Can Foreign Shareholder Hold 51% shares in a Limited Liability Company?

According to the LAND (RESTRICTIONS ON ALIENATION) ACT, No. 38 OF 2014, Section 2 says that,

(1) Notwithstanding any provision to the contrary in any other written law, the transfer of title of any land situated in Sri Lanka shall be prohibited if such transfer is
(a) to a foreigner; or
(b) to a company incorporated in Sri Lanka under the       Companies Act where any foreign shareholding in             such company, either direct or indirect, is fifty    percent or above; or
(c) to a foreign company, unless exempted as provided in Section 3.

In terms of the Section 2 foreigners are no longer be permitted to buy any land in Sri Lanka and also under Section 2 subsection (1) (b) it is prohibited to Sri Lankan companies whether it is a Limited Liability Company or Company Limited by Guarantee where the foreign holding of shares of such companies, either directly or indirectly, is 50% above, to own any land situates in Sri Lanka.

EXCEPTIONS

There are some exceptions for Section 2, laid down by Section 3 as follows;
According to Section 3, the provisions of section 2 shall not apply for the transfers to;
1. A Diplomatic Mission of another State within the meaning of the Diplomatic Privileges Act or to an International, Multilateral or Bilateral Organization.

2. A condominium parcel situated on or above the fourth floor of a building specified under the Apartment Ownership Law, (excluding the ground level floor and floors which accommodate any common element or elements within the meaning of Apartment Ownership Law)
Provided that, the entire value shall be paid up front through an inward foreign remittance prior to the execution of the relevant deed of transfer.

3. A foreigner in effect to a decision of the Cabinet of Ministers taken prior to January 1 2013, involving direct investment of foreign currency, as per the related agreements on such investment structured on the basis of any written law governing the tax regime prior to January 1, 2013, and has ensured compliance by making inward remittances to Sri Lanka;

4. Inheritance rights. Transfer by intestacy, gift or testamentary disposition to a next of kin (who is a foreigner) of the owner of such land, in accordance with the applicable law of succession of Sri Lanka.

5. Transfer to a dual citizen of Sri Lanka within the meaning of the Citizenship Act.

6. Land transferred to a company with 50 percent or more of its shareholding held either directly or indirectly by a foreigners or a foreign company, during the period from 1st January 2013 and ending on the date (20th October 2014) on which the certificate of the Speaker is endorsed in respect of this Act, provided such company has been in active operation in Sri Lanka for a period of not less than ten (10) consecutive years prior to the date of transfer of such land.

7. Transfer to any bank licensed under the Banking Act, or Finance Leasing Institution in which any foreign shareholding is fifty per cent or above in settlement of a debt in terms of the respective applicable laws.

8. Transfer to any foreign entity engaged in banking, finance and insurance, maritime, aviation, advanced technology or infrastructure development subject to approval by the Finance Minister in consultation with the Land Minister and with prior written approval of the Cabinet of Ministers. Such investors must, however, satisfy one or more of the requirements set out in the Strategic Development Projects Act – such as “substantial inflow of foreign exchange” or generation of “substantial employment.

9. Again subject to the prior written approval of the Cabinet of Ministers, by Order published in the Gazette, land may be transferred to any foreign entity involved in international operations to locate or relocate its global or regional operations or to set up a Branch Office.

Further, the Act only permits the foreigners to lease any land in Sri Lanka subject to the payment of the Land Lease Tax for not exceed ninety-nine years under Section 5 & Section 6.

As discussed above, in terms of sections under Land (Restrictions on Alienation) Act, No. 38 of 2014, it is unambiguous that there is no any provision expressly or impliedly says that any company which is being a trustee holding 50% or above foreign shares have right to hold an immovable property in Sri Lanka. Therefore this Act not permits foreigners to hold any immovable property.

Can A COMPANY BE A TRUSTEE

In terms of Section 4 of the Trust Ordinance No. 19 of 1917, it declares as follows;
Section 4
(1) A trust may be created for any lawful purpose. The purpose of a trust is lawful unless it is,
(a) forbidden by law, or
(b) is of such a nature that, if permitted, it would defeat the provisions of any law, or
(c) is fraudulent, or
(d) involves or implies injury to the person or property of another, or
(e) the court regards it as immoral or opposed to public policy.

2) Every trust of which the purpose is unlawful is void. And where a trust is created for two purposes, of which one is lawful and the other unlawful and the two purposes cannot be separated, the whole trust is void.
Considering to the Section 4 Sub-Section (1) (b) and Sub- Section (2) above, under the Trust Ordinance a trust which contravenes provisions of any law, such trust is unlawful and become void. So where, the company which is a trustee and foreign holding of shares of such company, either directly or indirectly, is 50% above, it has no right to own any land situated in Sri Lanka under the Land (Restrictions on Alienation) Act, No. 38 of 2014. In any circumstance, if an immovable property is a transfer of such kind of company, even as a trust is considered to be unlawful and become void in terms of Trust Ordinance since it is contrary to the provisions under Land (Restrictions on Alienation) Act, No. 38 of 2014.

It is also appropriate to be pointed out here that, trust laws of most countries have been reformed in the light of commercial transactions and other current developments. In this context, this is the most suitable time to amend the. The extent and the language of the Trusts Ordinance 1917 of Sri Lanka appear inapplicable to modern day legal practice. It should be formulated in a contemporary and understandable structure.

 

 

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