How to Start a Business in Sri Lanka?
In fact, this step is so important that it should even be moved up to the top of the list of steps on how to start a business in Sri Lanka.
Starting a business is a high-risk maneuver
Starting a business in Sri Lanka, or any country for that matter is a high-risk maneuver.
But with the increasing government support of Sri Lanka and private funding options left and right, your entrepreneurial venture can also generate promising returns on investment.
The Sri Lanka government has begun to pay attention. And consequently pour resources onto the thriving techie generation with new regulations, better law enforcement presence. And banking infrastructure to support these relatively nascent businesses.
In fact, according to the National Budget Proposal report in 2017, the Sri Lanka government pledged 200% capital allowances for businesses that are investing in the Northern region of the country and 100% towards investors in the Eastern province.
If you’re planning on setting up a shop in Sri Lanka, you’re in the right place.
I’ve helped a few of my friends navigate this South Asian country’s commercial bureaucracies and red tape.
And from my time living and experiencing what Sri Lanka has to offer, I can confidently say that the country is ripe with business opportunities.
If you don’t believe me, just Google the country. According to The World Bank, Sri Lanka GDP (opens in a new tab) has been growing by at least 3% since 2018, along with its labor force and human development index.
Do you need more reasons to start a company in Sri Lanka?
Thanks to its natural landscape and rich cultural history, it’s easier to deal with the stress and pressure of running a company in the country.
You can work close to the beaches, have access to good food and stable Internet, all without the ridiculously high costs. Like living people in San Francisco, London, Singapore, New York, and other highly urbanized and commercialized areas in the world have to deal with.
Now that you’ve gotten enough reasons to start a company in Sri Lanka, let’s get down to brass tacks.
To be fair, I also must mention one significant disadvantage – capital export restriction. In short, it is challenging to transfer money outside of Sri Lanka. There are some ways thanks to EB-5 regulation or mostly used money exchange called “Hawala”.
So how to start a business in Sri Lanka?
Any seasoned entrepreneur worth his/her salt would tell you that this is a trick question.
As there is no one specific way to start a business, regardless of the type or location of your planned business. Fortunately, there are a set of rules or steps that you can treat as guidelines when starting your own company. Following these steps can provide some much-needed order, and structure when you’re only just gaining a footing in the murky waters of entrepreneurship.
Furthermore, it helps you avoid the common pitfalls that derail even the most ambitious business plans and the most motivated entrepreneurs.
Determine the Types of Business in Sri Lanka
The first step on how to start a business in Sri Lanka is to determine the types of businesses operating within the country’s economy.
As with other countries, Sri Lanka has four major categories of business:
- Sole proprietor business registration in Sri Lanka
- Limited Liability Company
Let’s dig into each type of business.
Sole proprietor business registration in Sri Lanka
Sole proprietor business registration in Sri Lanka, is a common form of business ownership that is often pursued by employees-turned-independent contractors. In a sole proprietorship business, there is only one person listed as owner and therefore he/she has all the rights to the business.
However, this means that they also assume all liabilities and burdens of the business.
For instance, if the business goes belly up and you have unpaid business loans, creditors may go after your personal possessions as payment.
In a partnership business venture, there are two or more people involved in the contribution of resources and control of the entity.
The people in the said partnership divide the profits of the company equally or based on a pre-agreed-upon contract.
Partnerships are further subdivided into two categories – general and limited.
Owners of a general partnership will have unlimited liability while the latter is protected from creditors going after their personal possessions.
A business corporation takes on a life of its own that is detached from the legal personality of its founders.
A corporation is owned by multiple people or parties. Ownership in a business corporation is represented by shares of the company stock.
Every corporation starts off private and so ownership shares are divided amongst founders and early investors.
If a business corporation decides to go public or what is known as an IPO, short for initial public offering (opens in a new tab). People outside of the company can own a piece of it, the percentage of which is denominated by shares of company stock.
Limited Liability Company
A limited liability company, or LLC as it is popularly known as, is a hybrid of a business corporation and a business partnership.
As the name implies, the founders of a limited liability company enjoy a lower level of a legal risk.
