member of public on a request made to the Registrar General of Companies.

Upon the law being promulgated, a company is required to provide information on beneficial owners as at the date of the law becoming operational, to the Registrar, within a period of 30 days and 6 months.  To be able to discharge this duty, a company will have to obtain information on beneficial ownership, from shareholders.

Sources

Banking Act, No. 30 of 1988 (as amended).

Basho Techs. Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL 3326693 (Del. Ch. July 6, 2018), aff’d sub nom., Davenport v. Basho Techs. Holdco B, LLC, 221 A.3d 100 (Del. 2019).

Voight v. Metcalf, 2020 WL 614999 (Del. Ch. Feb. 10, 2020).

Office of the Cabinet of Ministers – Sri Lanka, “Amendment of Companies Act, No. 07 of 2007” www.cabinetoffice.gov.lk, accessed 20th May 2025.

Companies (Amendment), A Bill to amend the Companies Act, No. 07 of 2007 Gazette of the Democratic Socialist Republic of Sri Lanka (Part II, 17th April 2025) issued on 24th April 2025 accessible at documents.gov.lk.

Department for Business, Energy and Industrial Strategy, “Statutory Guidance on the Meaning of “significant influence or control” over Companies in the Context of the Register of People with Significant Control” accessible at assets.publishing.service.gov.uk

‘Amendment to Companies Act No. 07 of 2007 approved for publication’ The Morning (Colombo, 28th March 2025) www.themorning.lk

Authors

Afra Laffar
Senior Associate