Company law in the UK has been overhauled to reduce the regulatory burden on businesses. The Government claims that changes to the Companies Bill, now known as the Companies Act 2006, will help save businesses £250 million a year, including up to £100 million for small businesses.
Trade and industry secretary Alistair Darling said: “It ensures the regulatory burden on business is light, promotes shareholder engagement and will help encourage a long-term investment culture.”
Stephen Alambritis, head of parliamentary affairs at the Federation of Small Businesses welcomes the move. There are two main areas that he says will greatly benefit travel agents, making it easier and cheaper to operate as a small business.
“Until this Act there had to be at least two people involved in a limited liability company,” he says. “Now there is no need for that and you can genuinely have a one-person company.”
“In addition, company has had to hold a physical AGM once a year, but will now be able to have an Internet AGM,” continues Alambritis. Online AGMs are also a lot cheaper to run and can be ‘attended’ by all shareholders.
The compliance elements have also been reduced and Companies House, who small businesses have to register with, is updating its own processes so forms can be received and sent electronically in the future.
However, Andrew Pike, partner in corporate strategy and finance at law firm Hammonds, says the changes themselves are not groundbreaking.
“The new Act rewrites UK company law, with detailed changes being made to an enormous range of regulatory provisions,” he says. “But there are very few changes that could really be described as significant. One headline grabber is the codification of directors’ duties, another is the creation of a statutory right for shareholders to sue directors, but neither does much more than codify an already existing common law position.”
While Pike also welcomes changes such as simplifying the procedure for a company to return surplus capital to its shareholders and the abolition of existing statutory restrictions on giving financial assistance for the acquisition of shares, he thinks the administrative changes needed in order to comply will be a huge burden.
“There’s the sheer inconvenience of having to relearn literally hundreds of administrative provisions that will undergo minor changes,” he says.
Small businesses in any doubt about what the Act means for them should seek advice from professionals, such as the Small Business Service and Federation of Small Businesses. The Companies House website and the Department of Trade and Industry’s website are also useful.
The first changes are due to take place in January 2007, regarding the European Union Transparency Directive, the UK Takeovers Directive and electronic communications with shareholders. However, most of the Act will not become law until October 2008.
- Companies will be able to make greater use of electronic communications for communications with shareholders.
Liability for reports to the market has been clarified.
- Directors will automatically have the option of filing a service address on the public record (rather than their private home address).
- Companies will no longer be required to specify their objects.
- The company memorandum will become a formal document recording the position at the point of registration, with just the articles being the continuing constitutional document.
- Shareholders will be able to agree limitations on the liability of auditors.
- There will be separate and simpler model Articles of Association for private companies, reflecting the way small companies operate.
- As part of the ‘think small first’ agenda, there will be a separate ‘code’ of accounting and reporting requirements for small companies.
- Private companies will not be required to have a company secretary.
- Private companies will not need to hold an annual general meeting.
- Private companies will no longer be prohibited from providing financial assistance for the purchase of their own shares.