Come tax season, a limited liability company can choose to be treated as either a sole proprietor, partnership, or corporation. Both local and foreign entrepreneurs are allowed to apply for LLC registration in Sri Lanka.
However, a private LLC is not allowed more than 50 shares. In addition, the applicant/business owner cannot be an executive and/or company secretary at the same business that is being registered.
Process and Prerequisites of LLC Registration
If the company has multiple partnerships, one of the partners can serve as the company secretary.
If available funds of a business exceed a certain amount, a qualified secretary must be hired.
Foreign investors must get permission from the BOI (Board of Investment) (opens in a new tab) to incorporate a business in the country.
Register a Business Name
Registering the official name of your newly formed business in Sri Lanka is the first step on how to start a business in Sri Lanka.
It is mandatory for any company in the country to register their business name with the Department of Registrar of Companies (opens in a new tab).
Using the department’s website, you can also check if your prospective business name is available or taken. Request the template 16A that is made available free of charge on the government website of Sri Lanka.
Download the form and fill it out with the required information. Submit the form to the Department of Register of Companies within your respective city in Sri Lanka.
Procure the Required Forms for Registration
Aside from the 16A Form needed to register your business in Sri Lanka, you’ll need:
- Form 1
- Form 18
- Form 19
Then you can proceed on how to start a business in Sri Lanka. You’ll also need two copies of Article of Associations, both of which should have signatures by the company directors.
Pay the Fees
The more complex the business form is, the more fees you should expect to pay since you’ll need more permits and registrations from different departments in Sri Lanka.
For a limited liability company, you’ll have to pay a 15,000 SLR registration fee for template 1 and 1,000 SLR for a name search. It’s a free of charge template 16A and can be downloaded on the government website.
If you’re working with an outside consultant, you should expect to pay anywhere between $2,000 to $7,000, depending on the size and type of your business.
Register With the Department of Labor
Registration with the Department of Labor (opens in a new tab) of Sri Lanka is the next step on how to start a business in Sri Lanka. Every new company on Sri Lanka soil must be registered with this government body. Furthermore, the company must obtain an EPF number or an Employee Provident Fund number (opens in a new tab). For a company that also classifies as ETF or Employee Trust Fund (opens in a new tab), Sri Lanka does not require you to register for a separate number since you can use the same EPF number for your company monthly contributions.
A Sri Lanka company with employees who have been employed for over five years are required by the Sri Lanka government to pay gratitude to said employees. It is also required under the Labor Law of Sri Lanka for a company to offer its employees 14 paid sick days per one year of the employee’s service at the Sri Lanka company.
Come Up With The Right Business
Over the years, I’ve come to think that a successful business is a combination of the right person with the right business idea. Sri Lanka has a lot of unique economic, political, and geographical features that you should take into account when coming up with the right business idea.
For instance, I wouldn’t plan on opening up a service that employs doormen and butlers in a rural area in Sri Lanka. On the other hand, given the extreme humidity that Sri Lanka summers bring all year round, an HVAC business may have a lot of potentials.
Research what business needs Sri Lanka has and start narrowing your industries and business niches from there. Keep in mind that your business doesn’t have to be innovative like Apple (opens in a new tab) or Microsoft (opens in a new tab) was in its formative years. It also doesn’t have to be fancy or incredibly complex. Your business just has to make sense and fill a gap in the market.
It needs to solve a problem that the people in that specific region of Sri Lanka face.
And while online research is good enough to give you a clear picture of the country’s economy, being out there on the ground is something I find more helpful.
It allows me to talk to the people who might become my clients later on. It also lets me see who my competitors are and what they are doing right and wrong that I can apply to my own business.
My last two cents regarding this step is to find a balance between a business that makes money and one that you are passionate about. If you start a business you’re not passionate about, you’ll either get bored or hate it if it doesn’t evolve. On the same note, you’ll want to pursue a passion business that you can at least break even on.
Despite the low cost of living in Sri Lanka, running a company in Sri Lanka requires a lot of money in legal fees, overhead and upkeep, R&D, and so forth.
