Sri Lanka’s beneficial ownership regime and its impact on M&A transactions

Dulanga Cumaranatunga
FortuneX, Colombo
dulanga@fortunexlaw.com

Introduction

The concept of ‘beneficial ownership’ is currently a key area of focus in Sri Lanka following the enactment of the Companies (Amendment) Act, No 12 of 2025 and the regulations issued thereunder, which came into force on 30 March 2026. Sri Lanka’s beneficial ownership regime has evolved progressively over several years, in line with the recommendations issued by the Financial Action Task Force (FATF) on anti-money laundering (AML) and counter-terrorist financing (CTF).

While the Companies (Amendment) Act represents the most significant recent legislative development in this area, the broader regulatory framework has developed through a range of statutes and regulatory measures. These include the Prevention of Money Laundering Act, No 5 of 2006 (as amended), the Convention on the Suppression of Terrorist Financing Act, No 25 of 2005, the Financial Transactions Reporting Act, No 6 of 2006 and the regulations issued thereunder, governing the customer due diligence (CDD) obligations applicable to financial institutions and designated non-financial businesses. Beneficial ownership has also increasingly been recognised as a licensing, regulatory and prudential matter, as reflected in the amendments to the Banking Act and the directions issued under the Finance Business Act. Sri Lanka’s securities regulatory framework addresses beneficial ownership under the Securities and Exchange Commission of Sri Lanka Act, No 19 of 2021, which requires the disclosure of the beneficial owner where a securities account is opened with the Central Depository System in the name of a nominee.

While beneficial ownership has previously been addressed primarily through Sri Lanka’s AML/CTF framework and CDD obligations, the Companies (Amendment) Act has elevated beneficial ownership to a broader corporate law and corporate transparency consideration. As a result, beneficial ownership considerations are increasingly relevant in the structuring, execution and post-completion administration of corporate and mergers and acquisitions (M&A) transactions.

Key aspects of the beneficial ownership regime under the Companies (Amendment) Act

The Companies (Amendment) Act introduces a comprehensive beneficial ownership framework into Sri Lanka’s corporate regulatory regime. The amendments include the abolition of bearer shares and bearer share warrants, the introduction of a statutory definition of ‘beneficial owner’ and the recognition of ‘effective control’ as a basis for determining beneficial ownership. Under the Companies (Amendment) Act, a beneficial owner is a natural person who ultimately owns or controls ten per cent or more of a company, whether directly or indirectly. The definition also extends to individuals who exercise effective control over a company, influencing the company’s strategic direction and decision-making.

The new beneficial ownership regime applies to every company incorporated under the Companies Act, No 07 of 2007 or any former written laws relating to companies. This also applies to offshore companies incorporated outside Sri Lanka and registered under the Companies Act and to overseas companies registered under the same Act.

The particulars of beneficial ownership to be disclosed under the Companies (Amendment) Act are full names and former names (if any), dates and places of birth, nationality, country of residence, residential and business addresses, email and postal addresses, national identity card, tax identification or passport details, contact information, as well as a statement describing the nature and extent of the beneficial ownership interest held in the company.

Disclosure of beneficial ownership information by companies is mandated at the time of incorporation or within 20 working days of any issue or transfer of shares. Shareholders are required to disclose beneficial ownership information within ten days upon subscribing for or transferring shares to the company. Directors and company secretaries are also required to disclose this information to the Registrar of Companies (ROC) upon becoming aware of such information. Companies are further required to maintain a beneficial ownership register at its registered office.

The Companies (Amendment) Act imposes ongoing reporting and record keeping obligations. Companies are required to maintain beneficial ownership records for a period of ten years. Administrators and liquidators must preserve such records for five years following the dissolution or cessation of the company. Beneficial ownership reporting is an ongoing obligation, and companies must notify the ROC of any changes in beneficial ownership within 14 working days. Companies are also required to submit beneficial ownership information to the ROC together with its annual returns.

