Beneficial ownership rules create uneven playing field

• LOLC General Insurance Chairman Kithsiri Gunawardena says investors could face delays where Company Secretaries cannot sign required declarations
• Maintains Companies Act places beneficial ownership disclosure obligation on shareholders

LOLC General  Insurance Chairman Kithsiri Gunawardena

Companies and investors could be placed at a disadvantage under Sri Lanka’s beneficial ownership disclosure regime because Company Secretaries may be unable to sign declarations required for incorporation despite the statutory obligation to disclose beneficial ownership resting with shareholders, LOLC General Insurance PLC Chairman Kithsiri Gunawardena said.

Addressing a seminar on ‘Beneficial Ownership Compliance Under the Companies Act, No. 12 of 2025’ organised by Corporate Management Consultants, Gunawardena said the Companies Act requires shareholders to provide beneficial ownership information, while Company Secretaries, Directors, and authorised officers are responsible for administering and transmitting that information to the Registrar of Companies. He argued that the prescribed declaration goes further by requiring them to verify the accuracy of information that may be known only to the beneficial owner.

He said this places companies whose Company Secretaries are unwilling to sign declarations they cannot independently verify at a disadvantage.

“Look at the unfair advantage that such companies will have against the others who have desperately wanted to come into this country and invest, but they can’t do so because the Company Secretary is put under this kind of obligation where he or she is actually not able to comply,” he said.

Gunawardena said the practical difficulty extends beyond listed companies to businesses across the country, particularly where ownership structures involve overseas holding companies, trusts, or proxy arrangements, making it difficult for Company Secretaries to verify ultimate beneficial ownership or effective control.

He said investors seeking to establish companies in Sri Lanka could encounter delays where Company Secretaries decline to sign declarations they cannot verify.

“There are investors who are here and who are wanting to have a company registered with the Registrar of Companies to start operations and you put your hand up and say, well, there is this declaration and I can’t sign,” Gunawardena said.

He said Company Secretaries should not certify matters outside their knowledge and argued that liability should arise where a person knowingly conceals beneficial ownership rather than where information has been submitted in good faith by shareholders.

“If you have actual knowledge of the fact that you are suppressing it for an end like that in order to protect the actual puppet master who is turning the others, then you should be. But the important factor there is your knowledge,” Gunawardena said.

He warned that Company Secretaries who sign declarations without being able to verify the information could remain exposed if authorities later determine the declared beneficial owner was incorrect.

“Because remember, even 10 years later, if a case comes up, you may be long gone from that company, but you will have to face the music, not anybody else, because you’re the one who has confirmed the accuracy, authenticity, and confirmed the actual beneficial ownership, which is in fact later to be found,” he said.

Gunawardena said the immediate solution was to amend the prescribed declaration through regulations so Company Secretaries are not required to verify matters beyond their knowledge.

He said amendments to the Companies Act would take longer and, if the current position remains unchanged, judicial intervention may ultimately be required.