Validate Your Business
Market validation is key to the survival of your Sri Lanka company once the ribbon cutting is done. Before you pay for registration fees, order inventory, or hire your first employee, make sure you have a customer to sell to.
So, how do you validate that there is a market for your business?
The simplest way is to talk to people. Do some poll-taking and surveys on social media to see if there are people who are interested in your product/service.
Follow the influential people of Sri Lanka including politicians, entrepreneurs, and celebrities. Create a business page on every social media platform there is and use search engine optimization practices so that search engines index your page higher.
When I was starting out my online business in Sri Lanka, I was constantly talking to family, friends, and even strangers as I spilled out my business idea to them, all the while being careful not to divulge too much information.
The point here is to cast your bait and see if anything bites. If you don’t get enough interested people or positive feedback, it may be a sign to go back to the drawing board. A good way to think about your business in Sri Lanka is as a living organism that constantly evolves into a better version of itself.
Don’t assume that you’ll get the perfect version of your company in one go. There is always room for improvement and you, the entrepreneur, must work incessantly towards it.
Find Capital For Your Business
Whenever I ask aspiring entrepreneurs why they haven’t set up shop yet, a common scapegoat is the lack of seed capital for their Sri Lanka company.
But if you look at how all these successful billion-dollar conglomerates were formed, you’ll notice that money wasn’t the deterrent for getting things done.
Companies, like Google and Facebook, were started in garages and dorm rooms with little to no funding.
And sure, these were software companies that required scripts of code to function, but even established retail brands, like Reebok and Nike, started out as one pair of poorly designed and manufactured shoes.
From there, the founders of the company took it to multinational brands that rake billions of dollars a year in profit.
The modern-day company in Sri Lanka has several options when it comes to funding their enterprise. Here are a couple of the options you’ll find in Sri Lanka:
This is essentially starting a business using your own pocket money. I’d say this is the best kind of way to fund your company since you retain full control of your business.
There are no shareholders to please or board members to report to. It is just you and your company, trying to figure out how best to grow as a brand. Bootstrapping not only gives you freedom, but it also pushes you harder since it’s your money at stake and there isn’t much financial runway to take off on.
You’ll likely be more creative, resourceful, and hardworking knowing that any day could be the last for your company.
Loan From Family/Friends
This option on how to start a business in Sri Lanka is both simple and complicated at the same time, at least in my opinion.
Borrowing from family or friends is never a good idea. It puts your relationship at risk in the event that you are unable to pay the loan.
How they see you or how you see them might also change. To avoid issues, I recommend only borrowing from family and friends whom you trust and are close enough to talk money with.
Moreover, make sure they are financially well-off that the amount you borrow for your company won’t affect their life choices.
A less-than-ideal option is borrowing from a Sri Lanka bank. Currently, the interest rate of banks in Sri Lanka ranges between 12% to 15%.
It gets especially tricky to get a bank loan in Sri Lanka due to the fact that most Sri Lanka banks require you to have a registered business that’s been operational for at least six months.
This creates a catch-22 scenario wherein aspiring Sri Lanka business owners are unable to get the loans they need to start the company because the requirement for the loan is an established Sri Lanka company.
One loophole is to apply for a personal loan, but this requires you to be employed in a Sri Lanka company and have proof of stable income.
Venture Capital and Angel Investors
I’ve met with all sorts of Sri Lanka VCs and angel investors in Colombo, which is the Sri Lanka equivalent of San Francisco in the US.
From personal experience, VC funding can be a powerful double-edged sword that can speed up company growth, but it also requires you to relinquish a considerable amount of power from your company at an early stage.
You’ll need to be very careful when securing VC funding in Sri Lanka. If you carelessly give away portions of your company for swats of money early on, you may find yourself getting kicked out from your own company once it takes off.
A relatively new funding option on how to start a business in Sri Lanka is through crowdfunding campaigns.
If you are interested in raising capital through this option, you will have to start a convincing campaign to get Sri Lanka investors on board. Prepare a prototype and instructions on how the product/service works.