In addition, companies are required to appoint a natural person who is resident in Sri Lanka as an ‘authorised person’ responsible for safeguarding the beneficial ownership register and making such information available to competent authorities. The appointment of an authorised person must be made at incorporation or within three months from the coming into operation of the Companies (Amendment) Act. Existing companies are also required to submit beneficial ownership information within six months from the operative date of the Companies (Amendment) Act.

It is pertinent to note that the Companies (Amendment) Act permits limited public access to beneficial ownership information filed with the ROC, electronically or in physical form. Any restricted and sensitive information can only be accessed by following the process set out in the Right to Information Act, No 12 of 2016 (RTI). Moreover, the Companies Amendment Act expressly authorises the disclosure of beneficial ownership information to the Attorney General, the Financial Intelligence Unit (FIU), the Department of Inland Revenue, Sri Lanka Customs, law enforcement agencies, procurement authorities and other regulatory authorities investigating money laundering, terrorist financing or related criminal activity. These provisions significantly expand the ability of enforcement agencies to trace ownership structures and investigate financial crime.

A critical provision introduced by the Companies (Amendment) Act is that a claim to beneficial ownership will not be recognised for any lawful purpose unless such beneficial ownership has been disclosed and registered in accordance with this Act. This may have significant implications for nominee arrangements, informal ownership structures and undisclosed beneficial interests, particularly in the context of shareholder disputes and enforcement proceedings.

The Companies (Amendment) Act imposes criminal penalties for non-compliance with the beneficial ownership obligations. Liability may arise where a company fails to maintain a beneficial ownership register, comply with prescribed disclosure timelines or knowingly provides false or misleading information, withholds material information or makes false entries in the register. Companies and responsible officers may be subject to fines of up to LKR 1m and imprisonment for a term of up to ten years. However, directors and officers may avoid liability if they lacked the relevant knowledge or if they demonstrate that they exercised due diligence to prevent the carrying out of the offence.

Customer due diligence obligations imposed by the Financial Transactions Reporting Act, No 6 of 2006 and the regulations issued thereunder

The Financial Transactions Reporting Act, No 6 of 2006 (FTRA) and the regulations issued thereunder are a key component of Sri Lanka’s AML/CTF framework. It provides for the collection of information relating to suspicious financial transactions and imposes CDD obligations on specified categories of financial institutions and designated non-financial businesses and professions (DNFBPs). The FTRA also provides for the establishment of the FIU, which presently operates as an independent institution within the Central Bank of Sri Lanka.

The CDD framework under the FTRA applies to a broad range of financial institutions engaged in finance business, insurers and designated non-financial businesses. Financial institutions subject to these obligations include licensed commercial banks, licensed specialised banks and finance companies. The framework also applies to DNFBPs including casinos, real estate agents, dealers in precious metals and precious stones, lawyers, notaries and other independent legal professionals, accountants and trust and company service providers.

The CDD obligations apply to financial institutions in relation to the opening, operation and maintenance of accounts and transactions conducted through such accounts.

In relation to DNFBs, the CDD framework applies to casinos, gambling houses and lotteries, including such businesses operated through the internet where customers engage in financial transactions, as well as dealers in precious metals and stones when such dealings are above the prescribed monetary thresholds. The CDD obligations are also triggered in relation to activities involving the buying and selling of real estate and business entities, the management of client money, securities and other assets, the formation and management of legal persons and legal arrangements and the provision of trust and company services, including acting as directors, secretaries, trustees or nominee shareholders or providing registered office and administrative services.

Where the customer is a legal person or in a legal arrangement, financial institutions and DNFBPs are required to undertake CDD measures to identify and verify the beneficial ownership. Legal persons include companies, bodies corporate, foundations, partnerships and associations, while legal arrangements include express trusts, fiduciary accounts and nominee arrangements. A central objective of the CDD framework is the identification and verification of beneficial ownership. Financial institutions and DNFBPs are required to identify the natural person who ultimately owns or controls a customer, or on whose behalf a transaction is conducted, including any person exercising ultimate effective control over a legal person or arrangement.

