How to Incorporate a Non-Governmental Organization (NGO) in Sri Lanka as a Company Limited by Guarantee

Introduction to NGOs in Sri Lanka

What is a NGO?

An NGO in Sri Lanka typically refers to a non-profit, voluntary group that operates independently of the government. NGOs may focus on a wide range of causes such as promoting commerce, art, science, religion, charity, sports, education, human rights, community development, healthcare, environment, and poverty alleviation.

NGOs play a vital role in bridging gaps where government services are insufficient. They contribute to societal development by implementing projects, advocacy work, and community outreach programs.

In order to operate legally and effectively, an NGO must be incorporated under a recognized legal framework, giving it a formal identity and the ability to enter into contracts, own property, and be accountable.

Importance of setting up an NGO within the Legal Framework

Setting up an NGO in the form of a company limited by guarantee grants it:

• separate legal status to operate independently;
• limited liability protection to its members and directors;
• credibility when dealing with donors, government bodies, and international organizations; and
• ability to open bank accounts, hire employees, and own property.

Proper incorporation also helps NGOs demonstrate transparency and accountability, which are crucial for securing funding and public trust.

What is a Company Limited by Guarantee?

Definition and Characteristics

A Company Limited by Guarantee is a type of legal entity typically used for non-profit organizations. Unlike traditional companies that have shareholders, a company limited by guarantee has members who agree to contribute a nominal amount (the “guarantee”) in the event the company is wound up.

Key features include:

• No share capital and no shareholders.
• Members instead of shareholders.
• Non-profit objectives — profits are not distributed but are reinvested for achieving the organization’s goals.
• Limited liability — members’ liability is limited to the amount they have agreed to contribute.

Why choose this Structure for an NGO?

For an NGO, this structure is ideal because:

• It supports non-profit activities legally.
• It protects individual members from personal liability.
• It emphasizes a mission-driven approach over profit-making.
• It provides a recognized legal entity to enter contracts, hire staff, and manage funds responsibly.

By incorporating as a company limited by guarantee, NGOs in Sri Lanka can function with the professionalism and stability required to meet their objectives effectively.

FAQs About Incorporating an NGO in Sri Lanka

How long does incorporation take?

If documents are in order, the incorporation process with the ROC typically takes 1 to 2 weeks. Registration with the NGO Secretariat may take an additional few weeks depending on the scrutiny level.

Can a foreigner be a director of an NGO?

Yes, foreigners can serve as directors of an NGO in Sri Lanka, subject to immigration laws. If a foreigner resides in Sri Lanka for this purpose, they must obtain the appropriate visa and work permit.

Is it mandatory to register with the NGO Secretariat?

Registration with the NGO Secretariat is not mandatory for all NGOs but is required for those:

• Receiving foreign funding.
• Working in sensitive sectors.
• Planning to collaborate with government agencies.

It’s advisable to seek legal advice to determine if NGO Secretariat registration is necessary based on your operations.

Legal Framework for Incorporating an NGO in Sri Lanka

Companies Act No. 07 of 2007

The Companies Act No. 07 of 2007 (sometimes referred to as the “Act”) governs the incorporation, management, and dissolution of companies in Sri Lanka, including companies limited by guarantee. Under this Act:

• A company can be incorporated for non-profit purposes.
• The process to be followed in registering a company limited by guarantee is outlined in the Act.
• Specific obligations such as the filing of annual returns, financial statements, and holding board meetings are mandatory.

Compliance with the Act ensures that NGOs are legally recognized and protected under Sri Lankan law.

Role of the Registrar of Companies (ROC)

The Registrar of Companies (ROC) is the government authority responsible for registering companies. The ROC:

• Processes incorporation applications.
• Issues Certificates of Incorporation.
• Maintains public records of companies.
• Enforces compliance requirements.

Dealing with the ROC is an essential step in the incorporation process, and NGOs must ensure that all filings are accurate and complete to avoid delays or penalties.

Key Requirements for Incorporating a Company Limited by Guarantee

Minimum Members and Directors

To incorporate an NGO as a company limited by guarantee in Sri Lanka, the following are required:

• At least one (1) member;
• At least two (2) directors;
• A qualified company secretary (must be a licensed professional); and
• A registered auditor (who is a member of the Institute of Chartered Accountants).

There is no maximum limit on the number of members unless specified in the Articles of Association.

Nature of Objectives

The objectives stated in the Articles must be non-profit in nature. Examples include:

• Promoting education.
• Advancing health care.
• Supporting community development.
• Environmental conservation.

The ROC will scrutinize the objectives closely prior to registering the company to ensure they align with non-profit principles.

No Distribution of Profits

Companies limited by guarantee are prohibited from:

• distributing profits to members or directors; and
• paying dividends.

All income and property must be used solely for promoting the organization’s stated objectives.

This clause must be clearly stated in the Articles of Association to gain approval for registration of the company from the ROC.