[ EXTRACT FROM A LECTURE ]
As we have been told, almost by way of a mantra, one of the overall objectives of CA 2006 “was to simplify and modernise company law so that it better met today’s business needs and provided flexibility for the future”. The reform process aimed to ‘think small first’. CA 2006 itself was to be written in simplified language, with a particular focus on small business. I have explained why I do not feel it has achieved its objectives to date. Therefore another key question I have is this. Why after an extensive consultation period and then a further implementation period altogether spanning more than 10 years,only in December 2010 did DBIS state “Our priority is to focus on those areas which have the potential to further simplify the business environment and deliver reductions in regulatory burdens for business.
- Proposals to modernise and simplify the current system for the registration of company charges; [as an aside, when these changes were attempted in the Companies Act 1989 the whole matter was later dropped as being impossible to implement. I agree entirely we do need a more effective system of security registration. However whether now is really the time to start on this process, I am not convinced.];
- A review of whether a new corporate form for single person businesses could reduce costs for small entrepreneurs. At present there are hundreds of thousands of limited companies that are owned and run by a single person, and that person has to comply with extensive rules designed to balance the interests of multiple shareholders and directors [see below]; and
- A range of options to simplify accounting and audit requirements, especially for small and medium enterprises.”
I have mentioned #gouldsmantra –my “four problems” with the law. I have also given some examples of administrative matters arising from CA 2006, which although might be considered tedious in some instances, show even at that level can be over complex and have no regard to common sense. This complexity invariably leads to additional costs, both monetary and in management time which cannot be ignored. A large company might have internal systems in place to deal with these matters; alternatively it will have the comfort of knowing the work can be passed to outside advisers, be they lawyers, accountants or others. What of our constituent group? Another comment from Government is the idea that the SMEs are going to be the economic force to pull the country out of the current downturn.
I hear continuously views on these topics from numerous trade organisations which represent the smaller businesses. That said, I await to hear their practical proposals for reducing the burdens noted above. Several were asked to contribute to the ideas behind this paper. None responded to my requests.
Here is my practical idea, and it isn’t really a particularly novel one. All I have done is read the dozens of statements about simplifying company law, and I will tell you what these suggested to me. If you only take one point away with you when you leave, let it be my idea for a new Companies Act.
If DBIS does decide to consider a simple route to incorporation for a defined group of those wishing to do so they could they grasp the problem, go the whole way and produce a “Companies (Smaller Companies) Act” applying to that group. DBIS itself acknowledges that the constituents affected are “hundreds of thousands of limited companies”. Perhaps they could copy from CA 2006, then simplify even further, those provisions which apply entirely to “smaller companies”, however we define them. One way might be to use the definition of “smaller companies” as these are applied by accounting provisions of CA 2006. However they could be much more radical and perhaps consider including companies with (i) a turnover of perhaps £250,000 per year or less, and (ii) no more than maybe three employees I have been wondering about the numbers of directors and shareholders and whether that is relevant. I am not sure either way. However, perhaps to keep it simple, the position could be that any person who is a director must also be a shareholder and the maximum number would be two . For any action to be binding on the company it would require a piece of paper signed by both people. It would, I suggest, be a relatively straight-forward exercise to pull together many of the pertinent provisions and simplify them at the same time. This would serve a number of purposes. First the core rules relating to Smaller Companies could be found in one place, so relieving many of the relevant owner/directors of the need to plough through the mass of current legislation. The default position could be as set out in CA 2006 if rules are not included within the new legislation.
It would also put those companies in a standalone group. This might then assist, if we took the idea forward, into areas such as taxation. The benefit in saved time and costs might then give credence to the wish expressed earlier as to one or more of the purposes of CA 2006. Common sense suggests that rules should be not only relevant but also appropriate to those who need to use them. The current complexities of CA 2006,( and so much other legislation) means this is often not the case. Provided those who wish to take advantage of the simplified regime were made aware of its restrictions, I am not yet sure of any real downsides. It has been suggested that some companies would deliberately stay below the threshold mentioned above to benefit from this regime. Somehow I find that an unrealistic proposition. It is not part of this talk to attempt to develop this theme in detail, but perhaps this is something for future discussion.
In the same way as we might consider a possible statute to make doing business easier and less complex for a defined group, we should also note the difficulties, put to me as “one size is meant to fit all, but doesn’t”, in respect of many types of agreements. So I suggest [ with thanks to Laura M if she is reading this ] that common sense should lead us to consider that usually one size doesn’t fit all and that common sense is not so common.
I acknowledge some legal duties or obligations are so core that we would require them to be applied to all companies whatever their size. For example, rules relating to employees’ health and safety. But do they need to be applied in the same way to oil major and the local newsagent? Comments following the publication of Lord Young’s report in 2010 include, “Putting Common Sense back into Health and Safety” perhaps too much of a sound bite; but more helpfully,one idea behind the report “was wanting to free business from unnecessary bureaucratic health and safety burdens and apply common sense to everyday decisions.” If only….