Create a Website
Your efforts on how to start a business in Sri Lanka won’t be visible to consumers in Sri Lanka and everywhere else in the world without a website.
A company website makes you look more legitimate and trustworthy.
When was the last time you bought from a company that didn’t have its own website?
Nowadays, 90% of e-commerce happens on sites, like Amazon and eBay.
Start running a website that uses local SEO techniques to attract more business from pertinent local searches.
These local Sri Lanka searches will occur on search engines, like Google and Bing. To start capitalizing on the advantages of local SEO for your Sri Lanka company, start with Google My Business. This Google widget is used by Sri Lanka businesses to stay on top of Google’s search placement parameters.
If Google can authenticate your company website in Sri Lanka, it can reward you with a prized sidebar space in the search engine’s local search. You’ll also want to start improving the internal linking structure, optimize headers and tags on your Sri Lanka-based company website. And Yes, add location pages to it.
Master the Art of Selling
Now that you have a Sri Lanka-based company website, it’s time to start selling your products/services to the right Sri Lanka customers. This step on how to start a business in Sri Lanka involves marketing your product/service precisely. Finding and training the right sales team, and closing the deal. Since your company is based in a Sri Lanka region, it would be prudent to start your search for competent and qualified sales employees in the region.
This can benefit your company and brand reputation so start hiring locally. There is also no one better to connect to your Sri Lanka market than the people who live in Sri Lanka. Marketing is too broad of a term, though. There are many paths to take so I’d advise you to start looking at Sri Lanka-based competition and what they are doing to get airtime.
Start to study digital marketing basics including Facebook or Instagram ads. Keep in mind, however, that digital marketing isn’t just about social media exposure.
Aside from social media
Aside from social media, there is also SEO, email marketing, and content marketing. If you start doing email marketing, know that it is a relationship-building tool that takes a long time to produce results. With it, you can start to share company updates and information with Sri Lanka customers and subscribers. You can use email marketing to build trust and rapport with Sri Lanka locals. Be careful what you share with your email list, however.
You don’t want to spam them with outdated or irrelevant information that doesn’t provide any value to them or add any credibility to your company.
Fortunately, marketing is something you can outsource to Sri Lanka contractors and third-party firms. Since Sri Lanka is still an emerging economy, its country is filled with gifted techies who have a knack for engaging content and design. You can also use third-party resources and tools, like Canva (opens in a new tab) and NeilPatel.com (opens in a new tab), to build content for your Sri Lanka company.
Influencers are another must-have marketing resource on how to start a business in Sri Lanka. Sri Lanka Influencers are people who have a huge following on their social media pages. These are people whose videos and posts are viewed by thousands if not millions of people in Sri Lanka every day.
While they cost a pretty penny, it’s definitely a worthwhile investment that can attract Sri Lanka viewers and even customers to your company website.
When your Sri Lanka company starts to pick up, you’ll need additional manpower to handle the increasing workload. Sri Lanka’s labor force is gradually increasing, thanks to its increasing population which grew to almost 22% in the last 70 years.
An applicant’s drive and personality should supersede his/her educational background. You’ll want your Sri Lanka workforce to work together well. Hire people who not only contribute to the growth of your Sri Lanka company but are also fun to be around. Your employees will represent your company wherever they go to Sri Lanka. They should be presentable, competent, and hard-working.
Start to understand how the applicant’s aspirations complement the job. It should start with how you word your job posting. Make sure it is clear and detailed. Your job post will be the gatekeeper, which deters people who don’t know their stuff. To get those who are competent enough to know what the duties and qualifications are.
How to Start a Business in Sri Lanka Conclusion
Sri Lanka is an economically fertile place to set up a company.
The Sri Lanka government is creating more programs that empower entrepreneurs, both local and foreign.
The economy is stable than other emerging countries; more foreign investments are coming in. Because this is pushing the Sri Lanka economy higher, and there is a surplus of highly educated. And this means skilled employees that you can hire for your company.
If you need more help on how to start a business in Sri Lanka, don’t hesitate to contact me. Entrepreneurship is, after all, about helping other people.