Where the customer is a legal person, financial institutions and DNFBs are required to take reasonable measures to identify and verify the natural person who ultimately exercises controlling ownership interests. Such measures include identifying directors and shareholders holding more than ten per cent equity interests, persons exercising control through other means where ownership alone does not establish beneficial ownership, authorised representatives appointed by way of board resolutions and senior management personnel. Where controlling interests are held through another legal person, financial institutions and DNFBs are required to identify the ultimate natural person exercising control over such entity.

In the case of legal arrangements, institutions are required to identify and verify the persons occupying key positions within the arrangement. In the case of trusts, this includes the author of the trust, trustees, beneficiaries or class of beneficiaries and any other natural person exercising ultimate effective control over the trust. Similar obligations apply in relation to other legal arrangements by identifying the persons holding equivalent positions and exercising comparable levels of control.

Impact on corporate, M&A transactions

Against the backdrop of Sri Lanka’s evolving beneficial ownership regime, the following are key practical considerations in corporate and M&A transactions:

• in the case of foreign investors, investments in permitted capital transactions in Sri Lanka, including subscriptions for shares in Sri Lankan companies, should be routed through an inward investment account maintained with a licensed commercial bank in Sri Lanka. As banks are required to comply with CDD obligations, investors should be prepared to provide beneficial ownership and related compliance information, as well as transaction related information, such as share purchase agreements. These requirements should be factored into transaction timelines and payment milestones;
• at the transaction structuring stage, parties should also be mindful that nominee and informal shareholding arrangements may not be recognised unless duly disclosed and registered in accordance with the Companies (Amendment) Act. In addition, bearer shares and bearer share warrants are no longer enforceable under Sri Lankan law;
• the scope of legal due diligence in M&A transactions will have to extend to the verification of compliance with the beneficial ownership requirements under the Companies (Amendment) Act. This may involve identifying the ultimate beneficial owners, reviewing ownership chains, assessing the accuracy of beneficial ownership filings and identifying any regulatory risks arising from non-compliance;
• transaction documents in an M&A may require representations, warranties and conditions precedent relating to compliance with the beneficial ownership disclosure requirements under the Companies (Amendment) Act;
• post-transaction compliance considerations should also be taken into account. These include making the relevant disclosures and filings with the ROC pursuant to share issuances or transfers, updating the beneficial ownership register and appointing a natural person resident in Sri Lanka as the authorised person responsible for safeguarding the beneficial ownership register and providing information to competent authorities;
• multinational groups and complex corporate structures with layered ownership arrangements should be mindful that any changes in ownership at upstream levels may trigger beneficial ownership disclosure and compliance obligations in Sri Lanka. Beneficial ownership compliance should, therefore, be considered not only at the level of the target company, but also across the wider corporate group;
• in respect of any Sri Lankan company, beneficial ownership disclosure and reporting would constitute an ongoing compliance and administrative consideration, as beneficial ownership information needs to be updated upon share issuances and transfers, upstream shareholder changes and the filing of annual returns;
• public access to beneficial ownership information may present privacy, confidentiality and security concerns for family offices and high-net-worth individuals. However, it is important to note that Sri Lanka has adopted a two-tier access structure in relation to such information. The ROC provides limited public access to specified information, and any request for additional beneficial ownership information disclosed under the Companies (Amendment) Act must be made in accordance with the provisions of the RTI; and
• persons who, following the completion of a transaction, become shareholders of Sri Lankan companies, directors appointed to their boards or authorised persons responsible for beneficial ownership disclosures should be mindful of the compliance obligations and potential liability exposure arising from the Companies (Amendment) Act.

Conclusion

Sri Lanka’s beneficial ownership and AML/CTF framework continues to evolve in line with global regulatory developments and international transparency standards. The new beneficial ownership regime, introduced under the Companies (Amendment) Act, represents a significant development in the country’s corporate regulatory landscape and is expected to enhance investor confidence and strengthen the integrity of Sri Lanka’s corporate sector.

For investors and parties to a transaction, particularly in cross-border transactions, beneficial ownership considerations are no longer confined to regulatory compliance. They are increasingly relevant to transaction structuring, due diligence, transaction documentation and post-completion obligations. As the regime continues to develop, these considerations will need to be factored into the planning, execution and administration of corporate and M&A transactions in Sri Lanka.