Companies Act No. 07 of 2007 & Accounting and Auditing Act No. 15 of 1995

 

Companies Act No. 07 of 2007




The Companies Act No. 07 of 2007 brought significant changes to Sri Lanka's corporate legal framework, modernizing and aligning it with international standards. One of the most notable changes is the introduction of the single shareholder company, which allows businesses to be formed with just one shareholder. This change is particularly beneficial for small business owners and entrepreneurs, reducing entry barriers and fostering a more inclusive business environment. By simplifying the process of establishing and running a business, the Act aims to stimulate economic growth and encourage entrepreneurship.

Corporate governance is a major focus of the 2007 Act, with stricter conditions for the appointment and duties of directors. Directors are now required to avoid conflicts of interest and to act with due care, skill, and diligence. These measures are intended to enhance transparency and accountability within companies, ensuring that directors act in the best interests of the firm and its stakeholders. Additionally, the Act provides enhanced protection for minority shareholders. It includes provisions that allow minority shareholders to file complaints if they believe their rights are being violated. This is a significant step forward in preventing the abuse of power by majority shareholders and ensuring that the interests of all shareholders are protected.

Accounting and Auditing Act No. 15 of 1995





The Accounting and Auditing Act No. 15 of 1995 is a cornerstone of financial regulation in Sri Lanka, establishing the standards and procedures for accounting and auditing. The primary aim of this legislation is to ensure accountability, transparency, and integrity in financial reporting and auditing processes. By doing so, the Act helps to build investor trust and support economic growth. The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) is designated as the regulatory authority responsible for setting accounting standards and overseeing the conduct of accountants and auditors. This ensures that financial data released by companies is consistent, reliable, and of high quality.

To maintain the integrity and independence of auditors, the Act includes specific requirements such as the rotation of audit partners and prohibitions on auditors providing certain non-audit services to their audit clients. These measures are designed to minimize potential conflicts of interest and ensure that auditors can perform their duties without bias. The Act also empowers regulatory bodies to conduct inspections, investigations, and disciplinary actions against individuals or firms that do not comply with established standards. This robust regulatory oversight enhances the credibility of financial reporting, fosters investor confidence, and supports the stability of the capital markets.

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