Company Law Reform: reducing the burden on business?

The Company Law Reform Bill was introduced into Parliament on 1 November 2005, and includes proposals aimed at simplifying company law and reducing the burden of red tape for smaller companies, making it easier to set up and develop a business.

It is hoped that the new measures will save businesses an estimated £250m a year, with small companies benefiting by around £100m.

What the proposals mean

'Thinking small first'

Under the proposed reforms, those parts of the law most relevant to private companies will be listed first, rather than being expressed as exceptions to the rules applying to larger public companies. This has the aim of making it easier for small companies to identify the requirements that apply to them.

Improving clarity

The coverage of the Companies House 'plain English' guidance will be increased, making the regulations easier to understand. The legislation will also be supplemented with comprehensive guidance, including a new 'checklist' of the basic company law requirements, and small businesses will be consulted on developing this.

Widening electronic resources

Companies House is planning to develop its web-based resources. During 2007 it will offer web incorporation, and companies will be able to access their details via an online portal.

Key legislative changes

The key legislative changes include the following:

• Proposals to bring forward the deadline for private companies to file their annual reporting documents - currently 10 months after the year-end - are being considered
• Separate model articles of association for private companies, which will contain the minimum key rules on the internal workings of the company, and will be shorter and clearer
• Abolishing the need for private companies to have a company secretary, and to hold an annual general meeting. In addition, written resolutions may be carried with a simple or 75% majority of eligible votes, rather than requiring unanimity. Companies will also be able to make greater use of electronic means for communicating with shareholders
• The provisions on accounts and reports have been restated, to make them easier to understand. Small and medium-sized companies will retain the option to file abbreviated accounts with Companies House
• The rules on providing financial assistance to potential or actual shareholders are being abolished, and it will become easier for private companies to make capital reductions.

The Bill also aims to clarify the duties of directors, and will allow directors to file a service address on the public record.

Further information on the Bill can be found on the UK Parliament website: www.parliament.uk