Board of Directors in Sri Lanka: Key Responsibilities & How to Ensure Compliance

Introduction

The Board of Directors plays a crucial role in the governance and strategic direction of a company. In Sri Lanka, directors are bound by legal and ethical responsibilities under the Companies Act No. 7 of 2007. Their decisions impact shareholders, employees, and the broader business ecosystem.

Key Duties of Directors

Directors must act in the best interests of the company while ensuring compliance with legal and regulatory frameworks. Some of their primary duties include:

1. Duty to Act in Good Faith

Under Section 187 of the Companies Act, directors must act honestly and in the best interests of the company. This means prioritizing the company’s success over personal gain.

2. Compliance with Laws & Articles of Association

Directors must ensure that the company operates within the legal framework and adheres to its Articles of Association. Violating these provisions can lead to legal consequences.

3. Duty of Care & Skill

Directors are expected to exercise reasonable care, diligence, and skill in their decision-making (Section 189). They must make informed choices that benefit the company and its stakeholders.

4. Financial Oversight & Accountability

The board is responsible for approving major financial transactions, ensuring accurate financial reporting, and maintaining transparency with shareholders.

5. Disclosure of Interests

If a director has a personal interest in a transaction, they must disclose it to the board and record it in the Interests Register (Section 192). Failure to do so can result in penalties.

6. Strategic Decision-Making

Directors shape the company’s long-term strategy, approve major investments, and oversee risk management. Their decisions influence the company’s growth and sustainability.

7. Responsibility During Insolvency

If a company faces financial distress, directors must take appropriate action to prevent wrongful trading (Section 219). Ignoring insolvency risks can lead to personal liability.

Types of Directors in Sri Lankan Companies

Sri Lankan companies typically have different types of directors, including:

• Executive Directors – Actively involved in daily operations.
• Non-Executive Directors – Provide independent oversight and strategic guidance.
• Alternate Directors – Temporarily appointed in place of an absent director.

Conclusion

The Board of Directors is the backbone of corporate governance in Sri Lanka. Their duties and responsibilities ensure ethical business practices, financial stability, and long-term success. Understanding these obligations is essential for directors to fulfill their roles effectively.